Closing the Skills Gap With Smarter Payroll Data

Aug 8, 2019  | Topic: Analytics

In its annual global survey of CEOs, Ernst & Young repeatedly identifies human capital management as the single greatest challenge for long-term business growth. Payroll spending remains the biggest controllable cost facing most companies, yet few take advantage of payroll data analysis to ensure the investments they make into human resources are smart ones, aligned with the strategic business goals of their organization.

Company executives regularly mine data sources like ERP, IT, and sales systems for business insights. Yet, the relevance of payroll data is often overlooked, leading to inefficient hiring decisions and uninformed finance and HR practices. Why ignore such a valuable trove of employee data?

For one, corporate payroll systems are typically fragmented across countries, making it difficult to gain a holistic view of workforce costs and employee performance. On a deeper level, assessing the value of talent in a tangible, measurable way remains a challenge for many business leaders. However, although human capital can be sometimes difficult to quantify in dollar terms, payroll data can go a long way toward helping global organizations ascribe a monetary value to a specific skillset in a given region.

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Payroll Insights that Drive Decision-Making

Today's leading global payroll solutions include real-time analytics tools that HR leaders can use to guide key decisions around workforce planning, talent acquisition, employee engagement, and more. While high-level data analytics can inform broader business strategies, at the most basic level, payroll data analysis supplies crucial information around the bottom line of human resource management. 

For example, the fact that a software developer with 10 years of experience commands a higher salary than a recent college graduate is common sense. But less intuitive is the understanding that the same developer might cost more, for instance, in the US than in Germany. For HR professionals aiming to close a specific skill gap with a strategic hire, these variances can make all the difference. 

Further to the point, to gain a complete picture of both the cost and value of a prospective hire, HR teams must consider a number of payroll expenses, all of which vary from country to country. These include statutory taxes, benefits, perks, the cost of office space — expenses that, in the aggregate, can easily compound the cost of a salary by a factor of two. This is the sort of information that can only be gleaned from intelligent, well-integrated global payroll.

Predictive Analytics that Dive Deeper into HCM

A more thorough understanding of employee costs is just the beginning. Payroll data can yield far deeper insights into talent management and business performance than just HR data alone. 

For example, the rise of automation, machine learning, and AI has many organizations re-evaluating functions that can be augmented or replaced by automated systems. The data shows that companies should look to automate specific activities, rather than entire roles, which opens the door for current employees to spend more time on higher-value tasks or even take on more strategic activities. Payroll data can help not only inform these decisions, but also provide a framework for retraining and upskilling existing talent to take on new roles. 

Another business case could use a smart global payroll solution with deeply integrated analytics to create an employee-facing HR system that incentivizes workers to invest in their own future, delivering new value both for themselves and the company. Imagine a simple, streamlined interface where employees can plug in their existing skillset, add a new skill they’re considering acquiring, and instantly receive a salary estimate for what they could earn. Conversely, employers could use the same system to drive awareness around an existing need, encouraging current workers to close the skill gap internally rather than through a new hire. Such an approach not only boosts company morale but may also shield the organization from various costs incurred with new hires.

The idea of such a system represents more than the future of payroll — it offers a re-contextualization of the very relationship between employee and employer. It also encapsulates the potential of using payroll and HR analytics together to enhance the HR function, as well as broader business outcomes. While some organizations may continue to drag their feet in accepting this new paradigm, it's becoming increasingly clear that the future belongs to those who embrace it.