[php] the_title(); [/php]

Since the amendments to the Holiday Act 2003 and the introduction of the KiwiSaver Act 2006, more businesses have converted from manual to computerised payroll. They have done so to simplify and speed up the processing of pays which would otherwise require lots of manual work and detailed calculations.

Mistakes made affect people’s livelihood and severe penalties are in place for those employers who get it wrong! Having said that there is, (surprisingly) more small businesses employing < 5 people using paper based systems (pay books) or a spreadsheet to calculate employees pays than computer systems.

The purpose of this article is to compare the advantages and benefits of a computerised payroll sytem to a manual payroll system to help you decide which is most suitable for you. We also list the benefits of using a payroll bureau which means your company is outsourced to a specialist company who take the set up and processing off your hands.

Advantages & benefits of a computerised payroll

Computerised payroll helps achieve best practice

The main advantage is that a system helps ensure that pay clerks do things ‘right’. A computerised system calculates hourly rate x no. of hours worked to give the gross wage, then automatically calculates deductions such as PAYE (Pay as you earn tax). A computerised payroll forces pay clerks to follow steps and includes checks and balances to ensure things are done right. A computerised system can be (relatively) learned by a person who has no previous payroll knowledge. Most people would agree that (once learned) payroll is much easier with a program than without.

Computerised payroll take less time than manual

Once a payroll system is set up, the time taken to process a pay is less. You set up ‘standard’ pays for people so that all allowances and deductions are processed without one thinking about it. Time is saved preparing pays and running the payroll so the employer saves money. All payroll records are held in one central place on a hard drive although it is still necessary to keep leave requests, printed pay summaries and copies of IRD reports.

Leave calculations done for you

The most complicated area of payroll is working out the holiday pays (ie annual leave payments). Many get it wrong even using a computerised system! Again, provided the set up is correct, processing holiday pays is a walk in the park compared to working them out manually. In New Zealand we are required to pay the higher of the average rate over the past 12 months or the normal (current) rate when an employee takes a annual leave day off. Imagine working this out manually!

Monthly reports to IRD are printed and filed

Every business with an employee, must file PAYE reports to the IRD. A computerised payroll prints these (and they may be electronically filed) while a manual system doesn’t. Surprisingly, according to the IRD, more than half of all NZ businesses  complete and file these reports manually.

Pay slips and reports are printed

Pay slips printed and contain more information (leave due and leave accrued) than handwritten pay slips which relates to happier employees.

Electronic direct crediting of pays

This is faster and less time consuming than telephone or internet banking, or making a personal visit to the bank or hand writing cheques. Employees (in the main) expect pays to be direct credited to their bank accounts. Few businesses pay cash or cheques.

Tax tables are kept up-to-date

No need to look up the tax tables as the programme contains the rates for PAYE, student loans and KiwiSaver. The program also calculates any tax credits (from IRD to employer).

Improved management reporting

Any payroll programme should come with a range of management reports such as costing reports so management can see wage costs over different areas of the business. ACC levy reports, sick leave, annual leave reports and others can be produced.

Back-ups are easy

It is easy to backup the payroll file for safe keeping. Paper based systems are not backed up, so if the pay book was lost or destroyed then the firm could face big problems.

Integration to accounting

You finalise a pay and your general ledger & financial reports are up to date.

Advantages & benefits of a manual payroll:

Less training needed

No computer skills are needed as none needed – less training is required to run a manual system.

Less costly to set up

Computer hardware and a payroll programme and training is not required so money saved here.

Advantages of using a payroll bureau

Many bureau’s have the added advantage of web based systems. Employee can access payslips, manage leave, read memos, and update their own information from anywhere using their own login and password.
Other advantages include:

Responsibility for payroll with professionals

You outsource payroll to people with the expertise to do it. You don’t need to invest in hardware, software or training.

Security and confidentiality

No chance of confidential papers or payslips lying around. Sensitive information is protected by others. Backups guaranteed.

Government subsidy available

For those employers with < 5 employees, a subsidy of $2 per person per pay is available to help provided a payroll bureau is used.