Email a collegue.| Headline: | Payroll's role in Sarbanes-Oxley compliance |
| Description: | This week, I'd like to make the case for designating recovery of the payroll function as your "tier zero" or highest-priority item on your disaster recovery list.
Why? Payroll is typically the biggest single expense for publicly traded companies. When it comes to financial reporting, you can't afford to have gaping holes in your payroll ledger and tell the auditors that your dog, or the disaster, ate your payroll records. In healthcare and other service industries, if you miss a payroll, your employees will walk right out on you and into jobs working for your competitors. This week, I'll spell out some of the considerations to keep in mind when you craft a disaster recovery plan for the payroll function. Size matters Recently, I wrote a corporate disaster recovery plan for a small, publicly-traded enterprise with $20 million in annual sales and under 100 employees. When we got to the part of the plan dealing with payroll, the recovery plan was simple. In a disaster, the office manager, or her assistant, would collect attendance information from every employee, and then run the payroll by writing checks manually. A book of checks was stored off-site at the residence of the office manager. At the time, wage garnishments wasn't an issue in this shop, since no one's wages were being garnished. The office manager could write payroll checks as often as needed, and then "true up" the financial accounting after the systems came back online. When I helped write a disaster recovery plan for a company with over 10,000 employees, the payroll issue wasn't so easily resolved. Why? This $2 billion company ran weekly or bi-weekly payrolls at facilities it owned in cities in several states. Some of those payrolls were governed by agreements with unions. As a result, when it came to disaster recovery planning, it wasn't feasible for any one person or group of people to sit down and simply knock out a bunch of checks on a typewriter. In this setting, the business requirement was simple: "Thou shalt not miss a payroll, even in a disaster." The fear was that if key employees miss a weekly or bi-weekly check, they can simply pick up and go to work down the street at the local competitor's office. In times of disaster, some employee loyalty is driven purely by the availability of the almighty dollar. In addition to the human resources issue, however, looms the ever-present threat that holes or mistakes in payroll runs could have a negative impact on the company's financial reports. In this particular case, disaster recovery plans were written with the following assumptions. First, the corporate facility's data center is assumed to be inaccessible or not functioning, or both. Second, payroll must go on. Three creative solutions to D.R. payrolls Suppose you're using SAP to gather all your payroll information and generate your check-printing jobs. What do you do if SAP goes down and is unavailable when you need to run a payroll? Do you have the staff to process the payroll manually? If not, here are some options for companies who generate thousands of checks in every payroll run. First and foremost, in a disaster, you could simply re-run the last payroll. This alternative has some pros and cons, however.. If you have the data for your last payroll, you can simply re-run the same set of checks and distribute them, and that gets your people paid. If you re-run a payroll, you're going to have to deal with clean-up issues afterwards. For instance, you may have paid vacation or sick time when none was available. You may run checks for employees who have left the company, and some new employees may not get a check at all. The downside to re-running the previous payroll is that you'll have to "true up" records when the employee worked more or fewer hours than during the previous payroll. Issue loan or accounts payable checks You store, in a safe place away from the corporate campus, sufficient check stock to run at least one payroll. Then simply pay every one of your employees in the form of a loan. The amount of the loan would be the employee's regular weekly or bi-weekly salary, rounded up to the nearest hundred dollars. With this approach, everybody gets paid. However, you don't have to worry about taxes and other deductions. Your legal department can provide the appropriate language for the back of the check, where the employee agrees to the terms of the "loan" by endorsing the check. Your employees get the benefit of cash in hand when they need it. The company gets to make payroll and keep its employees happy, without an inordinate amount of processing pain. So how are such loans paid back? Typically the company will collect repayments by making small deductions from future pay checks, allowing employees to repay the advance over a long period of time. The benefits to employees are obvious. No one has to go without a check. And employees can pay back any overpayments over a period of time, instead of in a lump sum. This alternate doesn't relieve the company of the burden of running the payrolls. As long as time and attendance data is being collected, the payroll department can reconcile actual hours worked to hours paid for in the "disaster" checks. As long as the company eventually collects all the "loans" made during the disaster payroll, the impact on the bottom line should be minimal. Issue payday loans via credit cards If you don't want to trouble yourself with writing and distributing disaster payroll checks, here's an alternative. Partner with a vendor that will, upon declaration of emergency, allow you to "charge" a number of credit cards with specific amounts of money, or pre-paid credit. Instead of distributing disaster-mode payroll checks, you distribute "charged" credit cards for employees to use in lieu of cash. If you use this approach, you'll probably need to get every employee to sign a receipt or an agreement of some type when they accept the card as payment. (If you distribute disaster mode checks, the loan language can be pre-printed on the back of the check.) The credit-card payment method works the same way as loans paid by accounts payable checks. Use of the cards constitutes agreement the repayment agreement. Again, the company has the option of collecting payments on the loans over any period of time. The big caveat: Garnishments When you're calculating the amount of money you're going to distribute via disaster mode checks or credit cards, you can also determine the amount of tax the company needs to pay. In a disaster, you may even enjoy the luxury of flexibility when it comes to paying corporate payroll taxes. While you probably will enjoy some flexibility when it comes to payroll-related taxes, the same cannot be said for garnishments. If you have employees whose wages are being garnished, you probably know that governmental and court agencies offer almost no flexibility when it comes to garnishment payments. Even in a disaster, you must process funds garnished by court orders. Making time to count the dimes Many enterprise disaster recovery plans are silent on how to process payrolls when the corporate IT department is unavailable. In this article, we've looked at a couple of creative ways to simplify your paperwork while you make your payroll. |
| Date: | 29.01.2006 |
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