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What Non-Profits Need to Know About Implementing a Payroll System

Posted by Kit Dickinson on Nov 1, 2019 7:30:00 AM
Kit Dickinson
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iStock-1159673575You may have heard in the news about a small non-profit organization servicing families in need that secured a sizeable increase in their funding because they were doing great work and making an impact. With the increased funding came the expectation that the organization would have the internal structure to support a grant that large. That meant outsourcing their payroll functions so they could focus on the mission.

The organization hired a payroll company and began the process of transitioning to the vendor's system. However, they didn't realize the scope of the project they'd just launched.

When asked by the payroll provider for various items, the organization wasn't ready. They tried to think about policies and codes on the fly. That created rounds of revisions, even after handoff, as they realized the ripple effects of their decisions.

Now everything was dragging out. Weeks became months, and months became a year. Eventually, the organization agreed to stop the project, regroup and pick it up again later when they had more time and resources to plan. Unfortunately, that never happened.

Related reading: 5 Signs Your Non-Profit Org Needs to Automate Your Payroll Process

What to Expect During a Payroll Implementation

Your funding sources expect you to have technologies in place to generate funding reports and to run your non-profit organization. To have a successful transition to a payroll system, you'll need to understand what this undertaking involves.

It's a heavy resource commitment to set up the systems, do it right, and meet all of your needs. What should you expect during the implementation?

Your payroll provider will need information to design and configure the new payroll or time-and-attendance system. You'll have an onslaught of items that you may have not considered in a formal way:

  • Account numbers
  • Job codes, cost codes and pay codes (that impact pay and your financials)
  • Pay policies for different roles and responsibilities
  • Accrual policies for Vacation, Sick and other PTO
  • How to classify your hourly and salaried staff in light of new FLSA laws
  • Reporting wants and needs

It's all very overwhelming for most non-profits, and it'll drag out your efforts if you aren't ready. As data gathering gets drawn out, the implementation becomes clunky and painfully inefficient. What should be completed in two to four months could stretch out for years.

At some point, your payroll provider may suspend the project so they can dedicate their resources to other clients.

Implementing a third-party payroll system can be a smooth process. With some preparation ahead of time, you can have an efficient transition to payroll software. Here are the keys to a successful payroll implementation.

Establish the Right Team

Successfully transitioning to a payroll system depends on having the right people on your team. Identify a small team of subject matter experts from these areas:

  • Payroll
  • Human Resources
  • IT
  • C-level

Your most important player on that team is the project champion. Assign someone who has the bandwidth and buy-in to work on it, respond to vendor requests, and keep the project moving. This could be anywhere from a 10-20 hour commitment per week throughout the implementation but is crucial for success.

You'll need someone who is entrenched in the organization for the long haul, a senior employee who will be there for the duration of the project. Turnover can kill momentum and set you back for months.

Define Your Time Tracking Policies

Your payroll vendor will ask for your work time and non-work time policies. This includes sick leave, vacation and paid time off. Put in the work ahead of time to define a robust policy that covers all of your employees and the way you handle their time. Some questions to consider:

  • Do you have hourly employees? Salaried?
  • Where and how will they capture their time?
  • Will salaried employees track time to grants/funds?
  • How will you manage overtime with the coming salary changes?

Define Your Financials

This is a good time to review your general ledger and time costing. Now might be the time to make some changes, because your organization may start to outgrow what you've done in the past. Take this opportunity to streamline your financials to yield better results in your reporting.

Identify Reporting Expectations

During the payroll implementation, you'll need to clearly have all the reports that your new system must generate. Be ready to present all the reports that your funding sources and your board are expecting. Think about everything you'll need to use internally to track how you're doing.

Ask Questions

Make sure you hire the right vendor. Even if the implementation goes smoothly, an incomplete payroll system will introduce new headaches.

Questions to ask before you begin the project:

  • Can you handle grant tracking for hourly and salaried employees?
  • Does your system automatically stay compliant with changing labor laws, or will we need to continually stay current on changing requirements?
  • Can we have references from other non-profit customers with similar needs to ours?

Related reading: Nonprofits Need to Choose Their HCM Solutions Wisely

Know What to Expect

How long should you expect the process to take? If all goes smoothly, you can anticipate as long as three to five months for implementation. A full payroll software solution is much more complex than QuickBooks. Your team will have several rounds of testing to do, and that alone could take more than a month. But if you don't have everything together, your implementation could take years.

Implementing a third-party payroll system is a major step for a non-profit organization - but a critical step in the right direction with funder expectations and changing labor laws. Know what you're getting into and you'll put your organization in a position to grow successfully.

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Topics: Nonprofit Industry Solutions