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May 24, 2021 | Payroll Software | Posted by Clark Sells, Group Product Manager at Ascentis

HR’s Role in Managing Complex Pay Structures

Compare just about any business’s current organizational chart against one from 50 or even just 10 years ago, and you would see a contrast that would be unrecognizable to even seasoned professionals. Today’s workforce is simply a different, more diversified, and a much more complicated mechanism than the working world of not so long ago.

The modern workplace employs a combination of hourly and salaried employees, contract and contingent workers, freelancers, short-term and seasonal hires, and other classifications, each with their own unique payroll requirements. Depending on your industry, some employees may work on commission. Some employees’ pay rates may vary based on which shift they’re working or which tasks they’re performing for a certain pay period. All of those considerations can make effective payroll management a daunting and time-consuming task for HR managers, but with the right technology and close attention to detail, even a complicated pay structure should be manageable. Let’s look at a few key payroll considerations every HR professional should be aware of.

Integrate payroll with time and attendance

Payroll is inextricably linked to time and attendance, but too many employers fail to take full advantage of that connection. Even though studies show that businesses that integrate timekeeping and payroll exceed their revenue targets by about 7%, many businesses remain bogged down by outdated technology that keeps the two functions siloed. A lack of integration greatly increases the chance of avoidable errors in both timekeeping and payroll.

When dealing with a complex pay structure, it makes sense to address the various worker classifications right from the start. Integrating time and attendance functions with payroll helps make sure that every employee is getting paid the correct rate for the correct number of hours. For example, a healthcare facility might employ different pay codes for a full-time medical technician and a contingent hire, or pay a nursing assistant a higher rate for picking up an overnight shift than for working their usual day shift. If the facility’s time and attendance system automatically accounts for those factors when the employee clocks in, the HR team is spared the difficulty of manually adjusting their records, and the employer reduces the risk of costly payroll mistakes.

Conduct salary reviews

In some cases, the pay structure an employer has been relying on simply might not be the right fit. That kind of mismatch can be identified most easily by conducting regular salary reviews. This process usually falls to HR managers, who have strong insights into multiple aspects of the employee pay process. While the specifics of what makes an effective salary review vary from employer to employer, key steps generally include:

  • Establishing goals: Common goals might include reducing overall payroll, boosting productivity in a specific department, or improving compliance with regulations.
  • Assessing industry pay data: Comparing your organization’s pay rates, workforce size, scheduling practices, and other key payroll data to those of competitors and other businesses in your industry can yield vital insights that help determine best practices for your own business. This is also an excellent opportunity to assess your internal pay structure and compare pay rates across various shifts, departments, and tasks to determine the most equitable approach.
  • Evaluating employee performance: Taking a closer look at the results of your employee performance management system can reveal important information about distribution of pay, staffing sizes, hiring full-time or contingent workers, and many other payroll-related issues. Scheduling regular employee performance reviews, 360-degree feedback sessions, and other performance management strategies can be a tremendous help in figuring out the most efficient pay structure for your business.

Classify employees correctly

From a compliance standpoint, classification is potentially the biggest pitfall of a complex payroll system. Federal and state tax laws and employment regulations require distinct classifications for full-time employees, contractors, or contingent workers. That makes sense, a full-time worker with a complete benefits package will often be paid at a different rate than a worker hired through a third-party contingent hiring firm that doesn’t offer benefits. Both will likely receive a different rate than a freelance specialist brought in for a short-term project — an equipment operator trained in handling machinery that a construction firm only needs on certain projects, for instance.

Accurately classifying each type of worker in your employ is not only essential for avoiding recordkeeping and payroll errors, it’s also necessary for maintaining compliance with ever-changing regulations. While employers can cut labor costs considerably by claiming more independent contractors, doing so makes a significant impact on state and federal tax revenue and therefore carries heavy penalties for misclassification. Carefully managing and recording which workers are filling specific roles for your organization is one of the more important compliance considerations for any HR manager.

As the American workforce continues to become more nuanced and payroll practices get fine-tuned, identifying a pay structure that works best for your particular organization becomes increasingly challenging. HR professionals find themselves in a unique position to assess the inner workings of a business, and to present effective payroll practices that will help the organization stay productive and profitable.

Read more about payroll software, performance management, time and attendance, and other key workforce management topics in our blog.

Clark leads the Payroll, Tax, and Mobile product teams at Ascentis. In this role he is responsible for leading the payroll compliance product development life cycle. Clark has experience in building, implementing and maintaining payroll and tax software for employers and payers of all volumes. In addition to payroll, Mr. Sells has product strategy experience in multiple tax regimes including: 1099, FATCA, CRS and ACA. He is a subject matter expert in the area of taxpayer identification number matching, non-wage and state reporting. He is a former chair of the IRPAC’s Employer Information Reporting and Burden Reduction Committee (EIRBR) and former member of the Internal Revenue Service Advisory Committee (IRSAC). Previously in his career he held product management roles at Ceridian, where he focused on the creation of the on-demand payment platforms, an industry principal role at Sovos Compliance, and has worked in various global treasury services roles within Bank of America and Ameriprise Financial.