Payroll is a business operation with strict deadlines. Employees look forward to being paid accurately and on time, while an employer has to comply with all the rules regarding payroll taxes, accounting and administration. When a company resorts to payroll outsourcing services, it becomes crucial to clarify what the provider is expected to do.
One of the major tools of setting up such expectations between two parties is called a Service Level Agreement (SLA). The Service Level Agreement is a document that specifies the services to be provided, performance levels to be achieved, duties of both parties and consequences for failure to meet the established standards.
The SLA itself does not ensure problem-free operation; it sets up a common ground for managing payroll operations.
What a Service Level Agreement Covers in Payroll Outsourcing Services
A service level agreement payroll arrangement establishes measurable expectations between a business and its payroll provider. It is dependent on the service provider and employer.
Where payroll is outsourced, the SLA can cover aspects like processing deadlines, required information deadlines, reporting, problem resolution, communication requirements among others.
Some of the common aspects that are covered under a payroll SLA include:
- Processing deadlines for payroll
- Information submission deadlines
- Calculations of payroll
- Response time for queries
- Error correction processes
- Tax filings
- Reporting time frames
- Escalation process
- Responsibilities for data security
- Service availability
- Communications
SLA should be clear on what responsibilities lie on the service provider and what responsibilities lie on the employer.
For instance, the service provider can be responsible for doing the payroll once he has received the correct and complete information by a certain deadline. However, the employer can still be responsible for providing employee's hours, pay change or any other information required to do the payroll.
This is important since the performance of the payroll is dependent on both the service provider and employer.
SLA should therefore be very specific and not be a general statement like "payroll will be done on time."
Turnaround Times and Accuracy Guarantees Explained
Turnaround time refers to how long the provider is expected to take to complete a particular payroll-related task.
For instance, an SLA can determine the time limit for processing the payroll once it receives the necessary information or dictate how fast a provider should react to any support request.
However, there is no universal standard for turnaround time that works for all payroll providers and businesses.
The frequency of payroll, the number of workers, the degree of processing difficulty, the approval process, and the range of services offered can influence the process.
Therefore, the businesses should ask the provider to clarify what they mean by their turnover time.
Accuracy requirements also need to be clarified.
Providers can introduce their quality control systems aimed at reducing the payroll errors. The SLA can include how the errors are addressed, the time frames for making corrections, and who will conduct them.
Businesses should be careful about the vague "accuracy guarantees."
They should pay more attention to the concrete definitions and service standards.
For instance, the SLA can describe:
- What is the processing error?
- How are the errors reported?
- How fast are they corrected?
- Who investigates the problem?
- What is the way of communication?
- What happens if there are errors in the payroll of the employees?
What Happens When Payroll Outsourcing Services Miss an SLA
Even with proper procedures, the payroll provider could sometimes fail to meet the agreed deadline or performance standard.
The SLA needs to outline the steps to take in such circumstances.
A provider might have an escalation plan in place for late deliveries, errors in processing, slow response times, and other problems in service delivery. It might define whom to contact, the period in which it has to be done, and how the business would be informed about it.
This makes the SLA more effective in establishing the responsibilities of the payroll provider.
As per the terms of the agreement, depending upon the circumstances, the penalties might range from a plan of action, escalation of issues by the management, review of service quality, refunds, or any other step decided by both parties.
The choice of the penalty would depend on the nature of the service agreement.
However, one needs to keep in mind that not all delays would be the fault of the provider.
The processing of payroll could be delayed since the business provided incomplete data by the agreed deadline. A good SLA would cover such contingencies and outline who is responsible for them.
In case there is an SLA breach by the vendor, it would be wise to deal with the immediate problem at hand as well as try to identify the reasons behind the breach.
Some good questions to ask are:
- What led to the delay/failure?
- Who was supposed to fulfill that SLA?
- Was this a single incident or something recurring?
- Was there a proper escalation done?
- What steps have been taken to fix the problem?
- Is there a need to clarify the SLA?
If the issues are persistent, then there might be a need for more performance review.
Questions to Ask Before Signing an SLA
Businesses should know the specifics about the SLA before entering into the payroll outsourcing agreement.
The contract should be detailed enough for both sides to have an understanding of successful service.
Key things to consider:
What deadlines for the payroll are guaranteed?
Understand how processing deadlines are calculated and under which circumstances the countdown starts for the provider.
What information is required from the employer?
Learn deadlines for submitting the information about changes in the employment status, working hours, bonuses, deduction, etc.
How fast will the questions be answered?
The SLA should differentiate standard questions and the urgent matters relating to payroll processing.
How are errors handled?
Inquire about how the errors will be notified, investigated, corrected and communicated.
What will happen in case of SLA breach?
Understand the procedure and consequences of breaching the SLA.
What about payroll tax filing?
Learn about who is responsible for filing.
How will the urgent matters escalate?
Learn who will be contacted in case of emergency situations that could affect the next payroll.
How will performance be measured?
Learn whether the provider prepares performance reports.
What if there is a change in requirements?
An expanding business can have more workers, more branches, various types of salary payment, and more payment frequencies. The SLA must be flexible enough to adjust to reasonable changes.
Companies must check the SLA along with the entire payroll agreement. There must be no conflict in the SLA with any other clause concerning responsibilities, fees, deadlines, data protection, and termination.
Why SLAs Matter More at Certain Times of Year
Payroll service standards are important all year round, but some periods make it important to set clear expectations.
Year-end is one such period. The payroll team may have extra duties for reporting, reconciliation, and documentation. The delay in one of these steps will impact other deadline compliance.
Such periods that can make a business more complex include the following:
- End-of-year payroll processing
- Open season for new benefits enrollment
- Spikes in the number of hires
- Acquisition of another business
- Moving to another state
- Change in payroll payment frequencies
- Significant changes in compensation
- Tax reporting periods
For these periods, it becomes necessary for the business to have more collaboration and communication with its payroll services provider.
The SLA will be useful to set expectations ahead of time for these busy periods.
Some examples include setting expectations for data submission deadlines, data approval processes, contact information, and reporting periods.
This becomes particularly relevant during periods when there are fixed deadlines for payroll payments. This is because employees expect their payroll to be delivered on the company's set schedule.
An SLA that is well crafted enables the organization and provider to know what should take place before the deadline of each payroll process.
It also offers a good platform to review how the service was delivered after a hectic period. In case delays were experienced at the end of the year, there could be a discussion to find out whether something needed to change regarding procedures, staffing, communication or the SLA itself.
Most importantly, SLAs work best when they reflect the true operational dynamics between the employer and the payroll company. Reach out to The Fino Partners for quality payroll outsourcing services in the USA.
