9 minute read 15 Mar 2021
Businesswoman reviews figures while talking on phone

How data will help the payroll function add value to businesses

By Sheri Sullivan

EY Global and EY Americas Payroll Operate Leader

A high-energy team player. An out-of-the-box thinker who puts 200% effort in achieving results. Straight shooter. Values ethics, integrity and performance.

9 minute read 15 Mar 2021
Related topics Tax Tax compliance Workforce

Implementing leading technology can help payroll unleash a whole set of benefits for both organizations and their employees.

In brief
  • Payroll has often found itself behind the technological curve, but the potential rewards reaped from digital transformation are too significant to ignore.
  • Fully digitized payroll processes will enable businesses to make far-reaching decisions around enhancing the workforce and improving employee experience.
  • By working closely with HR and finance colleagues, payroll executives can challenge their organizations to make a major leap forward.

The future of payroll — where the industry is heading — is one touch. By harnessing artificial intelligence (AI) and machine learning (ML), businesses will be able to comb through all of the systems that generate payroll information, gathering a vast swathe of data. Technology can then perform all relevant calculations, create all needed reports and, in due course, initiate payments and manage exceptions.

People’s roles will change as a result. With machines doing the heavy lifting and problem solving, payroll executives will be put in the position of simply needing to review the work — which can then be approved with that single touch. What’s more, having all that data will help improve broader decision-making and add value to the wider business.

Or that’s the ideal scenario at least. But in an era of profound digital transformation, payroll has traditionally been behind the curve. So exactly what is the holdup — and what are the rewards once the barriers are removed?

The reasons for delay are many, but primarily, payroll’s failure to join digital transformation initiatives at large has been an issue of focus. In practice, payroll either nests within HR or finance, but in either instance, these discrete functions view themselves as having more vital missions on which to focus. Payroll is a side issue.

It is also one of those areas where the organization pays little attention right up until the moment something goes wrong. Run payroll brilliantly and no one notices. Foul it up? That’s a blow to workforce morale and loyalty – union officials and government regulators get riled and company reputation and performance suffer. Consequently, payroll is a function where managers perceive little reward for taking even moderate risks.

However, it’s becoming increasingly clear that the benefits in transforming payroll through technology are significant – something that many organizations have already come to terms with. Put simply, the time has come for payroll to embrace digital transformation.

Technological hurdles

The days of antiquated, manual, FTE-intensive payroll are numbered. Developers have been hard at work creating tools and technologies that can disrupt the market. A number of external providers are stepping up, creating platforms that can take on and modernize huge parts of payroll execution. And for many small to mid-sized companies, these services can be an  effective solution.

But even as new offerings are being introduced, the industry is discovering that larger, more diverse and global companies cannot readily migrate to such platforms. The dream for these companies is the achievement of a source-to-gross-to-net payroll engine capable of handling a wide array of geographies.

The need for expanded geographic capability becomes even more pronounced when confronting challenges presented by new ways of working. Though accelerated by the COVID-19 pandemic, the future of working from anywhere and the “hoteling” of office space seems here to stay. Which means businesses will have less opportunity to place large groups of employees into geographic blocks for identical treatment from payroll.

Instead, the head office in New York, Frankfurt or wherever will have a workforce featuring team members residing and working from Philadelphia, London, Beijing and Budapest. The result is the splintering of homogenous blocks of workers into large caches of individuals, each presenting a unique set of tax and payroll requirements.

Next, consider the ever-widening, ever-changing basket of technical requirements for which payroll must maintain compliance. Rules and regulations can be imposed by everything from unions and federal governments to state/provincial or local authorities – all of which are playing active roles within this era of change. So, payroll’s needs are ever-expanding.

However, early offerings in the payroll space aren’t taking a global approach, nor are they adept at unique circumstances in a fast-evolving payroll context. Instead, the bulk of providers are trying to create engines that focus on a single or even a handful of similar geographies or industries and are then adding functionality beyond payroll’s needs. Such engines become too unwieldy for widespread rollout – and this is a huge inhibitor for companies whose operations are too varied, geographically dispersed and replete with numerous employees in unique payroll circumstances.

For such companies, it is proving difficult if not impossible to find a solution that can handle their entire footprint. To address such shortcomings, providers need to focus less on broadly expansive systems and more so on fundamental payroll activities.

The “shoebox” approach

Once a company or its provider begins focusing exclusively on core payroll activities, the technological opportunity becomes transformational. To better understand what can be achieved globally, think about an approach being taken by the EY organization on behalf of a number of clients — the pursuit of the shoebox.

All sorts of information is required to move from source to gross to net pay. Thinking about any payroll cycle, a wide range of data comes from many varied sources. Of course, different data sets are treated with different rules depending on their role within the source to gross to net process. So far, no system is able to perform all of the needed data collection, crunching and reporting without significant workarounds, which are primarily manual processes.

To drive change, the shoebox approach enables a company to collect everything that has an impact on payroll, pulling it all into one place, whether it’s a PDF of a spreadsheet or a data file. Phase one should focus on getting to a highly-reliable source pay to gross pay environment — noting that 70% of payroll errors take place in source to gross. This alone is a huge step forward.

Here, everything gets clearly identified – what is it, how is it sourced, how can they make certain it’s correct? This is a thorough examination of the process where controls and governance are established. For now, it may be a mix of manual and digital processes, but it’s all in one place.

This puts companies in a position to introduce AI, ML, natural language processing, robotic process automation (RPA) and related technologies. Machines can be trained to sift through the shoebox to identify which element is which, identify gaps or irregularities requiring human attention, but ultimately triangulating and executing appropriate treatment.

And this is already happening. It may be early days for many organizations, but the journey to actualize this transformational way of working is already underway.

Creating this optimal global automation of source to gross pay opens the door to the automation of workflows required within net pay. By comparison, this is a much simpler process, because once a company has its gross pay correct, the rest – all of the taxes or other payments – are primarily formulaic and are relatively easy for the machines to learn and execute.

The benefits of automation

Not all steps will be easy. If payroll itself has been slow to automate, the same is true for many of the downstream sources of needed information. Links to benefits charges, time and operating systems or sales and commissions programs – all of which have significant impact on gross to net payroll – are all-too-often antiquated.

But leaders are taking steps to move source to gross and then gross to net, from labor intensive and error prone to fully automated. Immediately, such businesses are experiencing a significant reduction in costs. But a slew of intangible benefits may actually prove even more valuable.

For starters, machine-enabled processes are, by their nature, proactively introspective and responsive. In short stead, the AI will become even more capable than humans in terms of identifying and highlighting troubling patterns including fraud, or otherwise noting when anything is missing or amiss.

In addition, fully digitized payroll processes will help businesses toward the highly prized objective of the one data model. That is, information is collected at its source, once and only once. The information – the data points – is clearly defined and its provenance certified. Now the data can be confidently shared within any analysis the company desires to perform, such as comparisons of labor or landed costs between geographies, providing vital insights to associated location decisions.

Similarly, companies will, for example, be better informed when making choices about where to hire new people, and how much these workers should be paid relative to others. Executives will also gain insight into areas such as when an individual should be on a more rapid career trajectory versus others who may need more support and experience.

A more rigorous digital environment in payroll also means companies can accomplish better compliance. Firms will be more capable in terms of identifying and investigating outliers, and will lean on sophisticated dashboards for critical, up-to-the-minute decision-making.

A final set of benefits centers on the relationship between employees and their employer. More so than most other elements of their experience with their company, payroll touches each employee in a uniquely personal way. But given a digital upgrade, companies can now greatly improve this experience.

It starts with greater quality and confidence – errors or delays become far less likely. But in addition, companies can now easily add more features. Imagine a phone-based payroll app where employees can see personal information, make adjustments to withholding tax or request proof of employment data for mortgages or other borrowing. Companies can even use AI to easily develop chatbots that can steer employees to the information or service they need 24/7/365.

Finally, there is a trend in global payroll today toward paying employees more frequently, with some advocating that pay should become daily. Businesses will ultimately decide what makes most sense for their employee relationships. But having an already digitized payroll platform up and running will make any future changes far easier to implement.

For too many companies, for reasons cited above, payroll remains a laggard in terms of digital transformation. Our position is that HR, finance and payroll executives need to huddle, taking a hard look at what can be accomplished today and then challenging their organizations to make the great leap forward.

Ultimately, the real heroes of this digital future are those payroll practitioners who can become deeply knowledgeable in regulatory and compliance matters, and who are also fantastic at communication and customer service. Whether in-house, outsourced or in some combination, the underlying processes can run themselves but must be continually updated to meet the needs of the business and its workforce.

Meanwhile, all must run according to the rules of today while also preparing for the rules of tomorrow. Problem solving, navigating and, where appropriate, informing and influencing future legislation – all become critical to the future of payroll. This one-touch future of payroll is achievable, today, now. Companies need to grasp this opportunity.

Summary

By using the latest innovative technology, payroll functions have the opportunity to truly transform their processes, bringing significant benefits not only to payroll itself, but to the broader business and to the employee experience.

About this article

By Sheri Sullivan

EY Global and EY Americas Payroll Operate Leader

A high-energy team player. An out-of-the-box thinker who puts 200% effort in achieving results. Straight shooter. Values ethics, integrity and performance.

Related topics Tax Tax compliance Workforce