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4 Ways to Discover Hidden Payroll Costs

Updated: June 18, 2024

Written by

Murad Jaffery

4 Ways to Discover Hidden Payroll Costs
All business owners look for ways to reduce their costs as much as possible. This helps to protect cash flow and boost profit levels over the course of the year. There are many different ways in which business owners can approach cutting costs. They will usually start with the low-hanging fruit and then move onto the trickier and more time-consuming ways to cut costs. If a business has employees, then payroll is going to be massively important as a business segment. Having an efficient system in place to make sure that everyone gets paid what they are due on time is imperative. Failure to do so can lead to a lot of issues. This is why a lot of business owners use payroll software packages that look after this process. However, there will often be some hidden costs within your payroll system that you are not aware of. Once you learn about these potential issues, you can start to take action towards eliminating them. This article will walk you through a handful of the costs that tend to crop up out of sight within the payroll department.

1. Foreign Exchange Charges

While small differences in foreign exchange rates might not seem very substantial upon initial viewing, over time they can add up significantly. If you are part of a business that operates in multiple countries that use different currencies, then your payroll system will be exposed to the fluctuations of these currencies. Payroll costs can increase significantly if currency values fluctuate, deeply impacting annual profits in some circumstances. With payroll, you are not going to have the luxury of waiting for foreign exchange rates to become more favorable before paying employees. Even if the foreign exchange rate is poor, you still need to pay your workers in other countries. It is becoming much more of a consideration these days, even for small businesses. This is because the digital age has led to companies working with a lot more freelancers and contractors who are based in other regions. Therefore, it is no longer just an issue for large businesses. Most major businesses that operate globally will have a hedging strategy in place to protect from excessive currency fluctuations. However, this is not always something that smaller businesses will be comfortable doing on their own. Perhaps the best way that a business can limit the foreign exchange risks as part of their payroll system is by partnering up with a foreign exchange transfer service operator. This will allow you to draw up a plan of the best approach to take with your foreign payroll needs. In certain cases, a specific foreign exchange rate can be locked in for a certain period of time, meaning that it does not matter how much exchange rates change during this time. This approach allows a business owner to plan ahead in a much more accurate fashion and with fewer headaches.
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2. Overpayments

If payroll is something that is not done efficiently, then mistakes can crop up. Human error is a real consideration even in the most sophisticated of companies. Mistakes happen sometimes during payroll, often resulting in overpayments. While everyone makes mistakes from time to time, the chances of these errors occurring increase when there is a lack of automation in place. Overpayments can be easy to go unnoticed and can add up significantly over time. These overpayments could relate to holiday pay, salaries that are not recorded correctly, bonuses, and expenses. The process of getting money back from overpayments can be very tricky and is often not worth the headache. As these mistakes can add up and compound over time, having an efficient payroll service system in place that relies more on automation and has stringent checks in effect is a must for most businesses.

3. Employee Inefficiencies

If an automated and high-performing payroll system is not in place, this can cause a drain on internal payroll and HR professionals. Instead of focusing on areas where they can be of more value, they can often get bogged down with trying to handle data manually on a daily basis, conducting lengthy reviews and transfers of data. Each of these tasks is very time-consuming. For those companies that use the best payroll systems, this is not going to be a problem. While periodic checks and reviews are needed, the process of manually having to manipulate data is going to be greatly reduced. It allows your team to focus on tasks that are of higher value to the business as a whole. This includes workforce analytics and planning. For smaller companies, it may help you to avoid additional costs if you were considering hiring an additional person just to look after the manual handling of data.

4. Compliance Costs

In this day and age, making sure that all aspects of a business are properly compliant is a must. The authorities around the world are quick to crack down on businesses that are not following the relevant rules and regulations. To make sure that your payroll is compliant, secure, and accurate, it will take up significant time if you are managing it internally. Legislation changes on a regular basis and the payroll professionals have to be confident when it comes to the complex calculations that are involved. Compliance failures can lead to a lot of knock-on issues and headaches that should be avoided. A lot of this can be mitigated by using utilizing the services of one of the leading payroll companies that have a track record of being able to look after all of these compliance checks on the behalf of a business. They are always in tune with the latest legislative changes, with many being able to cover you if your business has workers across different jurisdictions. With high-security standards in place, payroll compliance is not something to be taken lightly or put on the long finger.


These are just a few of the hidden costs that are associated with managing payroll systems. While some of the costs might seem somewhat inconsequential in the short term, over time they can build into massive headaches and sums of money. While some companies prefer to use in-house teams, this adds a lot of additional costs to the operations of a business, and human error can often come into play. By using an automated payroll service, you can outsource most of this work. You will then be safe in the knowledge that everything is being taken care of on your behalf and you’ll know that everything is compliant and up to date with the best legislation. There are a lot of different payroll companies out there, so it is worthwhile doing some research to see which will be best for the specific needs of your business.

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Murad Jaffery

Murad Jaffery is a chartered accountant specializing in the field of accounting and finance. He has been writing on these areas for nearly a decade, and is also an accounting tutor. He holds master’s degrees in accountancy and English literature. Murad enjoys traveling and reading.