This is the third blog in our industry payroll mini-series. This mini-series will look at payroll across multiple industries and provide insight on the impact it can have on an organization.
Several months ago, I wrote a blog post on the topic of elevating payroll processes in manufacturing. The purpose of that blog was to educate manufacturing organizations on the criteria they must take into consideration when evaluating payroll solutions.
While vendor evaluation is an important topic, I didn’t previously address why accurate payroll is critical in manufacturing. Aside from the fact that the paycheck is consistently the number one factor as to why a manufacturing employee decides to take a job, there are other benefits of accurate pay that go far beyond that.¹
A retention strategy
Among the many benefits of having a complete payroll solution from a single provider, probably the most important is from a talent supply perspective. Manufacturing has been getting crushed by a widening skills gap for the better part of the past decade, and current conditions are not making it any easier to find skilled talent. Addressing this has become a strategic priority among manufacturing executives as they seek to come up with innovative approaches to find new talent, however that’s only half of the battle.
As employees join an organization, the new challenge becomes the ability to keep them there. While there are many factors that play into why an employee will stay with a company, the fastest way to drive them out is with inaccurate payroll. According to a Workforce Institute at UKG study, 49% of employees say they will leave a company if their paycheck is wrong more than twice.² Between managing all of the time exceptions that occur within a normal pay period and attempting to pull data from multiple sources, ensuring accurate and on-time payroll is a major challenge without the right payroll software. By properly vetting and selecting a high-quality payroll provider, organizations are not only easing the burden of their payroll department but investing in the retention of the frontline manufacturing workforce.
Accurate financial reporting
In an industry as competitive as manufacturing, maintaining strong margins is critical. And given the fact that humans perform 72% of tasks in manufacturing, labor costs are typically manufacturers’ largest controllable expense.³ Errors in payroll can potentially lead to inaccurate labor cost allocation, which forces manufacturers to either increase their prices or take a hit to their margins. Given the timeliness of the payroll function, catching these errors before checks are cut is nearly impossible without the use of technology.
Fortunately, modern payroll solutions provide enhanced visibility and reporting capabilities that give administrators a complete picture of the process and true understanding of labor costs. This allows them to quickly address any issues, such as overpayments, before they impact the bottom line. Or the inverse, payroll managers can catch an underpayment before it reaches the employee and negatively affects employee engagement in the form of dissatisfaction, grievances, or worst-case scenario, turnover.
Across the board compliance
Not unique to manufacturing, but certainly a major challenge of the industry, is accurately calculating payroll for employees who travel across state lines to work in multiple locales. This is likely to be an increasing trend as talent becomes more difficult to find and manufacturers must move employees from factory to factory to ensure adequate staffing. While this is operationally a solid strategy, it makes calculating gross to net pay a lot more difficult. Add to that other complexities, such as having employees cross-trained on multiple jobs at varying pay rates, or properly deducting union dues, and compliance issues can occur often.
By selecting a payroll software provider with out-of-the-box compliance support, manufacturers can quickly recoup their investments by avoiding potential non-compliance fines or litigation. If manufacturers want payroll management completely out of their hands, they can opt to outsource the process with a payroll services provider. This provides them with an expert team handling their payroll, ensuring compliance, and cutting checks to entirely lift the burden from their internal staff.
Partners for life
Whether a manufacturing organization is leveraging a technology vendor that provides outsourced payroll services or decides to keep payroll in-house, it’s critical to understand that it’s a partnership, not just a payroll software purchase. Accurately calculating the pay for thousands of employees week after week is an important and essential business function. Be selective when choosing a payroll vendor and look for one that will be a true partner, not just a solution, equally committed to service, with a dedicated team of experts devoted to your success.