Analyst Perspectives

The early days of my career were spent in HR and payroll systems inside brokerage houses and investment banks. The first CHRO I reported to thought the best way to develop a plan for automating payroll management was for me to run the function’s day-to-day operations. I had no previous experience in payroll but it was a good call, as the trenches of any operations area typically reveal a cornucopia of automation opportunities. Then again, it was a different time; back then the words strategy, decision support and employee experience were rarely heard in a payroll department.

A combination of emerging digital technologies and the ever-increasing determination to wring from HCM-related processes, data and metrics as much competitive advantage as possible has put payroll functions on a whole new trajectory, one that is much more about delivering strategic value. In fact, organizations should now view payroll management software alongside any other HCM technology with respect to its potential to enable significant business outcomes.

We are currently tracking these changes in attitude and emphasis in our Payroll Management benchmark research. This effort involves surveying HR and payroll practitioners and their internal customers on their payroll-related pain points and aspirations as well as the degree to which current technology is meeting their needs. Along with that, we are evaluating payroll management vendors through our Value Index research and plan to publish those results soon.

Today’s payroll management technology, particularly when it’s well-integrated with HR and other front- and back-office systems, delivers a number of strategic business benefits. As is true for other HCM technologies, organizations invest in and deploy payroll applications often to achieve higher productivity. Our previous benchmark research on this topic finds that demand for higher employee productivity is the top reason organizations invest in payroll management software, cited by 48 percent of participants. Of course employees will always have questions about their paycheck details, but the true path for a company to ascend the ranks against industry peers is not by answering payroll questions better or even by being more productive. Transforming a business to achieve greater success does, however, require good management of human capital-related costs and opportunities, and payroll data and systems absolutely play a role here.

New digital technologies for payroll management are making this effort possible. These include Robotic Process Automation (RPA) to convert, standardize and scrub local data needed for a global payroll operation; soon organizations will be able to use RPA as well to alert management that compliance regulations have changed in a specific tax reporting jurisdiction. Organizations today can use the predictive capabilities of artificial intelligence (AI) to determine where payroll staff will need to make manual adjustments. Often, organizations require experienced payroll staff and extra verification and reconciliation steps to perform payroll tasks such as calculating retroactive or prorated pay, or addressing timesheet errors. In these situations, organizations now can use AI to predict where and when overtime hours will be most prevalent, allowing an opportunity to intervene if the hours and associated costs are not justified.

Additionally, cognitive computing is now at the center of systems that determine what caused an error during a payroll run, in many cases resolving issues without staff intervention. This markedly reduces the time it takes to complete a payroll cycle. And thanks to the advent and rapid adoption of chatbots, the formerly time-consuming task of answering routine and repetitive queries such as “When will I receive my first check?” or “What if I entered the wrong information?” is now shifting to bots.

Organizations today are also making better workforce-related decisions using on-demand payroll data such as overtime hours worked, types of special bonuses paid and the ratio of regular worker costs to contingent worker costs. This is particularly true when operating within a broader human capital management data environment that offers predictive capabilities and the ability to efficiently integrate data from multiple sources. For example, linking sales and customer data to HR and payroll data can make enterprise-wide staffing and compensation decisions smarter when line managers know which employees are optimal and cost-effective within different business scenarios.  

Finally, because the employee experience is the top HCM theme this year, it is critical that organizations free up the payroll department staff from a wide range of time-consuming manual tasks to enable them to introduce a basket of new services to employees that positively impact their satisfaction and engagement, and thus their retention and productivity. These include providing on-demand, employee-controlled pay so that employees can actually initiate a payroll run for themselves, a capability more payroll vendors are offering or looking to offer. This alleviates stress for many non-exempt and hourly workers, as do pay cards that can be used as a debit or cash card, which can make a big difference for those employees without checking accounts. These cards also come with ancillary services such as financial planning and budgeting tools.

These new capabilities and opportunities are not without new challenges. For one, many payroll teams will need new skills to properly service their internal customers. Moreover, they will need new technology capabilities in an area where there is no tolerance for even minor errors.

Myself and Ventana Research is therefore very excited to continue our payroll management research, research covering both the practitioner perspective (our Optimizing Payroll Management benchmark research) and the market of payroll management vendors and products (our Payroll Management Value Index). Addressing both sides of the business technology coin in a comprehensive manner is not all that common within the HCM research and advisory community. But it’s what we do, and something we’re quite proud of and we hope you come, learn and participate in our research, as it what makes us different and a market research and advisory services firm!