Why is Everyone Talking About Payroll?
Jan 31, 2017 | Topic: Strategy
Senior stakeholders of multinational companies have always respected that Payroll is important… but largely, that’s only because they've always respected that their people are important. If people aren’t paid properly, the organization has a problem.
Those dynamics have long carved Payroll into a problematic niche. For decades, Payroll's importance to the enterprise has only emerged in the event of issues: If stakeholders were more vocal than usual about Payroll, it was likely for the wrong reasons: paycheck errors, payment delays, and so on.
But Payroll’s niche is beginning to shift. Across organizations of all sizes, the conversation about Payroll services is getting much louder, for reasons that have little to do with payslips, withholding totals, or other tactical concerns.
Due to bigger, broader changes in business technology and enterprise administration, organizations are revolutionizing their processes across many different functional areas – enabling them to deliver more strategic value to the business at large. Especially as the Finance and HR functions are increasingly transformed and shifted to the cloud, they’re taking a broader conversation about Payroll (and its importance) along with them.
Enterprise administration, powered by the SaaS
With the expansion of Software-as-as-a-Service (SaaS) technology, various business functions – especially those related to business administration – have moved to the global cloud at varying paces over the last ten years, contributing to the increasingly massive cross-border flow of data. According to McKinsey research, the volume of global data transmissions has grown by 4,500% over the last decade alone.
Two of the most important administrative areas contributing to the “digital globalization” of businesses of all sizes are the typical parent departments of Payroll: Human Resources and Finance.
It makes sense that HR was one of the first functions to embrace the cloud: As companies – even smaller ones under 1,000 employees – have expanded across borders to seize new business opportunities, their HR functions have demanded solutions that can meet their needs in managing a cross-border workforce.
Technology providers have responded by creating popular cloud-based global human capital management (HCM) solutions that simplify workforce management across continents and are accessible to organizations of all sizes.
Organizations that have embraced cloud HR solutions have seen success: According to the 2016-2017 Sierra-Cedar HR Systems Survey report, over 60 percent of core HR technology purchases are cloud solutions, and organizations with high rates of cloud adoption are 2-3 times more likely than others to feel that their HR applications always meet their business needs. In the 2018-2019 HR Systems Survey, Sierra-Cedar reported that HR cloud adoption had increased by 14 percent over the previous year and just 37% of organizations maintaining an on-premise solution, a move that resulted in higher average user experience (UX) scores for cloud applications.
The Finance function, meanwhile, has been moving to the cloud at a far slower rate: As of 2013, only 2 percent of organizations surveyed by Gartner said they had moved the majority of their core enterprise resource planning (ERP) systems to the cloud. Yet a full 47 percent said they planned to do so by 2018. Separate analysis of global ERP implementations in 2018 found that fully 85 percent were a mix of SaaS and cloud deployments, compared to just 15 percent on-premise solutions, marking 2018 as the tipping-point for the Finance function to become fully SaaS-enabled.
Of course, every enterprise function embraces new technologies at its own unique pace and comfort level. But the disparity in the speed of cloud adoption between the HR and Finance functions created an unexpected break in the historical relationship between the two, unintentionally making them more segregated than they should be.
HR and Finance have always needed and relied on each other, but achieving strong alignment and collaboration between the two functions (around goals, workforce plans, business challenges, and so on) is a challenge without integrated systems. Now that both functions are becoming truly “cloud-friendly,” however, there is stronger system-to-system integration between many SaaS HCM and ERP solutions – supporting greater alliance and better business intelligence sharing between many HR and Finance departments.
Cloud technologies are also helping organizations cultivate higher-quality data and more accurate intelligence across HR and Finance. As multinational companies invest in using that data to support more mutually beneficial decision-making and shared goal-setting across the administration, they’re naturally looking to extend the benefits to the process that brings their entire enterprise together: global Payroll.
Payroll as a more powerful enterprise priority
While international payroll has always held an innate significance as the vehicle for compensating employees for their contributions to the business, its importance is evolving as its parent functions migrate to the cloud.
Where payroll management falls within a given organizational structure typically depends on company size: A 2014 Deloitte study found that Payroll reports to Finance for 80 percent of companies with 1,000 to 10,000 employees, but reports to HR for around 60 percent of companies with 10,000 to 100,000 employees.
Regardless of where it reports, however, Payroll is the thread that weaves together an organization’s entire administration. Especially now that Finance and HR are more aligned (and more strategically minded) than ever, they rely on Payroll’s critical data outputs to inform their functions and strategies.
Why HR is talking about Payroll: Attracting, securing, and retaining right talent.
Amid talent shortages and changing workforce expectations, HR’s challenges in recruitment, talent management, and workforce planning are getting deeper. But making the right HR decisions demands high-quality demographic and salary data on the existing employee base of the entire organization. To cultivate a single source of truth on that employee base, an organization must deploy payroll operations that maintain data integrity around the globe and use a solution that integrates effectively with its HCM.
Why Finance is talking about Payroll: Containing costs and measuring ROI.
Businesses typically spend between 40-60 percent of their total revenues on payroll revenue – making it the largest expense across the organization. That makes Payroll’s effectiveness and efficiency hugely important to the Finance team from a cost-containment perspective. More importantly, however, it also means Payroll data should be a resource for determining the return on an organization’s investment in its people. To make the right strategic decisions, Finance should be able to compare compensation costs and other payroll expenses against their revenue outcomes for all locations across the enterprise.
And let’s not forget the strong relationship between Compliance and Payroll, focused on reducing enterprise risks and legal costs. Multinational companies must comply with an ever-shifting landscape of country-specific (or even jurisdiction-specific) regulatory and statutory guidelines. Meeting many of those guidelines falls on the shoulders of in-house Payroll functions, yet many compliance teams lack visibility into whether payments and documents are filed by Payroll in a timely and appropriate manner – injecting unnecessary risk into the Compliance function. With more transparency and visibility into Payroll, Compliance can more effectively manage its responsibilities while keeping legal costs and other repercussions to a minimum.
That’s why the conversation about Payroll is getting louder: Because the power of Payroll to deliver strategic value to the business is getting stronger. In the new SaaS era, global payroll is not just about tax deductions, paychecks, and spreadsheets – it’s about serving a multinational company’s cross-functional administrative needs and strategic business goals in a comprehensive, data-driven way.
And as Payroll moves further from its traditional, tactical niche and into a more strategic areas of the enterprise, the shift creates new benefits and opportunities for both the Payroll function and its professionals. With automation lessening the amount of manual, generalist tasks (and human errors) of day-to-day payroll execution, the skillset and experience of the payroll team will increasingly be applied to broader concerns such as data integrity, workforce analysis, process improvement, and performance management.
Ultimately, the growing conversation around Payroll is the extension of a long-overdue shift. Soon, Payroll will be perceived as far more than a problem-prone area of business. As more and more stakeholders talk about Payroll, the power and importance of Payroll – well beyond payments delivery – will be respected in a stronger way than ever.