Analyst Perspectives

The payroll preparation process has long been a labor-intensive set of administrative tasks designed to ensure that everyone is paid correctly and on time. This historically has been a transaction- and compliance-centered function that involves manual adjustments, reconciliations and answering routine questions. However, things are changing. With the help of new digital technologies and delivery models, the payroll function today is delivering new value to the business through data-driven decision support and the facilitation of a better employee experience.

In our view, embracing this technology-mediated shift to a new style that we call “continuous payroll” is well worth an organization’s effort. We advise that those seeking improvement consider an integrated approach that not only optimizes the payroll function but also connects payroll with other HRMS, talent management and workforce management systems and their related information and processes. With this integration in place, organizations can make better and more strategic workforce-related decisions using payroll-related data such as overtime hours worked, PTO, types of bonuses paid, benefits participation rates and the ratio of regular to contingent worker costs.

For almost two decades, Ventana Research has conducted market research across a spectrum of areas related to payroll management, workforce management, total compensation and rewards management, and learning. We also have done research on the employee experience and candidate engagement. We used our continuous research and analysis of the market for business applications and technologies to guide our comprehensive approach to our recently published Value Index on Payroll Software.

We advise that organizations assessing their existing approaches or exploring a new RFI/RFP in payroll software examine our Value Index methodology and findings as they seek to understand how best to embrace an integrated approach that optimizes the payroll function and connects payroll with other human capital management systems and their related information and processes.

Over the last three decades, payroll management was widely outsourced; as a result most of its operations were either partially or completely severed from other HCM processes.

Modern payroll systems offer an array of approaches that deliver variable added value. While gross-to-net calculation engines may still deliver the same results, processing speeds can vary greatly, as can a particular software product’s ability to detect and resolve errors without restarting the calculation cycle. To varying degrees, software also differs in its ability to seamlessly maintain compliance and consolidate reporting and analytics across multiple regions (national, state, local and everything in between). Notably, several recent product releases also include robotic process automation, artificial intelligence and machine learning technologies that can instantly predict, detect and correct errors as well as chatbots that can field workers’ routine questions.

Over the last three decades, payroll management was widely outsourced; as a result most of its operations were either partially or completely severed from other HCM processes.

Now, however, technology is available that integrates the various aspects of human capital management, connecting HR, payroll, talent and workforce management information and processes. Furthermore, analysts, managers and executives can apply powerful analytics tools to enable better-informed decisions. In recent years it has grown clear that using modern tools, the payroll function can be an authoritative source for data to assess staffing and compensation trends and costs as well as monitor labor cost allocation scenarios and myriad other important workforce analytics. They thus can provide data and analytics that organizations can use to guide business strategy and goals.

Recent advances in these systems have also played a significant part in enabling organizations to work toward providing a superior employee experience, which is emerging as a requirement for attracting and retaining top talent. Workers increasingly expect an engaging user experience when entering hours worked or pulling up a current or past pay stub to confirm earnings, taxes and deductions. In new payroll systems, intelligent virtual assistants can provide conversational user experiences, answering questions such as “How do I fix a timesheet error?” or “When will I receive my first check?” These questions may not be critical from a business perspective, but they typically are urgent for the employee, and with these new tools they can be addressed within minutes rather than requiring a game of phone or email tag that leads to frustration and disengagement.

Also in the realm of the employee experience, one potentially significant advance is the possibility of flexible pay options such as pay cards, often complemented by ancillary services such as budgeting and planning tools. A pay card is a debit card that can serve as an alternative to physical checks or direct deposits, useful for employees without checking accounts.

Over the past decade, the payroll function has become firmly established in the cloud. For organizations, this means more frequent software updates and new releases but without requiring organizations to retrofit customizations. Consequently, cloud-based services generally mean less reliance on an IT department to manage implementations. Nevertheless, small and midsize organizations continue to gravitate toward less complex systems that provide reliability at a moderate cost, as offerings laden with innovative features often require a dedicated HR team to manage the deployment.

The Value Index on Payroll Software 2020 evaluates eight vendors’ products on an RFP model across seven categories of requirements. Five are product-related, assessing usability, manageability, reliability, capability and adaptability, while two quantify the customer assurance issues of vendor validation and total cost of ownership and return on investment (TCO/ROI). We urge organizations considering an upgrade in their payroll management systems to examine both our evaluation methodology and our findings.