Riding the waves of payroll disruption with payroll outsourcing services

As we mark another quarter of working through the pandemic, the strategic focus for organizations is shifting from short-term sustainability to long-term productivity. A renewed push for efficiency, increasing reliance on technology to do the heavy lifting, and growing preference for remote-centric operational models, have all posed challenges for employees tasked with ensuring operations continue smoothly.

Within payroll operations specifically, the traditional strain of disparate systems and tight timelines is further compounded by a need to do more with less. These constrained conditions are beginning to show their adverse impacts, with one in five U.S. Payroll Executives admitting to an increase in payroll errors since the start of the pandemic ^[1]. To successfully ride through these waves of disruption, the case for payroll outsourcing services has never been stronger. In answering why, we can liken it to the approach for mastering how to surf.

Step 1: Choosing the right wave

Look at any payroll process and the core objective is clear – pay employees accurately and on time. However, payroll’s complexity now extends far beyond payday. The approach for managing these layers of complexity is diverse and often inconsistent, as evidenced by the following:

• Decentralized models: Only three in 10 organizations report having very high or full standardization globally ^[2]  
• Ill-defined policies: Nearly four in 10 companies process off-cycle payroll corrections on a case-by-case basis ^[3]
• Multi-vendor environment: On average, organizations use four third-party payroll technologies ^[3]

With a forecast of turbulent times ahead, the need to free up internal staff for strategic to-dos grows daily, and many in-house teams have lost the capacity they’ve traditionally used to methodically select and prioritize individual tasks for a successful payroll run ^[4]. The clear and centralized structure of payroll outsourcing services, bolstered by a unified user experience with a single technology, manages the payroll process from start to finish to directly address team concerns.

Read next: Outsourcing payroll: Supporting business continuity and reducing risk exposure

Step 2: Eyeing your target

Though the details on committing your pay run may vary with specific organizational and legislative requirements, the desired outcomes of the payroll process should be informed by industry leading practices. This industry alignment serves as a valuable tool in helping contextualize and benchmark operating metrics for stakeholders. Take, for example, the following questions:

1. What is the current accuracy level of employee payroll?
2. How timely is the delivery of employee payroll?
3. Can the current payroll team support an employee population growth of X%? What would happen with the inverse, such as a contraction of Y%?

Not only will a payroll outsourcing partner have answers to these questions, but they will also assess their performance with directly measurable and quantifiable operating targets.         

Furthermore, for companies swiftly adapting to unpredictable mandates like teleworking and employer-administered tax deferrals, realigning operating targets means being faced with a tidal wave of complex regulatory considerations. In fact, in a study conducted by the American Payroll Association, changes to payroll-related legislation is cited as the biggest challenge by 43% of U.S. Payroll Executives ^[1]. Ensuring compliance and staying on top of updates can require a significant investment of time and resources, drawing away funds that were earmarked for other strategic initiatives. Through the continuous compliance monitoring delivered by a trusted payroll partner, you’ll have the upper hand in knowing that your targets can endure today’s high velocity of change.  

Read next: Payroll challenges organizations will need to overcome to thrive in the future 

Step 3: Adjusting your position while riding the wave

Supporting the current economic volatility has increased the pressure on payroll managers to ensure their teams are aligned to strategic goals. By responding with routine reporting on key performance indicators (KPIs) and balanced scorecards, organizations have solved the question of ‘where we are today’, but often lack the bandwidth to close the loop with ‘and here’s where we’ll be next week, next month, next quarter, etc.’. With a well-defined governance model and KPIs tied to a single service level agreement, payroll outsourcing providers are directly accountable for ensuring teams stay on track and on target to established goals and objectives.

This single point of accountability is valuable on several fronts, including:

• Establishing a single source of truth for the operational, tactical, and strategic levels of the organization;
• Defining a communication frequency that enables data-informed decision making throughout the operating year; and
• Responding to key developments with strategies that have already been validated out in the field

Step 4: Picking the right surfboard

Realizing the full potential of Managed Services hinges on ensuring that you have the right partner identified for the role. Here are a few questions to help guide the evaluation process:

1. What is your expertise and experience with similar organizations?
2. How are regulatory updates reflected in the system?
3. What channels are available for customer support?
4. How are you refining your processes for continuous improvement?
5. How have you transformed your service in the face of this year’s disruption?        

Now all this talk of keeping pace with payroll disruption reminds me of an expression that you’ve likely heard before (by Heraclitus, and yes, I had to look that up): “The only constant in life is change.” Though I concede that it wasn’t uttered about payroll operations specifically, I think today’s market reality is proof all on its own. Whether it’s the Coronavirus Aid, Relief, and Economic Security (CARES) Act in the U.S., Emergency Wage Subsidy in Canada (CEWS), or the Coronavirus Job Retention Scheme (CJRS) in the UK, employers around the globe are being forced to adapt to evolving regulations. While in-house teams scramble to comply, for the nearly seven in 10 organizations that outsource some aspect of payroll today ^[3], they continue to stay focused and ride out the high seas with the support of their trusty surfboard.      

[1] Managing Payroll in a Pandemic by American Payroll Association & TMF Group

[2] 2019 Global Payroll Survey by EY

[3] 2020 Payroll Operations Survey by Deloitte

[4] Impact of COVID-19 on Payroll by Zellis