New research finds organizations are moving to cloud-based platforms for global and compliance capabilities.
By Pete Tiliakos
Payroll transformation has become a priority for many organizations, finds NelsonHall’s annual Next Generation Payroll Services study. Historically, payroll has long been treated as a simple cost center, and frankly, many payroll departments have gotten by with disparate and outdated—albeit reliable—platforms that lack global reporting capabilities and require burdensome manual processes. And in some cases, payroll has been overlooked when it comes to allocating funding to improve the operating model.
However, this is changing as many organizations today are investing in broad HR transformation initiatives with increased demand for modern cloud platform technologies that can support the future of work and enable digital transformation. As a result, global payroll transformation has become a priority.
Many organizations have now moved to—or at least selected—a cloud-based HCM solution and are seeking to future-proof payroll operations by consolidating payroll to a single global platform and vendor governance model.
Today’s Payroll Challenges
With emerging organizations exploring international growth more frequently and those with an established multinational presence still operating on disparate, legacy platforms, outdated payroll operating models struggle to scale and take on the added entities and complexity of new markets. And managing payroll brings other challenges:
- Maintaining compliance with statutory payroll regulations globally has become increasingly difficult to manage due to the complex nature of the changing requirements.
- Decentralized solutions and little access to valuable yet commonly underutilized global payroll data and insights lead to poor reporting capabilities.
- There is a general lack of skilled payroll expertise in the workforce.
As a result, globally consolidated payroll solutions are increasing in demand and organizations of all sizes are turning to managed payroll services partners for help. Employers often underestimate the skills and effort required to manage modern cloud platforms, and many seek third-party solutions and expertise to ensure accurate, timely, and compliant payroll execution globally. In fact, in 2018, global deals saw a 55 percent increase from 2017 with multi-country deals showing a 40 percent increase.
Solutions Meeting the Challenge
Although core payroll service offerings have remained mostly unchanged, vendors are meeting the increasing demand for globally consolidated payroll solutions in several ways.
1. Investing in technology and digital enablers. HR service partners are dedicating, on average, 16 percent of revenues to advance their platforms and digital capabilities. Focus areas include:
- continuing to refine the user experiences across their platforms;
- enabling functionality to support the future of work such as on-demand payroll, which nearly a quarter of HR service partners expect to launch this year, and alternative payment methods like global pay cards and cryptocurrency;
- expanding robotic process automation (RPA) to drive out manual effort and improve payroll consistency and reliability of results;
- embedding artificial intelligence (AI) and machine learning (ML) capabilities into platforms and solutions for prescriptive guidance and in-context analytic insights; and
- enhancing analytics offerings to include more predictive capabilities, with 54 percent of HR service partners offering some level of predictive analytics and nearly 15 percent offering a benchmarking capability.
2. Creating more flexibility in how buyers consume offerings. Today’s solutions now have the ability to be customized. HR service partners are:
- enabling solutions to scale up or down market to accommodate a wider buyer audience;
- offering more levels of service to accommodate a wide range of buyer needs, including pre-packed solutions that range from simple processing up to comprehensive outsourcing;
- allowing for more stand-alone service adoption to accommodate point solution buying versus having to adopt a full-service arrangement.
3. Boosting multi-country capability. Nearly 90 percent of HR service partners in the study are offering some level of multi-country payroll capability, with country coverage averaging 85 countries. Additional investments include:
- expanding platform capabilities and partnering to support a broader range of countries including the UK, France, and Germany in EMEA, and Australia and New Zealand in APAC;
- investing in and enabling platform integrations—a critical component of global payroll transformation—with leading HCM systems; and
- offering more compliance-related services in support of global mobility and cross-border payments like EXPAT services.
4. Expanding offerings to provide more options. HR leaders are looking for new capabilities, including consulting and advisory, travel and expense management, and platform optimization and rapid deployment of solutions for cloud HCM adoption with integrated payroll.
Impacts of Payroll Partnerships
While payroll is operating in arguably the most complex and challenging environment in history, organizations of all sizes are achieving solid results from leveraging a managed payroll services arrangement. HR leaders in payroll partnerships are achieving cost, productivity, and headcount improvements enabled through an optimized payroll delivery model, supported by a modern cloud platform that is seamlessly integrated with the HR tech landscape.
An analysis of high-impact cases across partners in the study showed the following collective results:
- Average cost reductions ranged widely depending on many variables. Those reporting savings averaged less than 30 percent, achieved through a mix of process optimization, tech enablement, and low-cost near/offshore delivery locations.
- Average productivity savings was more than 20 percent. This is primarily achieved through standardization, consolidation, and process optimization. RPA, AI, and cloud platforms also play role.
- Typical headcount reductions average 50 percent and are driven by consolidation, process optimization, and RPA. This helps eliminate manual effort to reduce cycle times, allowing for payroll resources to be refocused on more value-added tasks.
Roadblocks to Transformation
Despite many success stories, there are still roadblocks to payroll transformation that often paralyze buyers from moving ahead with a partnership. The top issue is the inability to achieve a positive business case to justify change. Like any major business initiative or investment, showing enough ROI and impact can be difficult for HR leaders to accomplish. This is generally due to a lack of visibility and understanding for the actual—often hidden—total costs of the current solution.
HR executives are commonly limited in their ability to pursue transformation by their lack of strategic vision for payroll. Those who continue to see payroll as a simple cost center versus a vital element of HR transformation generally fail to see the value in transforming payroll globally and don’t enter partnerships.
Apprehension for wholesale change across the payroll landscape often deters HR leaders from moving forward despite the need to future-proof their current payroll model. This can be derived from concerns such as culture change, a fear of losing control over payroll, wanting to hold on to legacy solutions, or drain ROI out of past investments. Many organizations lack the skills and capability to successfully manage change in-house for a large-scale transformation program.
Lastly, while users of cloud HCM platforms are commonly addressing payroll transformation within an average of 12 months after HCM deployment, many HR leaders assume a modern cloud solution must first be in place in order to undertake a payroll transformation initiative. While this may be ideal, many organizations are successfully addressing payroll before or even at the same time as HR moves to the cloud.
Pete Tiliakos is principal analyst for NelsonHall.