The Perfect Paycheck
In 1972, the Miami Dolphins completed the NFL’s only perfect season, resulting in a Super Bowl win. Some 43 years later, their perfect season has yet to be duplicated.
In your business, you strive to deliver the perfect product or service to your customers. Shouldn’t you also be delivering a perfect paycheck to your employees? Multiply the number of hours worked each week by the rate of pay and you have an accurate paycheck, right? Unfortunately, it’s not that easy. Factor in variables such as overtime; leave; shift differentials; vacation; union agreements; and state, local, and federal labor laws and regulations—and delivering the perfect paycheck just got a lot harder.
Given that payroll receives all of its work from various HR, benefits, compensation, and accounting cross-functional partners, achieving the perfect paycheck seems daunting. But it can be simplified. According to Gregg Gordon of Kronos Incorporated and author of “Lean Labor,” the perfect paycheck has three components: The Right Pay, The Right Price, delivered at The Right Time.
Calculating the Right Pay
A colleague once told me, “I work my butt off during the two-week pay period, and when payday comes, I look at my paycheck and say to my employer, ‘Now we’re even!’”
Calculating the right pay consists of calculating an accurate gross to net payroll without fail every time. An accurate gross to net paycheck involves interpreting pay and work rules that are used to calculate hours worked. It assumes that employees accurately record all hours worked as well as paid time-off hours. Properly recording all hours worked assumes you have a workforce management system that minimizes employee abuse of paid unproductive/unworked hours.
Gordon argues that the perfect paycheck “accurately pays an employee for the hours worked as intended by the company and expected by the employee.” To help accomplish this, employers should have a workforce management system that uses biometrics or a finger scan and convert the scan into a mathematical representation, an approach similar to other finger-scan technologies used by numerous theme parks for admittance.
This eliminates “buddy punching,” which occurs when “employee A” uses the badge of “employee B” to time punch for employee B when employee B is running late or sometimes completely absent from his or her shift.
Timekeeping policies should be reviewed to prevent employees from “gaming the clock,” which occurs when an employee clocks in a couple of minutes early and then clocks out a few minutes late. If a rounding system is used to calculate paid hours versus calculating actual time worked, clocking in early and out late will result in overtime pay for unworked hours. Have you safeguarded your company against an environment that is susceptible to practices whereby overtime is paid for no incremental increase in productivity?
At the Right Price
Calculating a perfect paycheck at the right price does not refer to an accurate gross to net calculation. Instead, it focuses on producing a paycheck at the highest possible quality at the lowest possible price point. With any transaction, the objective is to eliminate all non-value activities (activities customers aren’t willing to pay for—particularly if they do not change the quality of the completed product) that do not improve the overall outcome of a process. Since each activity adds to the transactional cost of a process, it is necessary to determine if those activities add incremental value to the desired outcome of the process; this is where incorporating Lean methodologies and delivering the perfect paycheck intersect.
Lean has been defined by some as an operational excellence strategy that enables you to change for the better; it also has been viewed as the elimination of waste.
To effectively manage a perfect paycheck at the right price, employers should eliminate any non-value activity that does not contribute to the consistent flow of a process. If you can reduce the number of transactions that go into a given process, it will reduce your cost per transaction in each cross-functional area that supports the delivery of the perfect paycheck. So your mission is to eliminate manual processes and immediately automate repetitive actions. Do your activities add value to the process or simply take up time?
Delivered at the Right Time
Delivering the perfect paycheck does not refer to ensuring that employees receive their paycheck on your established pay date. If you can’t meet this routine deliverable of having paychecks available on payday, your career will be short lived.
This third component of delivering the perfect paycheck measures a repeatable process that limits time-wasting variability in your end-to-end process. The repeatable process starts at the end of your seven-day workweek and ends when your payroll is posted or the process is complete.
Payroll is centered on compliance and deadlines. If deadlines aren’t met, bad things happen, such as the late remittance of employment taxes, garnishments, benefit deductions, pension contributions—you get the picture. So employers need to shorten cycle times to the extent that they create predictability of when payroll will be delivered. Is your delivery time predictable or would you have better luck winning the lottery?
Nobody is perfect, but delivering the perfect paycheck can be—if you are willing to change your mindset. If you do, you will have the elimination of waste to lose and improving transactional efficiencies to gain. What’s the worst that can happen?
Dr. Martin Armstrong is the vice president of Payroll Shared Services for Time Warner Cable. Dr. Armstrong researches, and speaks on a number of human resource- and management-related topics and has written for, or been covered by, PAYTECH, Human Resource Executive, Bloomberg BNA, Accountants World, The Paycard Advisor, the Institute of Management and Administration, and Business Finance. He can be reached at firstname.lastname@example.org.