HR payroll: what are today’s challenges?
Today’s challenges for payroll follow a common theme across all support functions. It is expected to be more cost-effective while delivering better quality – essentially, it needs to do more for less. An additional complication is that payroll must meet a number of legal requirements. Accuracy, compliance and risk management all come into play.
And one thing about payroll, which makes it unique among support functions, is that it does something every month that attracts the attention of all employees, from the CEO to the receptionist. It makes sure they get paid.
In the past, however, while other support functions have undergone technology upgrades, payroll has tended to be left alone. This is primarily due to the risk of any changes holding up, or even stopping, employee pay. As a result, payroll technology can be antiquated and complex. At the same time, organisations are missing out on the opportunity to make the most of the analytics potential that is readily available in payroll data.
So how do we keep payroll working, save money and keep it risk free?
In our view, organisations should recognise that payroll is not an area of great mystique, but one of great opportunity. With this in mind, they should aim to bring it within the scope of their wider HR transformation activity. This means embracing cloud technology and revisiting the idea of the ‘single global contract’, understanding that a single contract can encompass local specialists to support specific legal needs.
For many companies, the answer has been to drag payroll kicking and screaming into human capital management (HCM) software. As streamlining end-to-end processes usually means greater automation, there are plenty of opportunities for payroll. HCM enforces a ‘single version of the truth’ and integrating data across a middleware layer is a good and reasonably priced option for providing global or multi-country reporting. CloudPay and Safeguard World International both provide medium-scale options for multi-country payroll using an aggregator model to cover local payroll needs.
Another way to save money and standardise services is to consolidate third-party contracts. But can there really be a single global provider of payroll services? Although it is possible to have a single global payroll contract, this doesn’t mean it will be the same provider ‘under the covers’. Does that matter? The last five years have seen a consolidation of two market leaders in payroll, ADP and NorthgateArinso (NGA). But there are other vendors with global capability and different types of model. Accenture and IBM, as well as Infosys and Genpact, have grown their payroll coverage. They have done this by taking it over as part of the overall HRO requirement, often by subcontracting to specialists to give a single contract to the client.
Cloud-based is also becoming more and more popular, driven hard by the rapidly growing market-leader Workday. As there is high demand for HR to cover off the payroll angle, there is a need for a more collaborative approach.
So what will the next five years bring? In our view, there will be more focus on streamlining payroll within an end-to-end HR-to-finance process. There will be more cloud-based offerings with the recognition that, while payroll needs local competence, a single vendor can provide this through an aggregator model. And there will be a move away from trying to implement a global ERP solution for payroll, with Workday HR and other cloud-based solutions like SuccessFactors Employee Central using SAP cloud payroll taking its pace.
This article was co-written by Carol Haag, an expert in shared services and outsourcing at PA Consulting Group.