The Benefits of Automated Payroll Budgeting

Ever wonder how your company handles payroll planning? I do. It is important to know how your organization budgets payroll because it is typically large part of your company’s master budget. Payroll can be a complicated process for employers.

To get a better understanding, let’s define what payroll is.  According to Investopedia, Payroll is the “sum total of all compensation a business must pay to its employees for a set period of time or on a given date. It is usually operated by the accounting department of a business. Payroll can also refer to the list of employees of a business and the amount of compensation due to each of them.”

What is Automated Payroll?

Payroll automation refers to the use of computers to produce paychecks and manage payments for an organization. Payroll automation is often integrated into the company’s enterprise resource planning (ERP) system that gives a thorough view of the finances of the company.

How to Create a Payroll Budget?

A payroll budget is usually determined by your industry, the monthly and annual volume of sales for your company, and the size of your employee staff.  Automated payroll budgeting is also done at the employee level where information such as benefits, taxes, employee information, and much more is leveraged and is already in the payroll system. The automated budget takes place when the company allows for various drivers for a payroll model. Automated payroll budgeting can save employers valuable time, energy and money.

Payroll is a large expense for most companies and is almost always deductible as such. Payroll can differ from one pay period to another period due to sick pay, overtime, and other variables. Payroll withholdings, such as tax and benefits, change year by year, but with automated payroll budgeting, users are able to stay within the company’s budget with a budget input template. This information is then brought into the organization’s budgeting system for budgeting and forecasting purposes.

Microsoft Excel may be adequate for your household budget, but it is challenging to use for any healthy company, especially a growing one. There are third party budgeting software, such as Solver360, Prophix and more that can read general ledger data from your ERP software as well as bring in employee information from a payroll program such as ADP or Ceridian to streamline and expedite your planning tasks. Most third party automated payroll software offer easy-to-use web-based models, which allows users to eliminate their manual and often painfully complex Excel models and gain access to payroll anytime from anywhere.

Budgeting solutions offer payroll forms that allow the end-user to enter the annual budget for salary and benefits for both full-time and part-time employees. The employee data must be added to the budget database prior to the start of the budgeting process. The following benefits allow an easier process: salaries are evenly spread across the twelve months, users can terminate, add, increase, and include bonuses and overtime, the form is executed for budget year, company, department, and budget version, and all taxes, including the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), the State Unemployment Tax Act (SUTA), and Worker’s Compensation, are calculated along with a headcount. These taxes and benefits may vary in different countries and good budgeting tools have the flexibility to handle these differences. After salaries, taxes and benefits are calculated, the budget solution aggregates this detail up to the payroll-related accounts in the general ledger budget.

Advantages of Payroll Automation

With a budgeting solution, users are able to capture their historical payroll actuals within the budget database and use that as a foundation for a payroll budget and the rest of the components of the organizations planning model. Users can also bring their payroll into their warehouse, storing it in one source and accessing it from that one source. This also provides users access to a streamlined and automated budget in one place. From a data standpoint, users are able to get access to several data sources as well.

Payroll budgeting is important not only from your company’s business perspective but also from the employee’s perspective. Every employee sees his or her pay as a direct, reflective measure of individual employee value. The budgeting solution should be comprehensive and allow unlimited types of employees, either budgeting individually or in groups of similar functions, including overtime, union/non-union, shift differential and other specific details required by each company. It must have automatically calculated expenses focused on payroll and use drivers when required by users. Things to consider when selecting a third party budgeting solution to get the most out of your investment are to use tools that integrate tightly  with the ERP(s) your company plans to invest in and implement a best-of-breed third party solution. No tool is going to be a fix-all for everyone’s needs, but you should rule out software that doesn’t actually build up your planning tasks with particular features and functionalities. Today’s best-of-breed budgeting solutions should strengthen your company.

Overall, automated payroll budgeting makes payroll budgeting a lot easier. Your organization’s payroll budget becomes an immense part of the master budget of the business. With this information, you will be able to forecast and manage the finances of your department or company activity. You will be able to collect all relevant information in one place, reducing mistakes or leaving any room for human error. The next topic of the budgeting series will focus on modern features of budgeting software.

Solver enables world-class decisions with BI360, a leading web-based CPM suite made up of budgeting, reporting, dashboards, and data warehousing, delivered through a web portal. Solver is reinventing CPM with its next generation solution. BI360 empowers business users with modern features including innovative use of Excel in the model design process. If you’re interested in learning more, our team is excited to hear about your organizational needs and goals.