Payroll Failures Mean More Than Headaches


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Payroll professionals understand that mistakes may come with the job. There are bad days when things go wrong, like an employee accidentally receiving extra compensation or suffering a paycheck delay. Then there are other days, the ones that make you want to pull out your hair and throw in the towel.

Take Canada’s latest quagmire. In July, more than 80,000 federal government employees had problems with their pay because of a glitch in a new system called Phoenix, which was designed by International Business Machines Corp. More than 720 employees did not receive pay, with many others not receiving compensation for overtime, parental, long-term disability or severance payments.

As a result, there are reports of employees needing to borrow money or maxing out their credit cards to pay bills while the government figures out ways to handle the situation with limited resources.

On Aug. 12, the Public Works and Government Services department, which is responsible for the Canadian government’s internal servicing and administration, said it anticipated a reduction to a backlog of issues by late October. To achieve this, the department triaged issues to deal with payment problems. Top priority was for employees who were not paid, followed by those whose pay was affected by maternity leave or long-term disability, or those leaving public service. Third-priority employees were those not receiving the proper compensation, such as supplemental pay.

With these priorities, the government hopes to rectify the situation. Additionally, workers experiencing financial distress should ask for an emergency salary advance, the government said.

In the U.S., similar situations have occurred. Maryland acknowledged in June that it may have underpaid up to 13,000 public workers for overtime and night-shift work, the Washington Post reported in June. The state could owe employees extra pay of $2 to $30 for each contested pay period, the report said.

The Maryland problem mainly affected those working nontraditional hours. The error stemmed from switching to a computerized payroll system in early 2016. Previously, the state replied on manual paper-based systems.

A similar issue occurred in Washington, D.C., in 2000, a year after the District started using a new payroll system. The District found that “many employee accounts could have errors that affect computations,” and that computer software programs to fix these problems could not be implemented. In the end, the D.C. government decided to revert to an older payroll system run on a mainframe computer. Ineffective project management, a lack of information technology resources and the complexity of implementing about 280 pay schedules contributed to the system’s downfall, the D.C. government said in a memorandum.

Governments are not the only ones susceptible to payroll missteps. In 2009, Microsoft Corp. allowed 25 former employees to keep more severance pay than intended after initially asking that the money be repaid because of a miscalculation that also led to underpayments for 20 employees.

As news of the overpayments spread, Microsoft backpedaled and allowed the former employees who were overpaid to keep the money. The employees who were shortchanged were fully compensated.

Lisa Brummel, Microsoft’s then-senior vice president for human resources, said a clerical error was responsible for the problem. While calculating the severance packages, communicating with employees and printing checks, “we had payments misaligned with people's names,” she said.

So what can be gleaned from these payroll failures? The biggest takeaway: To successfully switch systems, a qualified team should vet, test and understand the new system. There is no substitute for having a group of professionals who are well-equipped to take on risk mitigation and project management challenges while remaining knowledgeable about new systems.  

Take a free trial to Bloomberg BNA’s  International Payroll Decision Support Network. With more than 90 countries covered, this is your one-stop resource for reliable, up-to-date guidance and analysis in every area of global payroll administration and compliance.   

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