David Barak: Let’s see if we can answer a big one first: Should Payroll report to HR or Finance?
John Pearce: I don't think there's a right or wrong answer to that. Really it depends on your company. The employees’ experience, which relies on payroll in terms of getting people paid on time and accurately, is something that HR will be really interested in. But the payroll cost, your human capital cost, tends to be the largest expense of the business, and your finance team is going to be very interested in that. I think in more traditional, conservative companies, you see it reporting into Finance, then in younger, growing, fintech companies, you'll see it in HR.
I don't think it makes a massive difference, and I’ve seen it work well both ways. Once you get to the size where payroll is more than one individual’s part-time job and you have a payroll team, it becomes irrelevant. Whether they sit in HR or Finance, the payroll person or team is wholly responsible for payroll and put payroll first.
DB: From your perspective as the head of CloudPay operations, including our EMEA, APAC, and Americas teams, can you describe some of the differences you see in attitudes toward the payroll function and its goals across the globe?
JP: I think there are cultural differences in how people who are working on payroll day-to-day treat, first, payroll itself and second, their outsource partner. Globally, in general, I would say there are changing attitudes towards payroll, which are being driven mainly by technology enhancements. The advancing technology is allowing visibility of payroll to a wide audience. That’s enabling payroll to be used more strategically, providing greater access to the metrics around total cost of payroll, total cost of delivering payroll, and so on.
The ability to identify opportunities to improve—where are we efficient and where are we inefficient—is starting to make a big difference across all regions, and we've seen significant increases in interest in those types of metrics. We see a shift in how leadership in our customer base is thinking about payroll.
I think when you decide to outsource payroll, you've got two objectives in mind:
The first is to improve your employees’ experience. Beyond just paying people accurately and on time, payroll has the potential to add value for employees and perhaps even become a point of distinction between you and other companies.
Second, you're looking at your payroll team internally to free up some of their time—to have less human capital spent getting the basics done and more time focused on adding strategic value to your payroll.
DB: Do you think the desire to outsource payroll has become more prevalent in recent years?
JP: There are more organizations that now recognize the value in an outsourced global payroll solution, Also, I think there’s less apprehension around adopting a solution that's in the cloud now than there was a decade ago. When I started at CloudPay in 2007, the cloud was a very scary idea. I think the transformations that happened in finance and HR systems have helped validate the cloud and pave the way for other departments to embrace it.
Another development is that compliance and controls around data are actually becoming increasingly burdensome for companies. Business leaders are recognizing that cloud-based solutions can help. So if they can find a partner or a vendor to work with for global payroll who can also fulfill the increasing demands of compliance and data management, that partner becomes very attractive. This is especially true for companies running payroll in multiple regions at multiple frequencies with all the local complexity and compliance regulations they have to contend with.
DB: Isn’t it interesting how that’s happened? For so long, compliance and risk management concerns meant organizations wanted to keep everything in-house. Now compliance issues are encouraging organizations to consider outsourcing models, because it’s almost easier to be compliant if you have a global partner.
JP: Absolutely, and CloudPay has been very quick to recognize that compliance is a key need for global businesses. As we’ve developed new tools and technology, we’ve also scaled up our internal compliance experts, because I think customers now recognize that the cost of managing compliance internally is getting higher than the cost of having a partner do it for them, at least as much as one can.
By using an outsourced vendor, companies can start to really limit who has access to what data. Plus, the vendor can provide assurances that they have the right protocols, security, and physical checks in place, which takes a lot of burdensome management overhead away from the organization. I think that will continue to drive more customers to look at outsourcing their payroll and other functions of their business.
DB: Staying on that point for a second, what do you think has been a bigger impetus for change in the payroll industry over the last five or six years, technology or compliance?
JP: If I have to pick one, I would say technology. Though in the last two years, compliance has begun to catch up, and I think they’re going to become equal drivers. In the next year or so, I think we’ll be looking equally at changes in compliance regulations and new technological capabilities as the biggest drivers of change in payroll.
DB: Looking back at the major technological advancements in the payroll industry, we can say first came the calculator, then Excel… what’s the next tech that will change the payroll industry, and is it already here?
JP: The next game-changing tech for global payroll is robotics and process automation. It’s going to massively change how payroll service is delivered, from both an outsourced supplier perspective and an internal customer perspective. And it’s already here for CloudPay. I think that's something we are leading the way with.
We have several products just recently released or about to come into production that are really looking to maximize the use of robotics and process automation. They provide a lot of obvious benefits, such as reducing the human capital cost of delivering service and reducing the risk of manual error. They enable us all to focus on the more interesting aspects of payroll and much more strategic pieces of the business.
DB: For the payroll professional, what are some of the tangible ways you see robotic automation changing what they do from day to day and what’s expected of them?
JP: Payroll professionals spend approximately 25% or 30% of their time validating payroll results—trying to identify where the input has not been processed correctly or where the input itself is incorrect. These are fairly manual tasks. Some professionals I speak to still do payslip-to-payslip checking against inputs to figure out if the payroll has been processed at the levels that they require.
If you introduce robotics into that, and you automate some of those repeatable checks, you're going a long way to minimizing that aspect of their work. At the very least, you’re reducing the amount of effort that goes into trying to spot an anomaly in the set of payroll results and the time spent investigating whether that anomaly is acceptable or a mistake that requires a correction.
For those payroll professionals, robotics will have an incredible impact on their day-to-day life and what it takes every month to fulfill their payroll duties. They’ll be able to spend less time running Excel reports, looking at payslips, checking if Bob's got his bonus of 150 dollars, and Frank's got his bonus of 250 euros.
These repetitive tasks can be completely automated and done instantly, which saves time and effort while improving efficiency and results. Rather than having each payroll team use their own method of validating or a clunky global set of validations that you hope each team follows, you get consistency of validation, consistency of control, at a vastly reduced cost of human capital.
DB: What would you say to the payroll professionals doing validations right now, who have developed their own tricks and workarounds to account for their unique organizational needs? Why should they have confidence in the ability of robotics to pick up the really granular variances in how one organization runs payroll versus another?
JP: I think there will be some exceptions, for example, where certain input types cannot be completely automated due to the nature of the actual downstream calculation. But in terms of differences between organizations, our robotics tools are built to allow different sets of customers to adjust tolerance levels and the underlying algorithm that's searching for those possible errors.
Payroll in its purest form is moving different bits of data around to get them into position for a math calculation to happen. Now some of that data is very complicated, and some of the moving around is very complicated, and some of the math is very complicated. Luckily, robotics are very good at doing those calculations.
So if we can take care of how you're moving your data, then really, we’re solving the biggest challenge of payroll, especially global payroll, where the collection and the movement of data can be the root cause of most issues.
DB: Let’s switch to KPIs. Which ones should a payroll department look at when trying to understand whether their vendor and their payroll function are operating optimally, and should those KPIs change as robotics enters the space?
JP: At the most basic level, payroll departments are looking to achieve an accurate and timely payment to their end users. That means primarily the organization’s employees, but the end users are also the local authorities to which companies have an obligation to pay their taxes, social security, and other withholdings. Regardless of other high-level goals, your KPIs must revolve around completing those basic requirements successfully.
The next thing to aim for is to spend less human capital getting to that end result. Your metrics then need to focus on where are you having to do extra work or additional corrections. That can be all the way upstream to your use of an HRIS system or data input collection. How can you more effectively collect data and parse it to the vendor that's going to process that data for you? There are lots of KPIs around timely and accurate data submission that can be monitored.
At CloudPay, we look at several metrics about getting the data in, then we have metrics around what we call “mid-processing errors,” and then we have post-process errors. An organization may pay people accurately and on time, but there may be an issue with another output, such as a finance posting, or a general ledger may have a suspense amount in it. It may be sent late. All of these are post-processing metrics that can be gathered and used to assess how effectively your vendor and your internal payroll team operate.
DB: A few years ago, you were involved in the effort to develop CloudPay Payments. Why did we launch that service, and how does it relate to the payroll department?
JP: Well, the final leg of the payroll process is getting payments to employees, so it's a significant part of payroll. Whether you transmit the payment as an electronic transfer or as a paper check, it's all part of the payroll process.
In many countries, such as the US, managing this final step in the payroll process has been the responsibility of the outsourced payroll provider for a long time. However, that isn’t the case worldwide, and there are plenty of discrepancies in payments standards and requirements from country to country.
The impetus for developing CloudPay Payments was really the customer demand for that service to be available, not just at a very specific country level, but more as a general, standard, global service.
Specifically, a customer for whom we were contracted to provide payroll was being sold by their parent company, and at a certain point in time, the new company would no longer have access to the parent company infrastructure, including the corporate and payroll bank accounts.
So they were on an incredibly tight timeline to get all of the back-end business migrated away from the parent company.
To help expedite things, the customer asked if we would be able to not only manage their gross-to-net calculations, but also offer a service that would ensure their employees were paid—so if there was any holdup in setting up local payroll accounts in their countries of business before the divestiture became final, they wouldn’t be stuck.
We were providing a version of isolated payment services already, so we had a good idea of how to do it. We had providers in place, and we had payments people in place already at CloudPay. So we took on that job, and it really brought us on a journey of figuring out how to turn that kind of one-off, almost custom, service into an offering that we could standardize and go to market with.
Payroll payments are at least, if not more, complicated than payroll calculations, and we’re still evolving our Payments service. There is a lot of compliance, technology, and disparate platforms that must be linked together to provide an efficient, automated payments process.
Luckily, at CloudPay, something we have solid experience in is using technology to bring technology stacks together, to automate manual processes, and to provide a single experience for our customers.
DB: You’ve recently taken over global payroll operations at CloudPay. Can you explain how we approach operations across the globe and how that approach may differ from other providers?
JP: The key to our solution is our technology platform. Beyond the gross-to-net calculation, the platform includes every product that goes into making the way we deliver payroll a significantly easier and better experience for both our internal operations teams and our customer payroll teams. Tools like our online Calendar application, CloudPay Control, and Collaborate are all aspects that build up our technology solution.
For the world in which we live and the world in which payroll and business operate, technology alone is not enough. You still need very competent professional people working with you, and that forms the basis of CloudPay: We are a global payroll organization.
We have payroll professionals who cross regions, who are experts in different payrolls, who speak multiple languages—just as our customers have people across different regions who speak different languages. We work to align goals and provide an attentive service experience to those customers whilst also delivering a superior technology experience. That’s what we’re always striving towards, and I think CloudPay do very well at delivering.
We've always been a technology-led company, and I think at the very heart of it, that's what we'll always be. However, the technology is nothing without the people behind it, who talk to customers about best practice, who are attentive to customer needs, and who are good at resolving issues or helping a customer when there's a tight timeline and things need to be done quickly.
DB: John, great conversation as always. Let’s end with something a little more personal: You’ve worked in payroll for some time now. What is it that continues to keep you engaged and interested in the space?
JP: That’s easy. I really, really enjoy working at CloudPay. I've been lucky to have so many opportunities in my nearly 10 years here. I'm really excited by the technology changes that we're going through and the service that the payroll industry is being dragged into by technology. Also, I work with great people. I get the opportunity to go to many different places for work, and that's good fun.
I’ve always liked math, and payroll, at its core, is math. It’s a really challenging thing to do 100% accurately, 100% on time,. So there's always new challenges to overcome, and that's exciting. Being able to figure out how to use technology to solve some of those challenges is really the biggest reason that I turn up to work every day.