Payroll is ripe for disruption

Any seasoned HR professional will likely be all too familiar with artificial intelligence (AI) and automation’s potential to drive efficiencies across their entire function. This narrative isn’t new but it’s certainly gained extra momentum in the aftermath of the pandemic.

Just recently, Dr Chris Mullen, the executive director at The Workforce Institute UKG, explained how AI could prove useful in the payroll space during a talk at UNLEASH America 2022.

The situation is clear: the coronavirus pandemic has changed business processes — pushing many of these towards increased digitization — and with the world re-opening, now is the time for HR leaders to consider what changes are required to ensure the payroll function succeeds in the new world of work.

“The pandemic accelerated the pace of workforce change in many aspects and this also included the changing demand from workers to be paid faster and more conveniently,” Eloise Knapton, partner and head of employer reward services at KPMG UK, tells UNLEASH.“The pandemic accelerated the pace of workforce change in many aspects and this also included the changing demand from workers to be paid faster and more conveniently,” Eloise Knapton, partner and head of employer reward services at KPMG UK, tells UNLEASH.

This change, Knapton adds, was partly driven by disruption and uncertainty — but also stemmed from increased financial pressure from the rising cost of living. In other words, workers today may need and expect to be paid on-demand or in a specific currency.

The perfect storm

The post-COVID-19 economic recovery looks markedly challenging for employers and employees: geopolitical turmoil, surging inflation, rapid increase in energy costs and in the overall cost of living are making mean flexibility in the payroll space is significantly more urgent.

If businesses are to thrive, innovation in HR needs to pick up pace — and fast — and payroll, too, will need to become more employee focused. But how?

“In my view, one key change will be employees’ access to pay — either as it accrues or even in advance,” Knapton added.

“Platforms where employees accrue their pay in a self-service application and then download it when it’s convenient are set to increase in popularity. This will be a fundamental shift from a regular payroll cycle to on-demand payments potentially daily,” Knapton adds.

With this in mind, Knapton believes teams will need to become much more flexible and focus on their employees’ experience. They’ll also need to challenge themselves to operate leading practices and controls to recruit and, in the midst of the 'Great Resignation', retain talent.

Managing a global payroll system

The ongoing challenge for payroll will be how to leverage benefits while managing the challenges of a global system.

“Organizations have increasingly focused on how to standardize and streamline their global payroll operations to drive efficiencies, manage business continuity and gain control of costs by using payroll technology,” Knapton notes.

Where organizations have grown organically, she adds, or there is decentralized management and ownership of payroll, this may result in a lack of payroll oversight as well as reputational and compliance risks.

“Left unchecked, this can lead to costly compliance failures and increased risk and can ultimately impact the employee experience and relationships with the local tax authorities,” Knapton warns.“Left unchecked, this can lead to costly compliance failures and increased risk and can ultimately impact the employee experience and relationships with the local tax authorities,” Knapton warns.

Petya Dimitrova, finance manager at Payhawk, a fintech unicorn that combines expense management, payments and invoice management, agrees:

“Typically in larger businesses, a company’s HR professionals will be situated in one location, but responsible for adhering to labor laws across the globe.

“Payroll is very specific to each individual country, so we need to make sure that we can rely on any external providers or platforms in use, to provide compliant payroll across the world.”

Embedded finance, legacy systems and data

The need for payroll to adapt is obvious, but for Ivan Maryasin, the CEO and co-founder of Monite, a Germany-based embedded finance company, the change transcends the salary realm.

He says HR professionals are currently having to build their processes around what their service provider is telling them. Essentially, this means employers' processes are having to conform to each vendor’s platform and not the other way round.

“Embedded finance means that many of these business finance processes can now be automated or greatly streamlined, and, very importantly, it also means that these automations can be built directly into existing legacy systems and platforms,” he says.

“The beauty of embedded finance is that we do not ask the companies to change their systems. We build these novel, unique solutions directly into their current systems and platforms. We can then allow employees to do their own invoicing, their own accounts payable, their own payments,” he adds.

Dimitrova says data collection and maintenance also remain challenging.

“It is imperative that a team has the correct data on time, so that payroll correctly reflects all new hires, salary increases, or terminations that occur throughout the month,” she says.

The question, she adds, is how is this data received and how can it be communicated to the staff responsible for payroll?

The people problem

Although technology is a vital component for the future of payroll, and finance overall, for some companies the biggest barrier is people.

“HR is a difficult job, and we’ve found in Bulgaria in particular, where Payhawk originates, that there are fewer people willing to take on this responsibility.

“The role is manually intensive, with specific busy crunch points at the end of the month, where they would be called upon to administrate the salaries of hundreds of people within the last couple of days of the month.

“For many, this is a less desirable job, and therefore it can be a challenge finding good people who want to work in this way. However this also represents an opportunity, because it can help to accelerate the implementation of automation,” adds Dimitrova.

Perhaps there needs to be a collective acknowledgement about payroll’s significance within the HR function.

“Payroll is generally the most significant expense for companies, involving a process that is very labor intensive which increases the risk of mistakes. It is simultaneously one of the most sensitive and important functions within a company — if a business can’t pay salaries accurately and on time, it can be incredibly detrimental to its success,” says Dimitrova.

Overall, payroll needs both people and technology and these two forces must work together to bring the function into the post-COVID-19 era in a way that it offers compliance and reassurance for employers and flexibility for employees.

Related activity: Discover how better, simplified total rewards management can improve employee engagement and beat traditional and outdated levers of compensation and benefits. Register for our upcoming webinar here.