In the era of "quiet quitting" and "the great resignation," there's one critical driver of employee satisfaction that often gets overlooked: payroll accuracy. Here's why getting pay right matters more than you think.
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In the era of "quiet quitting" and "the great resignation," employers are realizing that employee experience is more important than ever for attracting and retaining top talent. While factors like culture, career development, and work-life balance tend to get a lot of attention in discussions about improving the employee experience, there's another critical driver that often gets overlooked: payroll.
Getting paid accurately and on time is a fundamental expectation that employees have of their employers. When payroll errors or delays occur, it can have a huge negative impact on employee trust, engagement, and overall experience.
A 2022 survey by the American Payroll Association found that 49% of American workers will start looking for a new job after just two payroll errors, such as being paid late or inaccurately. For younger workers under age 45, that number jumps to 54%.
"Worker expectations have shifted dramatically in recent years when it comes to payroll accuracy and timeliness," says Tom Hammond, Vice President of Corporate Strategy and Product Management at Paychex, a leading provider of payroll services. "Being paid right and on time is no longer seen as a 'nice to have.' It's a core driver of employee experience that companies can't afford to get wrong."
While one or two payroll errors may seem like small, isolated incidents, they can have far-reaching ripple effects across an organization. Consider the following ways that payroll inaccuracies can hurt a company:
When there are issues with their pay, employees spend work time trying to get the errors resolved. According to the American Payroll Association survey, 40% of workers say it takes them between 1-5 hours to correct a payroll error, while 24% say it takes them over 10 hours. That's a lot of lost productivity.
As mentioned, about half of workers will start job searching after two payroll errors. But it's not just the employees who were paid incorrectly that start looking for the exits. News of payroll problems spreads quickly throughout an organization, increasing turnover even among workers who weren't directly impacted.
In the age of social media and online reviews, payroll problems don't stay secret for long. Disgruntled employees may leave negative feedback on sites like Glassdoor, damaging an employer's reputation and ability to attract new talent. A 2017 study by Harvard Business School found that a 1-star increase in a company's Glassdoor rating leads to a 1.9% increase in market value.
Consistently failing to pay workers accurately and on time can lead to expensive penalties, fines, and legal action. In 2021, Lyft had to pay $12.25 million to settle allegations of worker misclassification and untimely pay. FedEx has paid out hundreds of millions in misclassification settlements over the years.
With so much at stake, why do 82 million American workers—over half the workforce—still experience payroll problems? In large part, it's because payroll has gotten increasingly complex, with more room for human error. Consider a few of the complicating factors:
The pandemic dramatically accelerated the trend toward remote work, with employees increasingly scattered across different cities, states, and even countries. Staying compliant with different local tax laws and regulations gets complex fast.
Variable pay like bonuses, commissions, overtime, paid time off, and other irregular earnings have become a bigger share of total compensation for many workers. Accurately accounting for variable pay is much more complex than fixed salaries or wages.
Many companies, especially smaller businesses, still rely on clunky spreadsheets, paper timesheets, and manual data entry for payroll. These outdated systems are time-consuming and error-prone.
When companies lack clear, well-documented payroll processes and controls, it opens the door for mistakes to happen and issues to fall through the cracks.
So what can employers do to minimize payroll errors and create a better pay experience for workers? Here are a few key strategies:
Investing in modern, cloud-based payroll software that automates most of the manual work is one of the best ways to reduce errors. Look for a system that integrates with your other HR tech, like time tracking, so you don't have to manually move data between systems.
For companies with workers in multiple states or countries, centralizing payroll with a single provider who has local compliance expertise can help ensure everyone gets paid right and on time. Trying to manage multi-state payroll in-house is complex and invites errors.
Don't leave workers in the dark about their pay. Implement an employee self-service system where workers can view their pay stubs, tax forms, and other important payroll information 24/7. Send timely reminders about submitting time sheets and expense reports.
Regularly audit your payroll processes to identify potential gaps and areas for improvement. Track payroll KPIs like error rates, time to resolve errors, and first-time accuracy. Benchmark your performance against industry peers.
At the end of the day, no employer is perfect, and payroll mistakes will happen from time to time. But how a company handles those mistakes makes all the difference in the employee experience.
"Payroll errors are inevitable, but how an organization responds is a key driver of employee experience," says Jeff Phipps, Managing Director at ADP, a leading payroll services provider. "Best-in-class organizations are transparent about issues, quick to resolve them, and continuously improving their processes to prevent future errors. They understand that payroll is not a back-office function—it's a core part of the employee experience."
The most employee-centric companies go beyond just avoiding payroll mistakes. They use payroll as an opportunity to actively improve the worker experience with offerings like:
