Today’s blog follows the recent IT outage that many Microsoft users experienced due to the CrowdStrike update, which caused a loss of productivity and revenue and many headaches for many businesses. Some media outlets described it as a ‘digital pandemic’, and following several online discussions and articles like this one from Raconteur, we thought we’d give a LACE perspective on the challenges organisations faced, particularly for the Payroll functions of businesses that were affected. Simon Puryer, our Exec Payroll Practice Lead, has shared his thoughts on the impact and what he advises Payroll teams could do to avoid and prepare for issues like this in the future.

The payroll chain reaction

The recent IT outage on July 19th is a stark reminder of our dependence on technology and the potential domino effects of a single disruption. While the initial headlines focused on inconveniences like delayed train journeys and disrupted shopping experiences, the actual impact rippled far deeper, affecting critical business functions like payroll processing. But it wasn’t just the physical Payroll team that had to mobilise, react quickly, and try to find solutions to a system outage. Payroll teams, as well as employees, were affected, but so were the whole supply chain and stakeholders involved in the running of smooth payroll processes.

Payroll is the lifeblood of any organisation, ensuring employees receive their hard-earned wages on time and when it is delivered efficiently, it’s often seen a bit like a referee in a football/sporting match; you want them to have as little impact on the match as possible. But without them, a match can quickly descend into chaos. However, the recent IT outage threw a wrench into this well-oiled machine (like a referee without a whistle! Or their referee’s assistants!). Here’s how:

• Missed paydays: Organisations with different pay cycles, especially those paying weekly, encountered delays in processing payments due to inaccessible systems.
• Data delays: Time and attendance (T&A) data, crucial for accurate payroll calculations, would not have been transmitted on time if reliant on a specific cut-off window.
• Banking glitches: Even if payroll processing went smoothly internally, delays in bank systems could have resulted in late payments reaching employee accounts.
• Third-party dependence: The outage impacted payroll providers themselves, further hindering their ability to process payments for client organisations.

In short, the entire payroll supply chain struggled to keep up. This outage’s chain reaction impacted all elements of the process.

Beyond the numbers – The human cost

The impact of delayed or missed pay goes far beyond financial inconvenience; organisations often talk of the importance of considering the wider implications of any challenge like this outage in terms of overall employee experience, which we have discussed with our clients here at LACE. Additional factors to consider include:

• Employee stress: Uncertainty about receiving their salaries can cause significant stress and anxiety, particularly for those living pay to pay. This can affect morale and productivity. We’ve spoken about the importance of financial wellbeing on a couple of pods (here’s one as an example) and blogs (one here for further reading) that underline how financial wellbeing can be a positive part of your overall employee value proposition (EVP). Still, equally, organisations must be mindful of the adverse side effects when financial wellbeing impacts an individual’s ability to be their most productive (as they are focused on their financial problems and errors or inefficiency can easily creep in).
• Damaged employer brand: When employees don’t get paid on time, it reflects poorly on the employer. Trust and loyalty can erode, potentially impacting employee retention. We’ve previously talked about the importance of payroll in delivering an efficient employee experience (EX); you can have all of the processes and think as holistically as you wish about your approach to EX, but if people aren’t paid on time, all of your focus on delivering a fantastic EX becomes jeopardised in the eyes of your workforce.

Rethinking business continuity plans

These issues have led us at LACE to discuss and debate the importance of business continuity plans (BCPs). The recent outage serves as a wake-up call for organisations to re-evaluate their BCPs with payroll in mind. Here are some key questions to consider:

• Does your BCP address payroll specifically? Many BCPs might not be specific, overlooking payroll’s critical role.
• How robust is your plan? Is it a detailed document outlining specific actions in case of disruptions?
• Does your plan consider external factors? Consider potential vulnerabilities in your supply chain, such as payroll providers and banks.
• Mapping Your End-to-End Process: Analyse your payroll process from start to finish. Identify areas of automation and manual intervention. This can help you pinpoint potential weaknesses.
• Is it tested? Do you regularly test and review your BCP plan and ensure all parties know the process? How robust is your plan?Does it include external factors such as the payroll supply chain, or external issues like an outage from your IT system/software like Microsoft, etc?

Striking the right balance – automation vs. manual processes

While automation offers efficiency, some human oversight remains crucial. Consider these points:

• Over-reliance on automation: Over-automation can lead to a lack of checks and balances. In today’s technologically advanced business world, there can be a tendency to see technology and automation as a panacea, but an instance like this IT outage shows that there is a balance to be struck. If the tech goes down, you need a plan in place for manual and human intervention.
• Manual processes and productivity: You don’t want to lean too much on manual processes. It hinders efficiency and can leave organisations vulnerable to human error. You don’t want to rely on those spreadsheets wholly! Do you have the relevant trained resources to respond to your BCP?
• The “Credit card Imprinter” analogy: Imagine a manual backup system, like the old credit card imprinters used in case of electronic malfunctions. What’s your payroll “imprinter” in case of technology failure?

Are you ready if an IT outage happens again?

The recent IT outage exposed vulnerabilities in payroll systems. At LACE, we recommend you examine your own BCP, analyse end-to-end processes, and strike a balance between automation and manual intervention. By doing this, organisations can ensure payroll functions smoothly, even during unforeseen disruptions. This not only protects employees’ financial security but also safeguards the organisation’s reputation and employee trust.

Is your organisation prepared for a payroll disruption? Revisit your BCP and consider the questions outlined above. Taking proactive steps can minimise the impact on your employees and maintain a healthy employer brand.

Additionally, LACE Partners is here to help. Fill out the form below if you want to chat about your approach to BCP.