What is a Payroll Crisis?
Article authored by Lisa Teague, CPP
January 31, 2025
When introducing myself in personal or professional settings, I offer that I am a global payroll consultant with over 25 years of experience. The question I almost always get in return? “What’s the number one reason organizations seek out a payroll consultant?”
After thinking through the multitude of clients I’ve worked with over the years, I’ve come to the conclusion that the number one reason why I’m called in is because an organization is in a payroll crisis.
As with all types of crisis management, there are typically external resources who lead an organization that has had, through a series of failures or through a singular catastrophic event, come to a crossroads that threatens to damage the organization, key stakeholders or shareholders, or even their customers.
Throughout the article the term payroll provider, technology, or partners are collectively referred to as the payroll vendor.
So how does an organization end up in a payroll crisis to begin with?
Here are examples of payroll crises that Emory Consulting Services have been called in for:
- A payroll crisis that is borne from an error of configuration at set-up (unintended or flawed) in the technology and the organization did not “know”. The result was significant overpayments. The org contacts the payroll vendor for support and the vendor responds with, “this configuration was approved at go-live, or the monitoring of this issue, is a payroll control process, not a flaw in configuration” leaving the organization to deal with the overpayments and figuring out how to control the defect.
- A payroll crisis that occurs when there is a change in the payroll function (leadership change, new payroll vendor, new markets), where all the unwritten processes and control methods evaporate after the change. This manifests itself in the beginning of the change as “these are just growing pains”, but can quickly moves to employee, management, and compliance issues, resulting in distrust, and a lack of confidence in the payroll function. The longer this goes on, the deeper the crisis.
- A payroll crisis that occurs when the payroll function lacks strong governance. The payroll staff are viewed as transactional gate keepers, not requiring much care and feeding around internal governance. This is compounded with a lack of support that has not kept pace after expanding globally, acquisition, divestiture, or technology changes. Internal governance includes role and responsibility between the organization and the payroll vendor. In other words, there is confusion and a misperception that the payroll vendor is controlling the governance of the organization’s process, and compliance.
The Skeptical Approach
Once a known high-risk event or sensed payroll failure occurs, organizations predictably move along the following path:
The skeptical approach. The first reaction of most organizations is to take the path of least resistance, which is to doubt that the mistake is something that can’t be fixed easily. They think, “This issue must be a failure that occurred along the chain of control that just needs additional addressing”, that simple payroll project management will solve everything. The current employees and managers in charge are usually tasked to fix the issue internally.
The organization might insist employees not “blow this out of proportion”, which might be from shock, numbness, or other business initiatives with higher importance. The organization might insist that their payroll has functioned successfully for several years, with no known issues to this point. After internal investigations, if the source of the crisis is determined to be a singular problem—and not a systemic issue with the technology, staff, or process of the organization—a new approach must be taken to fix the ongoing crisis.
The Engaged Approach
If the skeptical approach is avoided or not effective, an engaged approach is typically adopted. As when faced with other problems that can crop up in the business world, the organization will focus on the issue, gathering resources, and trying to solve the issue.
They’ll typically ask themselves a bevy of questions, such as “What should have occurred?” “What are our options for a smooth road out of this crisis?” “What led to the creation of this crisis?” “Who will lead us out of this?” The engaged approach thrives on structured updates to navigate organizations towards the solutions
A certain amount of the root cause is that organization believes that the payroll vendor is to blame for the crisis. Organizations believe that they contracted with the payroll vendors “compliance warranty”, and “payroll accuracy monitoring”. As the organization reaches out to the technology vendor, they quickly hear the following responses, “this is not our role or our governance model for any client. We supply the tools; you manage your compliance and governance using those tools”
Both the skeptical and engaged approaches also involve looking at a vendor as the source of the issue and/or the solution. The payroll provider, technology, or partners are collectively referred to as the payroll vendor. This single facet of the Payroll Crisis Management process is typically the most frustrating and unproductive for the organization.
Frustration with payroll vendors typically stems from the following issues:
- Misinterpretation of service level expertise offered; typically, the vendor services are limited to basic knowledge, self-guided articles and links to training materials.
- Muddled expectations of how the service model functions for new requirements, emergent issues resolution, and what is included in the services the service model does offer, leaving projects delayed or stopped.
- Misunderstandings that the vendor does not ensure client’s specific compliance standards are adhered to and adopted without direction by the client.
The Exasperation Phase
Assuming the skeptical and engaged approaches do not work and that the organization has made no movement with the payroll vendor in support of the crisis, the organization typically morphs into the exasperation phase. The complexity of the process and problem become overwhelming to an organization, leading to a feeling of wanting to give up. The attempts made by the organization to fix the issue with the payroll vendor, may have proved futile, or the staff or the process remain the same to the organization’s detriment.
If temporary answers are found to keep things afloat, the organization often tends to tread water. The organization feels confident that, sooner or later, the issues will work themselves out in their favor. At this point, the crisis is no longer a key focus of the organization’s leaders.
After this, a complacent approach is established. Staff, leaders, and external vendors accept that the organization’s payroll function is what it is. The rationale in this stage is usually that payroll is an administrative transactional function and doesn’t drive the success of the organization, therefore resources do not need to be spent on creating a healthy payroll operation or fixing the payroll vendor.
If the organization does not deteriorate any further, the risk of this chronic condition translating to poor resources (internal and external), and risk management becomes eminent.
If the organization continues down this path, a payroll crisis is likely.
Classic Root Causes
The root cause as to why organizations end up in the above chronic condition is as varied as types of organizations themselves. The urgent situation could be a development from one or many of the following:
- change in leadership, both internal to payroll or at the highest level of the organization;
- sensing a crisis, “hearing” nagging, or other compounding long standing issues;
- erosion over many years resulting in a disastrous payroll event;
- failure to manage and direct the payroll vendor;
- receipt notice of employment litigation;
- levied fines and penalties from any number of jurisdictional compliance failures;
- discovered payroll fraud;
At this point, external resources such as labor and tax attorneys are typically engaged. In this way, the external resources deal with the primary issue(s). However, these costly resources are not engaged to find the underlying reason(s) that led to the catastrophe.
So, taking into consideration everything we’ve already gone over, let’s ask the most important question of all: What is Payroll Crisis Management?
Payroll Crisis Management is a multidisciplinary deep assessment that results in valuation of the people, processes, and technology of an organization at all aspects of payroll compliance, control, and technology, and reestablishing a healthy payroll operation for the organization.
In the most extreme cases, Payroll Crisis Management simultaneously takes control of all payroll management operations, and payroll vendor management to stem the effects of the crisis and eventually return the organization to a fully functioning status.
Need expert guidance?
Contact us today, If you or your organization requires the expertise of one of the industry’s leading global payroll crisis management firms.