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Payroll’s Digital Transformation: Keeping Up or Being Left Behind?

BY: Kronos | 07/10/18

Most business functions are taking advantage of modern technology to migrate from outdated systems, better known as the digital transformation. But for many payroll teams, this doesn’t seem to be the case. For nearly 29% of payroll professionals, their payroll solution is 10 or more years old—meaning it was deployed around the same time the world was being introduced to Apple’s iPhone for the very first time in 2007. 

That finding was uncovered in the recent “Evolution of Payroll Technology Trendline Survey” by Kronos Incorporated and the American Payroll Association. The survey polled nearly 1,000 payroll professionals from small, mid, and enterprise-size organizations across all industries. The findings suggest outdated, manual processes and legacy payroll solutions limit a payroll department’s ability to track and report KPIs and hinder their ability to keep up with today’s speed of modern business.

Today’s Work, Yesterday’s Tools

Many organizations rely on payroll solutions implemented before the great recession.  This could be a costly business decision. Research shows that 66% of payroll professionals and 51% of HR practitioners say their organization occasionally cuts corners that may jeopardize compliance. This is true for more than 69% of respondent with systems more than five years old. The costs associated with not getting payroll right can be significant. The Wage and Hour Division of the United States Department of Labor reported that in fiscal 2017 they recovered more than $270 million in back wages from employers who weren’t compliant with wage and hour laws.

Companies may be reluctant to upgrade their aging payroll system. Many times, legacy systems have been highly customized and have complex integrations to multiple HR systems. These systems typically require scarce and costly resources to maintain as well. So, why introduce change (and fear of checks being wrong) when it’s not broken? But research has shown that employees have little patience for payroll problems. Almost 49% of American workers will seek new employment after just two payroll mistakes, such as being paid late or incorrectly. Compound that dissatisfaction with 37% indicating that they’d had to make a late payment on a bill due to a payroll error by their employer.

But not all is doomed. Some companies are benefiting from more modern solutions: one out of every 10 use a solution deployed within the last year, while about 27% use a solution that is less than three years old. These investments to modern payroll technology underscores payroll’s importance to the overall health of the business. Companies that are making the move know they need to stay abreast of the constantly changing wage and hour regulations. And, they recognize the contribution that payroll makes to the employee experience.    

The Pulse of Performance

Legacy solutions likely hurt payroll’s ability to accurately track and measure business outcomes. According to the survey, approximately 49% of respondents admitted that their payroll team does not regularly track and report on KPIs, a possible side effect of using such outdated solutions. For the 51% who do track KPIs, the most common metrics added over the last decade include measuring the impact of manual/voided/stopped payments (31%), payment errors as a percent of total payroll payments (23%), and total processing time per pay cycle (18%)—all of which are direct indicators of payroll performance and accuracy.

Progressive payroll departments are also focusing on their impact on the employee experience: about 19% now measure the average time to service employee requests per day, week, and month. This is significant because a slow response to payroll requests has a direct, negative impact on engagement.

What Keeps Payroll Professionals Up at Night

Changing business objectives will create significant challenges. When evaluating their existing payroll solution, 25% of survey respondents say merger and acquisition activity requiring the blending of two organizations presents the biggest difficulty to overcome. There is good reason to be weary, according to Thomson Reuters, 2017 recorded the most mergers and acquisitions in a single calendar year.

More common occurrences, such as annually evolving business goals (20%) and organizational changes, including new leadership or strategic direction (20%), are also viewed as obstacles due to their existing payroll solution. Yet, just 13% of payroll professionals are concerned with the impact their current solution has on their ability to manage new legislative rules and regulations. For payroll professionals, regulatory change comes with the job, therefore, not recognized as large of an issue with their systems as other changes.

Payroll’s Wish List

Digital solutions that empower the entire workforce, whether hourly or salary or manager or employee, is top of mind for payroll professionals. To make their own role more effective, payroll professionals responded their next solution must have:

  • On-demand reporting and analytics (87%)
  • Seamless integration with time and labor management to improve data quality (81%)
  • Comprehensive ability to track multiple worker classifications (76%), such as seasonal and temporary employees in addition to full- and part-time

An intuitive user experience (80%) and employee self-service (77%) also scored highly as “must-have” features. This is indicative that payroll teams and their organizations are seeing the connection between the paycheck, the employee, and helping to shape the all-important employee experience.

But most revealing was that almost all survey respondents (90%) say a solution that grants security-access levels based on position is critical. This would empower others within the organization—such as finance, operations, or executive leadership—to incorporate payroll data into their own reports for a more complete look at performance without exposing sensitive employee personnel information.

Without payroll, employees don’t get paid and if employees don’t get paid, they leave. The speed and accuracy with which payroll serves its employees impacts an organizations engagement, retention, and brand.

As payroll teams are making their way into the digital transformation arena, they need to evaluate the effectiveness of their existing systems. The world of business continues to evolve and change, and so must payroll and the technology used.