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Understanding payslips: 7 tips to help your employees

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How well do you understand your company’s payslips? Better yet, how well do your employees understand them?

Understanding payslips can be confusing for employees. While some never look at their payslips, others go over theirs with a fine-tooth comb, checking for discrepancies.

You need to be able to address any queries your employees may have confidently to ensure them that your payroll processes are accurate every time.

And if your business has furloughed staff due to the coronavirus (COVID-19) outbreak, their take-home pay may be different to usual. That could have implications for their tax bracket and entitlements that are due to them. If they don’t understand their payslips, they could easily miss important details.

So, how do you break down all the calculations, formulas and deductions in layman’s terms?

Simon Gibbs is the director of Lite Consulting, a consultancy firm that works with HR leaders as they upgrade their systems to the cloud.

Below, he talks about employees’ changing expectations around payslips, and where HR leaders are looking to improve their company’s payslips. He also offers seven tips for HR leaders to improve the clarity of their payslips.

1. Be clear on how your payroll team calculates pay

2. Improve clarity around employer-paid benefits

3. Use customisation for clarity around understanding payslips

4. Digitise your payslips

5. Implement employee self-service functionality

6. Plan ahead for leavers

7. Add understanding payslips to your onboarding process

Help for your employees to understand their payslips

Gibbs points out that the most frequent payslip question from salaried employees is about how the payroll team calculates their pay.

He says: “One of the big things that always confuses people is the hours that appear on a payslip are generally averaged across 12 months for salaried employees. A shorter month throws off their calculations.

“Their payslip shows they’ve been paid for working, say, 162 hours, but they’ve actually only worked 130.”

Adding that detail to your salaried employees’ payslips could slow down those types of enquiries.

Another problematic area for understanding payslips is how the other elements of your employees’ compensation is documented, such as for pensions.

Gibbs says: “There are a lot of questions about what the employer pays and what they pay, in terms of how it’s shown on the payslip. There are still a lot of payslips that don’t cover all of the elements in enough detail.”

It’s worth expanding this field on the payslip to include this itemisation.

Gibbs says the standard payslip with basic pay information isn’t enough for employees to get the full picture. Simple updates to your payslip template could make a difference in the volume of queries.

He adds: “I think in the UK there’s a shift to a more customisable and bespoke payslip that fit the specific requirements of the company.

“Instead of just one template, HR managers should compare payslip layouts and details to see the many levels of detail that they can and should include.”

The most significant change that has happened to payslips is digitisation, which is to the HR leader’s benefit in several ways.

Gibbs says: “Digitising has made it easier to create payslips because most software gives you a choice of templates that you can configure to what you think your business needs.

“Now you’re able to put a narrative on a payslip much easier because it’s electronic—way easier than if it were pre-printed stationery.

“So if you’re getting a lot of queries about the average hours per month, for example, you can easily update your payslip to address that and stop those calls.”

Employee self-service functionality is critical when it comes to understanding payslips. In today’s digital society, employees expect the same on-demand access to their payslips as they get in other areas of their lives.

With payroll software, you can create an FAQ for common questions about payslips that employees can access and review on-demand.

This way, they can get immediate answers as they need them, and you don’t have to spend time addressing the same questions repeatedly.

“The exit stage is still a challenge for organisations to find the right solution to make sure employees can access their payslips as they need to after they’ve left the company,” says Gibbs. “Think about how a person will take their payslips with them when they leave.

“When a person leaves an organisation, usually their access to the HR portal is turned off or left on for a short time. Both can confuse former employees in the end.

“Some organisations have a separate, third-party portal where they can upload the employee’s final documents. But by doing that, you risk non-compliance with GDPR because you end up with payslips in multiple places for multiple employees.

“For me, it’s a process that I recommend you give a lot of clarity and thinking through.”

This may seem like a no-brainer, but Gibbs says it’s rarely even considered when mapping the employee experience.

He adds: “I don’t think it’s ever covered in an induction programme. I’ve personally never had someone talk through my payslip with me.

“But if we look at how payroll is processed, I have this view that a lot of organisations make it artificially complex. It doesn’t need to be as complicated as it’s made.

“Once you simplify those processes, it will be easier to display distinctions such as single and double-time pay, holiday entitlement, and everything else.

“Because the problem is people see things on their payslip and don’t fully understand what they are. So, it’s crucial to set those expectations right when they are joining, so those elements aren’t confusing.”

To help your employees get clarity on the information that features in their payslips, we’ve created a handy infographic below, so you can share the information with your workforce.

Own your payslip infographic

Conclusion on understanding payslips

The payslip is an important document for many reasons, and it’s important for the sake of employee engagement that your employees clearly understand their compensation.

This builds their trust in your company and their perceived value as an employee. It also saves you time by offering all the information they need upfront.

Upgrading to payroll software inherently resolves the common problems with payslips through automation, customisation, and smart data. Using it gives you the flexibility to create the kinds of payroll documents that are best suited for your business model, and to make updates quickly as needed.

Gibbs concludes: “There needs to be automation within payroll. There needs to be connectivity with the relevant tax offices so you’re always up to date with tax codes.

“There is a such thing as static payroll where everyone gets the same amount every month. But that isn’t the case for many businesses.

“And even in those cases, automation is crucial to make the job easier.”

The ultimate guide to payroll compliance

Facing the challenge of keeping up with payroll compliance? Read this guide for essential tips to make sure your business complies with the relevant payroll legislation.

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