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When concluding an employment contract, both parties agree to take over certain responsibilities. The employee agrees to fulfill the tasks related to their position with care and in the best possible way. The employer, on the other hand, agrees to provide the employee with a safe working environment and pay them for their hours worked at the agreed rates and in respect of the determined payday.
Timeliness and accuracy are the two most important payroll KPIs. Businesses that repeatedly fail to pay their staff accurately and on time will quickly lose their employees’ loyalty and risk a severe decrease in employee happiness, which could ultimately result in key employees leaving the company.
However, making sure wages and salaries hit employee bank accounts on time isn’t an easy task. There are many factors that influence payroll processing and can cause the process to take longer than expected, especially when working with a globally distributed team.
Multi-country payroll involves dealing with different payroll regulations and issuing global payments to employees scattered all over the world. To make sure everyone gets paid on time, it’s crucial to understand how much time is needed to complete the payroll process and how long the payment will take to go through. So, how long does it take to process payroll?
Payroll processing describes the process of calculating employee wages and salaries, making the necessary deductions and transferring funds to employee bank accounts. To answer the question “How long does payroll take to process?” it’s important to understand the different processing steps.
Payroll processing can be broken down into the following basic steps:
Collecting employee information - this is usually done on the employee’s first day at the company
Tracking employee working hours during the pay period in question
Gathering information on hours worked for the respective pay period
Reviewing hours worked
Calculating wages and deductions (taxes, social security contributions, mortgage payments coming out of salaries and wages etc.)
Submitting withheld taxes to the local authorities
Keeping payroll records
Every business with employees needs to process payroll on a regular basis - although pay periods vary greatly between companies and may be regulated by law. There are two basic options for processing payroll: in-house (either as a manual process or with the help of payroll software) or outsourcing.
Need help with payroll processing? Read our complete payroll outsourcing guide for global organizations to learn more about how outsourcing can help you run global payroll smoother and faster.
Let’s look at how much time you have to allow for completing the different steps. Since collecting employee information and tracking working hours are activities that are completed before the start of the payroll run, we’ll skip those and focus on the three core steps, which are data gathering, calculating gross and net pay and issuing payments.
Collecting information on each employee’s hours worked during the pay period for which payroll needs to be processed can take anywhere between a couple of hours and several days. The latter is often the case in businesses that work with timesheets. If employees fail to submit their timesheets on time, this causes delays in the payroll process.
The amount of time needed to calculate gross wages, deductions and net pay also varies greatly. Depending on whether you pay your employees salaries or wages, use advanced payroll software or calculate everything manually, the process can take as little as a few minutes or as much as a couple of days.
The same goes for the actual payment process. Nowadays, there are many different ways for paying employees, which all have different processing times. But more on that in the next paragraph.
The 2020 Deloitte Global Payroll Benchmarking Survey showed that there are also some major differences in payroll processing times between different geographic regions. In North America, for instance, payroll is processed in between 2 to 3 days in 50% of the cases - and even in less than 2 days in 28% of the cases.
In Europe, on the other hand, only 37% of businesses report being able to process payroll in 2 to 3 days. And only 10% say they can do it in under 2 days. In LATAM, processing times are even longer. In rare cases, processing payroll can even take more than 9 days.
How long does payroll processing take? That’s the initial question we started with. In order to answer this question, simply looking at the time your HR or payroll team needs to complete the payroll process isn’t enough. If you want to make sure your employees receive their wages and salaries on their actual payday, you also need to allow time for the payment to go through.
Processing times depend on the chosen payment method. The most common methods used to pay employees are cash, check and direct deposit. Cash payments are obviously instant, but how long does direct deposit take?
Usually, direct deposits take between 1 and 3 days (sometimes there are even options for instant payments), making it a fast and convenient option for most employers, especially since they also provide an accurate transaction record. However, if employees are based abroad and the business needs to issue a SWIFT payment, then processing will generally take between 3 and 5 days - or even longer.
Another payment method that is still common in markets such as the U.S. is the traditional paper check. Since paper checks need to be handwritten, mailed or handed over in person and then deposited at the bank, it’s best to calculate roughly 5 days to make sure employees receive their wages and salaries on the actual payday - more if mailing is slow.
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We’ve already mentioned some aspects that can decrease (or increase) the speed of payroll processing, such as the use of timesheets or time tracking software. Here are some more factors that can affect payroll processing times.
When it comes to payroll processing speed, there is a huge difference between processing payroll manually and using automated payroll software. The more manual work required, the longer the process takes.
Unfortunately, manual payroll processing is still the reality for many businesses. The Deloitte survey found that for 30% of businesses questioned, manually entering or loading inputs was the most time-consuming aspect of payroll processing.
If you use payroll software, then the number of employees you need to process payroll for won’t make a big difference in terms of processing times. If, on the other hand, you use timesheets and calculate payroll manually, then the more employees you have, the more time you need to allow for each payroll run.
Since overtime must be remunerated at higher rates in many countries, additional hours worked must be taken into account separately during the payroll process. Not only does overtime need to be tracked separately, but overtime pay also needs to be calculated apart from normal wages.
Want to find out more about standard working hours and overtime regulations in different countries all over the world? Our Global Hiring Guide will tell you all you need to know.
Whether you pay your employees a fixed monthly salary or hourly wages will make a huge difference with regard to the processing time of your payroll. Especially if you don’t use automated payroll software. For salaried employees, gross salary, deductions and net pay are the same for every pay period - unless there are regulatory changes that directly impact payroll processing such as changes in the applying tax bands or rates. For employees with hourly wages, pay must be calculated every month starting from zero.
Companies working with a globally distributed team will find that running multi-country payroll is more time-consuming than processing payroll in just one jurisdiction. That’s because of the multitude of rules and regulations that apply in each country and the differences between tax and social security systems that need to be considered during the process.
For an overview of common pay periods and mandatory bonuses around the world, check out our blog post “Global payroll: Pay frequency and 13th salary”.
Knowing which factors can slow down the payroll process makes it easier to determine ways to reverse the effect and speed things up in the payroll department. Here are some tips on how to increase payroll speed.
Businesses can save a lot of time on processing payroll if they don’t have to wait for their employees to hand in their timesheets. Instead of having to send out constant reminders to employees to submit their timesheets on time, just install a system where employees can clock in and out, and which allows you to see each employee’s hours worked with just one click.
Did you know that time tracking is a legal requirement in some countries? Find out where employers need to record working hours in this blog post.
Payroll software can help businesses save several hours (or even days) during the payroll process. Instead of doing calculations manually, you simply enter the hours worked for each employee and let the software deliver gross wages, taxes and net pay. You can save even more time by integrating your time and attendance software with your payroll system and get the data imported automatically.
There are different pay period types businesses can choose from. Although many countries regulate how often employees must be paid, they often just set a minimum requirement for the expected pay frequency. This means that businesses can, in most cases, choose to pay their employees more often and in accordance with a schedule that works better for them. Once you’ve picked a pay frequency, you can work out a payroll calendar to help you maximize efficiency and get into a routine.
While traditional ways of paying employees (i.e. cash, check and direct deposit) may work well with local teams, they are not suited for businesses that work with a globally distributed team. In order to decrease processing times for payroll, global companies need to adopt alternative pay methods for remote teams such as payments in Bitcoin or digital wallets, which work a lot faster in an international context.
With Lano, you can send global payments to remote employees in 28 different currencies to over 170 countries in as little as a few seconds. What’s more, local payments are free of charge.
The ultimate way of dealing with long payroll processing times is by outsourcing payroll to an external service provider and not worrying about it anymore. Payroll service providers are experts in their field, (usually) have access to the latest payroll software and keep an eye out for any legal changes impacting payroll, which allows them to adapt their processes timely and ensure compliance throughout the entire process.
At Lano, we work with a global network of in-country payroll partners who can help you set up and process payroll in over 150 countries worldwide. Plus, you get access to our global payroll platform which consolidates payroll data for your entire global team on one single screen and provides you with different reporting features for analyzing and evaluating your global workforce cost. Book a demo with one of our payroll experts to find out more.
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