How can risk become a competitive advantage through smart payroll?

A smart payroll transformation strategy is crucial for organizations looking to manage compliance and offer competitive HR services.

In brief: 

• Administrative payroll processing requires specialized knowledge and experienced resources to keep up with evolving regulations.
• Organizations with growth ambitions must proactively navigate payroll challenges and understand the need for a re-evaluation.

Key administrative functions such as payroll processing are extensive in the breadth and importance of the services they provide. It is a value driver and a key enabler for the organization and its employees, and is an incentive to retain talent. An agile payroll operating model supports day-to-day employee payroll management activities while maintaining compliance, managing risk and keeping up with industry practices.

Over the years, as a product of the ongoing digital transformation and the ripples left by the pandemic, administering payroll has grown into an increasingly complex and risky process. The latest edition of the EY Global Payroll Survey shows that organizations continue to deal with many internal and external challenges to achieve the payroll model of the future. These challenges have left a deep impact on the payroll function’s ability to manage risk and secure the talent they need.

Inna Wahlberg (Global Payroll Operate Leader, Nordics, Partner) looks at some of the most pressing questions surrounding payroll management and transformation today.

What are some of the global and local challenges that companies face with payroll?

There are several challenges that affect the way organizations run their payroll operating model today. Payroll operations are a bit of an underappreciated science — while it touches everyone in the organization and poses a significant risk, it is not one of the most visible functions and is often a little underfunded or under-resourced. Organizations might also not have a sufficient global governance model in place.

Additionally, organizations tend to reduce costs when it comes to back-end support functions. They mostly look for the most cost-effective solution that gives them the best features. But no solution covers payroll operations holistically without significant investment.

In cases where organizations are looking at payroll transformation, there are often instances where there is a lack of understanding of payroll services and how they can be improved. A combination of strict frameworks and inexperienced buyers might result in decisions being made in the purview of pricing alone.

These challenges are further compounded by the fact that the regulatory landscape is continuously changing. Compliance and reporting requirements continue to increase while local, state and federal labor laws keep evolving. The sheer number of internal and external factors that impact payroll can make payroll transformation a challenge.

How difficult, or easy, is it to transform an organization’s payroll operations?

In most cases, organizations have a working payroll operating model that they’re familiar with. The perceived risk of a change and its ability to destabilize operations if not done right is what dissuades organizations from thinking about a transformation.

More than half of the respondents from the EY Global Payroll Survey say that conducting business with their payroll provider is not easy. Even though the challenges are complex considering the number of people it will impact, the act of payroll transformation is probably harder than it needs to be.

While thinking of reimagining payroll operations, organizations need to take care that they have someone with experienced insight, guiding them. This might involve choosing a vendor they can trust for strategic advice, as these are going to be long-term relationships — one does not simply transform payroll overnight.

The ability to completely trust your vendor on the payroll transformation roadmap is paramount. While in some cases organizations might need to change their payroll vendor altogether, there are opportunities to evaluate current systems and partners to improve operations.

At the least, it is prudent to regularly review and assess existing technologies so that they are up to date with changes in law and business practice, eliminate unnecessary functionality, and update key parameters. Organizations can also set up key performance indicators (KPIs), clarify roles and responsibilities, and identify controls for approvals in the transformation roadmap.

What are some questions organizations must address before a payroll transformation?

Without clear goals or objectives, it will be impossible for your payroll transformation to meet its objectives. A few questions to start with are:

• Am I looking for cost savings?
• Do I need to simplify my vendor landscape?
• Should governance be made easier?
• Should we do this to maintain compliance?

Before embarking on a payroll transformation project, it’s important to have a deep understanding of the challenges you want to address.

In addition to setting a clear goal, there are external factors that must be considered. Practically all jurisdictions in the world have a complex local statutory environment around HR and payroll. International businesses have the added challenge of facilitating compliance in both global and local operations. Without visibility, it is difficult to know whether the right controls are associated with the process. Inefficient and inconsistent processes that do not talk to each other can end up costing a business its reputation and may also result in fines and penalties.

There are both direct and indirect costs involved in payroll, some of which are not necessarily visible. Looking at the different challenges, one big question to address and start with would be, “What is the biggest problem that’s causing me the most pain?”

How does payroll transformation impact employee experience?

The impact on an employee if you miss a payment date or pay incorrectly, is significant. Employee experience is key to the success of any internal process transformation. Any payroll transformation will be felt by the employees — whether it’s a positive or negative experience. A great payroll function facilitates transparency, availability and accessibility to employees at all times.

Most of the time, a transformation project like this is completely transparent to the employee. The minimum expectation is to minimize disruption for employees, but challenge ourselves to find new ways to quietly improve the employee experience.

For instance, providing easier access to information through technology can help employees address basic questions quickly and resolve issues independently and efficiently. It also frees up in-house resources to deal with complex queries and strategic work rather than with practical and tactical issues.

Reliability, dependability, accuracy, compliance and timeliness are the qualities that will help your payroll function make people feel secure.

What are the benefits of outsourcing payroll operations?

Resource availability is a major requirement for back-office operations. If an organization is facing a key person risk in the delivery of essential functions such as payroll — a possibility that the COVID-19 pandemic highlighted — you might suddenly realize how thinly spread you are, as an organization.

In such times, having a qualified payroll vendor who takes care of these operations is pivotal. Even in the face of a crisis or while battling a resource crunch, organizations can lean on a trusted vendor that has vast resources and is contractually bound to supply services according to agreed standards. While the ultimate responsibility always lies with the employer, you can dilute the key person risk substantially.

A specialized service provider can also tap into a more extensive list of capabilities and abilities within its network, so you can get specialized knowledge and leverage a broader experience base than you may typically get in-house.

How do EY teams work with clients to make payroll transformation ambitions a reality?

There are different complexities surrounding payroll in every country. Locally, the EY organization covers close to 160 jurisdictions and stays close to the ground, following country market trends and statutory evolutions. We then help ensure that the local experience that EY clients prefer, is combined with one process across the globe. EY teams also leverage knowledge from their global experience to provide clients with the right access and visibility regardless of whether their role is local, regional or global.

The EY organization has a wealth of project experience — about diverse operating environments and associated challenges — thanks to the extended services it provides. EY professionals across the world are recognized for their subject-matter knowledge and form a global network that works together to provide leading services for clients.

When you run payroll, doing it accurately, compliantly and timely are key success factors. We've invested quite significantly in technology, and in the services that EY teams have helped deliver across the globe. This also helps EY teams support the expansion of operations as and when needed. From a global or regional HR practitioner’s perspective, they get a broad insight into how the service is running, including access to global data, service metrics and a collaboration platform, all in one.