To address the often-cited challenges related to implementing on-demand pay, leaders must enable their payroll teams to innovate and drive business goals. Here’s how:
Problem: Paying employees off cycle could impact tax reconciliation and compliance.
Solution: A configurable payroll solution that allows process modifications as tax liabilities change.
Getting paychecks to employees is, of course, the primary task for payroll, but ensuring compliance with tax liabilities and reporting is a close second. And tax compliance related to on-demand pay is still taking shape.
For example, payroll teams must reconcile scenarios such as this: When an employee withdraws part of their paycheck ahead of the scheduled pay cycle, payroll may take taxes out from the remaining paycheck at the end of the pay cycle. But that sets up a potential employee experience problem—the employee who requested on-demand pay for part of their paycheck may feel unhappy that the remaining paycheck is lower than expected.
Navigating uncertainty isn’t new for payroll teams. When new legislation during the pandemic impacted payroll taxes, as well as sick leave, payroll teams had to quickly comply with new legislation and understand the impact on the business.
Likewise, payroll teams need the same agility to issue early earned wage access. That agility comes from having a configurable payroll solution, one that allows payroll to modify processes as tax liabilities change.
Configurability in a system means being able to meet changing business needs, whether that’s creating a new process or removing an old one. In many legacy systems, implementing a new business process couldn’t be done; companies had to create manual workarounds. Over time, the legacy system tends to have too many workarounds that can’t be removed, even when they are no longer needed.
Systems such as payroll should be able to adapt to the changing needs of the organization, not the other way around. But payroll teams oftentimes are the last to realize the benefits of new technology because for so long they’ve had to create workarounds and manual processes with what they have.
A configurable payroll solution, such as Workday Payroll, allows payroll teams to configure tax reconciliation and compliance with the on-demand payroll method.
Moreover, ensuring accurate tax withdrawals isn’t the only concern. Payroll teams need to ensure accuracy with the data that they have. A payroll solution that automates critical employee data flows helps to remove potential errors downstream that result in costly reiterations, lost time, and frustrated employees.
Problem: The payroll process for setting up payments outside of a pay cycle is manually intensive.
Solution: An integrated payroll system enables payroll teams to automate parameters for on-demand pay.
Workers are primarily concerned about getting their pay on time, not realizing the complexity that goes with issuing a paycheck. Calculating taxes, ensuring compliance with regulations, and tracking hours worked are, among other things, what payroll has to do before workers ever see their paycheck.
So understandably, on-demand pay sounds like additional work for the payroll team on top of an already time-consuming task.
But payroll teams can adapt to on-demand pay the same way they adjusted to change amid the pandemic: automation.
During the pandemic, automation helped payroll teams quickly adapt to evolving government policies, emergency payroll measures, and the sudden shift to remote operations. Similarly, automation capabilities help payroll teams with executing payments outside a pay cycle.
Here’s how it could work for on-demand pay: With a configurable payroll system, payroll teams can set up parameters (specified conditions) of when employees can request early access to pay. Examples of parameters include a deadline for early pay requests or a limit to how often an employee can request early earned wage access.
Then when parameters are paired with automation, the payroll system can automatically process on-demand pay without additional intervention. As a result, payroll teams reduce the overhead in running payroll for payments outside of a scheduled pay cycle.
Here’s another example: Payroll teams could set up a parameter where employees have to work a minimum set of hours before requesting on-demand pay. When the payroll system is integrated with an employee timekeeping system, automation can help ensure an on-demand paycheck matches up to the hours worked. Workday Payroll and Workforce Management is an example of an integrated system.
During the pandemic, automation kept payroll running in a disruptive business landscape. Moving forward, automation enables payroll to empower business strategy, such as fostering employee retention by offering early earned wage access.
Problem: It’s unclear how on-demand pay might affect the finances of the company.
Solution: Integration between finance and HR systems gives a real-time view of the financial health of the business.
The primary role of payroll has always been to pay employees, but carrying out that requirement has become more complex. Businesses have needed to adjust to disruptions and rapidly changing landscapes, and payroll operations is at the heart of making sure those disruptions don’t negatively impact the bottom line of the business.
One of those major steps is payroll reconciliation, which is ensuring what’s recorded in payroll matches the general ledger, the main accounting record of a company’s financial health.
Payroll reconciliation has historically been a manually laborious process, but through integration, advanced financial management and HR systems are able to conduct payroll reconciliation in real time, virtually eliminating the reconciliation of HR, finance, and payroll data.
Real-time reconciliation proved useful during the pandemic. When businesses offered extra pay for employees who worked during the shutdown, or when staffing levels had to change week by week, real-time reconciliation of payroll data and the general ledger helped companies factor how changes in payroll expenses, such as payroll tax or benefit packages, affected business outcomes.
And likewise, real-time reconciliation helps to ensure issuing on-demand pay is balanced with the financial health of the company. An integrated finance and HR solution that has a unified data core, such as Workday Financial Management and Workday Human Capital Management, enables companies with confidence.