Technology has revolutionised the HR function. New systems are automating manual work, providing deeper insights through data and transforming how the function recruits, manages talent and organises itself.
Payroll is no exception to this process. In such a rapidly developing environment, the road to payroll success isn’t always clear. Oliver Gee, enterprise development director at SD Worx UK, offers advice on how to navigate the most common payroll challenges and explains why effective payroll solutions play a crucial role in business success.
The need for innovative payroll solutions has largely been driven by complex working patterns brought about by flexible working and increasingly intricate employment legislation. This is already bringing change to the function, with much of payroll currently automated.
A good example of such flux in working patterns is the growth of both gig work and earned wage access - where staff receive some income prior to payday - which is increasingly common in the hospitality and retail sectors. Such different approaches to how organisations structure their work means that many need new ways to pay their employees.
This tells us that the payroll landscape is becoming increasingly dynamic and an agenda item in boardrooms. The solution that works today may not work in the future. So how do you ensure your payroll solution is built to last?
“When you’re dealing with payroll, you’ve got to get it right. Some organisations think payroll is just a process like recruitment, but it isn’t. You need a partner with expertise who can deal with compliance issues, legal requirements and provide strategic payroll planning,” says Gee.
Future-proofing payroll requires a function that can adapt to changing regulations, people trends, employee expectations and technological innovation. To meet these challenges, HR leaders need to take a step back and understand where payroll fits in the wider HR ecosystem.
SD Worx asked over 5,000 HRDs and 18,000 employees across Europe for their take on what makes a successful payroll. Its Payroll Navigator research found that there are four key milestones every organisation must meet if they are to create a robust payroll fit for the future - crafting a payroll strategy; conquering payroll compliance; streamlining payroll technology; and building a people-centric payroll.
Milestone one: crafting payroll strategy
Before implementing new payroll technology or processes, it’s important for businesses to take a step back, ask themselves some key questions and begin crafting an appropriate payroll strategy.
“Organisations need to ask themselves how much change they are going through. Do they need a provider who can work across multiple countries and jurisdictions? Do they need a managed payroll provider or just the software as a service (SaaS) It’s important to look strategically at how you do things and not just change service providers,” says Gee.
“Don’t change your payroll provider and dump the same processes onto them,” agrees Gee’s fellow enterprise development director Craig Edwards. “Think about how you will implement your new solution. Most of the time, your processes will need changing too,” he adds.
Often, the decision boils down to two key considerations: keeping payroll in-house versus an outsourced external provider and choosing software as a service or a managed payroll service.
SD Worx’s survey shows that most European businesses mix up their offering, with 83% of those using both in-house and outsourced solutions. When it comes to debating SaaS versus managed payroll, company size can play a role but the complexity of your payroll, available budget and level of internal expertise are all determining factors.
Small businesses are more likely to outsource payroll entirely to a third-party as they tend to have less internal expertise, while SaaS is most popular at slightly larger companies with 100-499 employees. Yet, the true benefits of SaaS become clearer once you reach larger SME size, by which time companies are likely to have developed some internal expertise; 67% of companies with more than 2,500 employees feel they can manage payroll internally.
This is also often the point where organisations start to realise the benefits of more sophisticated payroll management and look for ways to personalise the process and take more control over their payroll strategy.
Milestone two: payroll compliance
One of the biggest payroll challenges facing organisations is the issue of compliance. Failure to comply with regulations - such as those around National Minimum Wage - can lead to fines, legal issues and a damaged reputation. In most cases, organisations aren’t deliberately flouting the rules, but simply can’t keep pace with the complexity of them.
“Our data shows that just over half (56%) of companies feel they have sufficient internal expertise to manage payroll. At smaller enterprises, this drops to 44%,” says Lorenzo Andolfi, a senior researcher at SD Worx.
“In addition, 55% can’t implement legal change quickly, with legislation becoming more complex and changing more often. Accordingly, companies are investing more in compliance,” he adds.
Edwards agrees that few companies deliberately set out to underpay their employees. But without expert advice it can be easy to make mistakes.
“Most fail because they don’t take into account other considerations, don’t seek out advice and ultimately don’t understand the rules. Compared to potential fines and reputational damage, there is very little cost to seeking external expertise. Compliance is a minefield and it’s very easy to step on it,” he adds.
As a pan-European organisation, SD Worx has expertise and consultants on the ground with local knowledge in local markets, which can be vital in providing security and scalability as businesses grow into new markets. In the UK, it offers clients the opportunity to work with consultants who can help solve issues and ensure compliance on payroll and taxation issues.
Milestone three: streamlining technology
The sheer number of HR and payroll solutions flooding the market can make choosing the right one a challenge. It can be easy to choose an overly complicated piece of software that is too advanced - and costly - for your needs. At the same time, choosing an off-the-shelf product that doesn’t integrate with your existing HR systems can lead to frustration, data silos and more errors.
“Technology is changing so fast,” agrees Andolfi. “Having a fast and accurate payroll process is still an issue, according to many companies. There are also a lot of different technologies being used, which makes integration harder.”
According to SD Worx’s research, 45% of European organisations are investing in HR technology, but only a quarter are focusing on system integrations. This is a costly mistake. Integrated systems ensure that updates in employee status, benefits and regulations are reflected across all platforms. This aids compliance, improves efficiency and streamlines processes.
Many organisations are now looking for cloud-based solutions. These offer scalability, accessibility and flexibility and are the only realistic way forward, argues Gee.
“One of the key benefits is that once you’re on the cloud, you’re on the system. The cost is managed, you always have the fastest speed, you can scale, and you have good productivity tools. Performance and reliability is good and you always have the most upgraded technology,” he says.
Milestone four: employee-centric payroll
Perhaps the biggest factor dominating future payroll success is how employee expectations are changing. Issues like the digital workplace, a volatile economic climate and flexible working have altered the sort of payroll service employers need to offer.
Firstly, an employee’s experience needs to be seamless, matching any other modern day consumer experience.
“The key now is self-service. People want to be able to interact with their business, get payslips and P60s online and on their phones. The most important thing about technology is that it should be equally usable by someone who is 18 and someone who is 60,” says Edwards.
Secondly, the changing economic climate we’ve found ourselves in means financial insecurity has become a bigger topic. Research from the European Barometer on Poverty and Precariousness shows that 29% of Europeans consider themselves to be in a precarious financial situation. This aligns with SD Worx’s research, which shows that 25% of employees wish they had the facility to request a pay advance from their employer.
“The financial wellbeing of employees is something that employers are increasingly worried about. There are a lot of additional services employers now offer, such as pay advances or the need to get a rapid payment through,” says Gee.
The issue of accuracy and on time payments has always been important to employees but is even more so in a challenging economy. According to SD Worx’s report, 22% of employees were paid late on more than one occasion last year, while 34% noticed errors in their pay.
The knock-on effect of this can be felt in retention. The report found that 29% of employees who were regularly paid late were looking for a new job, compared with 10% of those who were paid on time. Similarly, 25% of employees who experienced pay inaccuracies were job-hunting versus 9% who received accurate wages. Having the technology to ensure accuracy and rectify mistakes promptly is vital in any payroll provider you choose, so that employees feel valued and respected.
“If someone is on the minimum wage and they’re missing a third of their pay, that’s a huge problem for them. And from a business point of view, if you don’t pay people on time, they will leave,” says Gee.
“As a managed payroll provider, it’s often that someone hasn’t input overtime correctly or a button hasn’t been pressed. We’re then called on to fix that and help employees. With faster payments, money can be in their account within two to three hours,” he adds.
Final stop: future-proofed payroll
Modern payroll is about so much more than a payment process. Today, it’s a fundamental part of the business strategy and employee experience, with complicated data, pain points and compliance challenges to consider. Consequently, choosing the right payroll partner for your business has never been more important.
Getting it right means considering your payroll strategy, navigating compliance, streamlining processes and putting people at the centre of your offering.
Are you confident that your business is navigating these payroll milestones effectively?
