What is payroll governance?

Payroll governance plays a vital role in ensuring payroll compliance and mitigating various risks associated with payroll. However, its importance is often overlooked by organizations because they are too focused on payroll processing and day-to-day payroll management.

What is payroll governance? How does it differ from payroll management? What does good payroll governance look like and how can businesses successfully implement a payroll governance model?

When talking about companies, the term ‘governance’ describes the way the organization is managed. In broader terms, governance refers to the process of making and enforcing decisions and exercising authority over people, processes, and systems.

In payroll, governance describes the system which is used to govern and control an organization’s payroll. Payroll governance is the umbrella term for all the control and enforcement mechanisms, management practices, and methods through which members of the payroll team are held accountable.

Here are the most important aspects of payroll governance at a glance:

• Payroll authority,

• Payroll leadership,

• Payroll practices, 

• Control and enforcement mechanisms,

• Payroll decision-making,

• Payroll oversight, and

• Definition of roles and responsibilities in payroll.

Payroll governance and payroll management are closely intertwined, but they are not the same thing. Payroll management focuses more on overseeing and coordinating the different payroll tasks and processes, while payroll governance provides the underlying framework that outlines the rules and mechanisms that govern payroll as a whole.

In a nutshell, payroll governance sets the rules, policies, and regulations, while payroll management applies and executes them. One could say that governance in payroll is about creating the broad framework that sets out how people and processes are supposed to work.

Good payroll governance has the same major characteristics that also apply to corporate governance. These include:

• Transparency, 

• Accountability,

• Integrity,

• Responsibility,

• Efficiency,

• Risk management, 

• Responsiveness, and

• Fairness.

In contrast to payroll management, payroll governance looks at the bigger picture. Without proper governance in payroll, it’s easy to get lost in the details and challenges of day-to-day payroll management.

Payroll governance further plays an important role when it comes to risk management and payroll compliance. The main payroll risks include:

• Payroll fraud,

• Incorrect withholding of payroll taxes, 

• Wrongful payroll record keeping,

• Employee misclassification, and

• Underpayment or overpayment of wages.

In order to mitigate these risks, businesses need a detailed payroll governance framework that provides clear guidelines on aspects like payroll audits, payroll reconciliation, segregation of duties, payroll accounts management, and more.

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Establishing payroll governance in your organization doesn’t happen overnight. It’s a gradual process that involves various different steps. Here are some tips on how to successfully implement a governance system for your payroll. 

Document your payroll processes

Capturing everything related to your internal payroll processes might seem like a very complex task, but all it takes is the right approach. Use the right tools that can be connected to your other tools and systems, allow for remote access, and provide a version history and multiple-editor access.

As for the information itself, make sure to document each part of the payroll process individually and create detailed policies for different payroll aspects, such as expense reimbursement, timekeeping, and payroll schedules.

Define ownership and responsibilities

Accountability and responsibility are two important aspects of payroll governance. But in order to hold people accountable for payroll errors, compliance mistakes, or other slip-ups that can put the accuracy and timeliness of the payroll at risk, the roles and responsibilities in payroll need to be clearly defined. This means that all processes and payroll data sets need to be owned by a specific member of the payroll team.

Develop your own payroll best practices

Payroll best practices describe how payroll is meant to be run. They define the standards, rules, and policies that outline how payroll is managed. Best practices for successful payroll management include:

• Keeping track of important dates and deadlines for payroll,

• Revising the payroll system regularly,

• Using payroll software to replace manual processes,

• Creating a strict payroll approval process,

• Strengthening payroll security, and

• Diversifying salary payment methods.

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Create a detailed payroll governance framework

Payroll governance is very complex because it encompasses a myriad of different aspects that interact with each other. All the processes and the interfaces between different systems and policies need to be documented. The best way of achieving this is to develop a detailed payroll governance framework that traces the broad outlines.

Establish risk management mechanisms

Successful risk management in payroll requires clear procedures and control mechanisms. This includes:

• Conducting regular payroll audits, 

• Reconciling payroll after each payroll run,

• Introducing payroll changelogs,

• Keeping proper records, and

• Maintaining dedicated payroll accounts.

Download the ultimate payroll audit checklist.

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