Pay woes for federal civil servants highlight challenges
While pay woes for federal civil servants dealing with a new payroll system have made headlines in recent months, potential payroll problems lurk for any employer making payroll-related changes.
“There is a whole bunch of things that can go wrong,” says Gilles Champagne, owner and principal consultant of the Mosaic Advisory Group.
Whether an employer is implementing a new in-house payroll system, outsourcing its payroll, switching payroll service providers or moving to a different pay period, change can sometimes lead to problems that cause employers to pay employees incorrectly or not at all.
If this happens, payroll professionals have to be ready to not only identify and fix the problem, but also to find a way to meet their payroll obligations in the meantime, says Champagne.
“You can’t fool around with that side of it, number one, from an employment standards perspective, and number two, making sure you’ve got proper deductions being remitted on time,” he says. “Otherwise, you can get yourself in a whole bunch other problems.”
Employment standards laws across the country require employers to pay employees regularly within a specified time.
“It’s not possible just to say, ‘You can work for me and I’ll pay you when my system is up and running or when money is available. There has to be a regular payday and the obligation is to make a payment,” says lawyer Sean McGee of the firm Nelligan O’Brien Payne in Ottawa.
“What flows from that is that anytime there is a payment that is missed, it’s a breach of the contract that an employer has with the employee. There are legal consequences to that. One of which is the employment standards legislation in the province is going to say that a failure to pay is a violation of the particular statute and so (an) enforcement mechanism can be brought to bear,” he says.
“It’s also a violation of the contract and since it’s a fundamental term that you are going to be paid, there are all kinds of other things that can flow from that, like the possibility of constructive dismissal,” says McGee.
If a payroll problem persists and causes employees to have financial difficulties, they may opt to quit for another job and pursue legal action, he notes.
“Courts might have some sympathy to the fact that there has been a constructive dismissal, that an employee hasn’t been paid and has to go elsewhere to try to find some kind of income. If that somewhere else is a lower-paying job, the employer may be on the hook for a reasonable (termination) notice period,” says McGee.
Financial hardship is a real possibility for some employees.
“If one pay cheque isn’t deposited, that can cause significant financial damage to people,” says Champagne. “A lot of people have co-ordinated their mortgages, their rent, their car payments to their payroll deposit dates. If the money is not there on payday, it has a massive ripple effect.”
When a payroll-related change causes pay problems, Champagne says the first thing to do is to identify the root cause and determine if it is a systemic problem or a process issue. A systemic problem relates to something being wrong in the system itself, while a process issue can mean that employees or managers are not interacting with the new change correctly.
“If you’ve converted (to a new payroll system), you’ve gone live and now people are not getting paid when they are supposed to be getting paid, your worst case scenario is going to be that this is not a process (problem), but it’s systemic. That is, you have done something wrong in your set up and it wasn’t discovered in your testing,” he says.
“If this is systemic, it’s going to keep perpetuating itself, so you’ve got to go in and find the absolute source cause of the problem and fix it, no matter how long that is going to take,” Champagne adds.
To solve the problem, he recommends payroll departments reach out to the company that helped implement the change (if there was one) or to another firm with expertise in the area.
“You’ve got to bring the right people in and analyze exactly what is going wrong to find out how you are going to fix it. Going in blind and deciding, ‘Let’s just fix the back-end results,’ is not a solution at all. You are just perpetuating the problem,” Champagne says.
To help identify the source of the problem, he suggests payroll professionals look for patterns in employee pay complaints. “If you’ve got multiple people calling in and saying, ‘This is wrong,’ that’s a good indicator of where you’re going to start to look,” says Champagne.
“If people are saying, ‘I am not getting paid for my overtime,’ then you know where you are going to start looking to trace backwards to see if there’s overtime sitting there (in the system), but it’s not being approved. If it’s not being approved, find out why. Is it system-related or is it process-related? If it is process-related, try to find out why people are not doing it,” he adds.
“I’ve seen clients where the department managers do not agree that it is their job to go into the system and do an online approval of people’s exception time or positive time. They think it’s not their job to do it,” says Champagne.
“They were supposed to be approving manual timesheets before. Now that it’s online, it doesn’t mean that it is something that is just not done,” he says.
At the same time that payroll is working to identify and fix the problem, it must also make sure it has a plan to get employees’ pay to them.
“As a provider of payroll services or as a payroll manager, it is your responsibility to get funds into the employees’ bank accounts on a certain date,” says Champagne. “The fact that your payroll system goes down or breaks or is not available for whatever reason doesn’t change your responsibility.”
Both Champagne and McGee say employers would wise to have a plan in place for paying employees when there is a payroll problem, regardless of the cause.
“It’s always sound practice to not have to think these things through as people are running around,” says McGee. “It is a good idea to have some sense of what would go on generally and, certainly, if you are doing sometime like migrating to a new pay system or a new provider or restructuring the way that people are paid, having a contingency plan is absolutely critical,” he adds.
“Even something as simple as do we have enough cheques on hand? How many places will have enough cheques that if you have a workforce of 100 people and things go south for a month? That may be an issue,” McGee says.
Champagne recommends that all employers develop a payroll-business continuity plan that will enable them to pay employees when an unexpected event disrupts operations.
While these plans generally focus on how to respond to a catastrophic situation that severely affects an organization’s critical functions, such as a major electrical power failure, Champagne says employers can adapt it to apply to situations where payroll-related changes lead to pay problems.
“Going through payroll business continuity planning would really help you analyze where the fail points would be and how deep you want to go into mitigating those failure points,” he says.
“You’ve got to make sure that your payroll business continuity plan puts in play one or two alternatives that will let you accomplish (your payroll) responsibility. Your responsibility doesn’t end until the money gets into peoples’ bank accounts,” he adds.
Issues to consider could include whether the employer is willing to pay employees by manual cheque if direct deposit is not working. Employers may also want to decide whether they will pay salary advances and, if so, whether to base them on an employee’s previous net pay or another amount.
Champagne says continuity plans are important even if an employer has outsourced its payroll to a service provider since the employer is ultimately responsible for paying its workers. “What happens if their system goes down? What happens if they can’t deliver a pay to a certain bank?” Champagne says. He advises all employers to discuss continuity plans with their service providers.
