Payroll challenges organizations will need to overcome to thrive in the future

The global pandemic has highlighted inefficiencies and challenges that many organizations have not been prepared to address. Businesses need to evolve rapidly and put the practices and systems in place to keep up with the accelerated rate of change. This was true before the pandemic and has become more of an imperative to combat existing challenges that have only been exacerbated.

Without the right payroll technology in place, organizations won’t be able to grow or support large scale changes, such as mass hiring to address new business needs, new compliance updates, or system upgrades. Antiquated solutions and processes also present security issues as some payroll teams continue to work remotely.

According to Deloitte’s Payroll Benchmarking report, one of the most important key performance indicators of payroll performance is the number of errors and days it takes to resolve these errors. The effort wasted on payroll corrections not only creates more work for payroll teams to fix these mistakes, but also takes up time that could be spent on value-added, strategic initiatives.

Moving from transactional to strategic

As author and HR technology industry analyst Brian Sommer said in our webinar, “In the past, payroll systems were designed for a different time, not for an environment or world where every time you turn around, there’s another mass change that needs to take place.”

Many organizations today are still restricted by traditional practices and outdated technologies “Those working with spreadsheets and manual data may have had the time in the past, but now people are not always able to get into the office to do work,” Sommer added.

Instead of considering payroll as a task-oriented administrative function, organizations can take a strategic approach to inform business decisions such as improving workforce composition and optimizing operational costs. Adopting smarter solutions that are agile and able to adjust rapidly to align with the socio-economic conditions is a key enabler for this shift. Here are several challenges of an increasingly complex payroll landscape and how organizations can address them with innovative solutions.

Addressing the complex payroll landscape

Challenge #1: Changing payroll legislation

Regulations have been created in various regions at a faster pace, threatening to put organizations at risk of non-compliance. Between government grants, stimulus solutions, and relief programs such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act, organizational compliance has become an even bigger challenge. While these grants and stimulus solutions have enabled many companies to survive while keeping employees on payroll, the changes in legislation require time and resources for teams to interpret, understand, and apply the changes correctly.

Paying the workforce accurately, on time, and in compliance with jurisdictional requirements is also a challenge every organization faces, especially those that are expanding, contracting, or restructuring. The cumulative effects of these challenges can lead to payroll errors, resulting in costly penalties and fines. As well, if payroll isn’t done correctly or on time, employees can lose confidence in their employers’ ability to pay them. In our 2019 Pay Experience report, 22% of all employees reported they had received late payment at least once in the last year, and of those respondents, 35% cited disorganization within the company as a reason while 25% believed there were issues with direct deposit. A poor pay experience can contribute to disengagement and turnover and can lead to a damaged employer brand reputation in the long-term, making it more difficult to hire and retain people in the future.

Action: Organizations will need to leverage technology that helps automate tax rules in various jurisdictions. This will help reduce errors and noncompliance so talent can spend more time focusing on strategic initiatives that drive the business forward.

Challenge #2: Payroll talent constraints

Today, organizations need to do more with less, and as economic downturns occur and disruption puts further strain on the workforce, payroll teams will have a heavier workload and greater pressure to deliver payroll accurately and on time.

There is also an increased risk of absenteeism as these essential employees may become ill due to a crisis such as COVID-19 or a need to take care of sick or vulnerable family members. Organizations must determine whether they have enough staff to address legislation in multiple regions, deliver pay accurately and on time to remote employees, and fill talent gaps when people leave. 

Action: If payroll talent isn’t given the technology needed to do their job efficiently and with fewer errors, they will spend time fixing issues associated with manual data entry and processes. In a Constellation Research analysis, Holger Mueller, VP and Principal Analyst says that the best practices of running payroll when ready and needed are now archaic, stating that real-time payroll is “now a standard for both employees and managers who want and need to make smart payroll-related decisions.”

Integrating payroll, time, and HR data into a single system can help cut down on reporting time and make data management much easier for payroll teams – avoiding the “payroll crunch” at the end of the pay period. Organizations can leverage payroll software that continuously calculates and updates payroll data immediately, cutting back on wasted time and helping to reduce the number of errors.

Challenge #3: A dispersed and increasingly global workforce   

The pandemic has challenged companies’ understanding of what roles must be done in a physical location and which work can be done remotely. A Gartner survey found that 82% of CFOs and finance leaders intend to implement remote working arrangements some of the time post-COVID-19. Employees are also desiring this type of working arrangement. In fact, three in five U.S. workers who have been doing their jobs from home during the pandemic prefer to continue to work remotely as much as possible.

As both companies and employees normalize remote work and processes become more digital, organizations are able to more easily operate across borders. However, global operations present new payroll challenges as companies need to adhere to various regional legislative requirements.

Action: The dispersed workforce will need to be paid correctly and on time, every time, no matter the location from which they’re working. Not only will this help organizations remain compliant, but it can also contribute to a better employee experience and in turn, retention. Additionally, centralizing payroll processes and data to get streamlined reporting across all operating regions can help companies gain a holistic view of payroll rather than aggregating data from disparate systems across locations.

Learn more: Leveraging a single, cloud-based solution for global payroll

Challenge #4: Heightening employee financial stress

Financial wellness is important in times of change and uncertainty as employees need greater financial flexibility. Employees are experiencing acute levels of financial stress due to the pandemic with recent research finding that over half of U.S. workers have struggled to cover their expenses between pay periods over the past six months. Employee financial stress can have a negative impact on business performance, from disengagement and higher healthcare costs, to an increase in sick days and turnover.

Action: Organizations can provide on-demand pay solutions in which employees will be able to gain access to their funds after they have finished their shift. On-demand pay technology calculates pay based on the continuous calculation of wages so employees get a true payday as opposed to a loan or advance based on approximated earnings.

As well, organizations can use self-service tools to enable employees to view their pay information so they can ask questions or raise concerns. Providing this visibility can build greater trust between employees and their employer, providing a clear differentiator for organizations to attract and retain personnel.

Learn how Danone supported employees’ financial wellness during the pandemic

Breaking the traditional payroll paradigm

Economic conditions are putting financial stress on organizations and forcing them to shift priorities.  Sommers says, “When the work from home mandates kicked in, the [pandemic] had an uneven effect on companies depending on the country you were in and the ability to access data remotely.” Many organizations were scrambling to focus on stability and resilience, for example, understanding the role of essential workers and putting the systems and procedures in place to support business operations while keeping employee well-being top of mind.

Today, cloud solutions deliver up to 3.2 times the ROI of an on-premise solution because of the efficiencies they provide. Despite this, only 39% of companies globally were using cloud-based technologies for payroll functions prior to the pandemic. While the recent crisis has presented many challenges for companies, it has also created significant opportunity for leaders to rethink how payroll has been done in the past and invest in solutions for the future. The pace of change is only accelerating, which means organizations will need to be better equipped to address these key challenges as well as new ones that may arise.

Download the Future of Payroll Survey to learn more about transforming payroll into a strategic function or read about payroll outsourcing to determine the right approach for your organization.