Often overlooked yet crucial, payroll software is responsible for calculating and disbursing -60% of an organisation's costs and ensuring that employees can pay their mortgages and feed their families.

Get it right, and everyone is happy. Get it wrong, and you could face headlines for all the wrong reasons or, worse, lose valuable team members' trust.

Why then does it get so little attention and budget, and why are organisations happy holding on to legacy software that is often no longer supported by the vendor or the underlying technology it is written on?

I can think of a few reasons:

1. Reluctance to Fix What Isn't Broken: The phrase responsible for the majority of technical debt. Organisations often avoid updating systems that seem to work fine, not realising the risks involved.
2. Fear of Payroll Project Failures: Embarking on a payroll project can be daunting, with potential repercussions if things go wrong.
3. Budget Constraints: Many organisations are unwilling to spend the money necessary to keep payroll technology up to date.
4. Lack of Resources or Knowledge: Some companies do not have the internal resources or knowledge to carry out such projects.

None of these reasons even remotely come close to the impact of payroll failure, even on a single payday. In this article, I will outline the current and likely future state of payroll technology, its impact on payroll and HR specialists, and some of the challenges we face.

 

Payroll Technology – Current State

We have come a long way from the days where payroll software was installed on someone’s PC or a dusty old server that has not been updated in 5 years. The days of batch processing and waiting for hours to see your changes are mostly over.

This is an exciting era, with lot’s on new technology around, we just seem slow at embracing and adopting.

Here are some of the trends we are currently seeing in the Payroll Technology market:

Cloud Technology

Despite cloud technology's long-standing presence, its adoption in payroll has been slower than expected. However, a shift is underway as companies adopt 'Cloud first' strategies driven by their CIOs/CTOs. Most new implementations are moving to a full cloud platform or, at the very least, a hosted option (PaaS). Here are many good reasons for this:

• Reduced Server Management and Security Risks: Companies no longer want to manage their own servers and software.
• Always Up-to-Date: Cloud platforms are continually updated to the latest versions.
• Simplified Support: Helpdesk staff find it easier to support cloud platforms.
• Enhanced Data Access: Cloud vendors provide robust API access for easier data management.
• High Availability and Security: Cloud software vendors ensure their platforms are secure and always available.
• Remote Access: Cloud software can be accessed from anywhere without needing VPN/RDP.
• Scalability: Cloud vendors can quickly scale their infrastructure, maintaining up-to-date systems

While desktop software still has a place and will retain a market share, cloud technology is undeniably on the rise.

Integrations

Organisations demand seamless data integration across systems to streamline processes, reduce errors, and enhance efficiency. Almost all payroll technology projects now include some level of integration, whether with HR, finance, or ERP software.

When selecting a new vendor, scrutinise their APIs. Involve your technical team and request comprehensive API documentation to ensure they meet your business needs. Solid integrations can help with:

• Onboarding: Integrating new team members onto your payroll product.
• Finance Integration: Reporting general ledger entries to your finance software.
• Record Creation: Creating records in other systems for new employees, such as Learning and Development, Performance Management, or Active Directory.
• Record Updates: Updating and removing records in other systems when employee records change, or employees are terminated in the payroll system.
• Compliance Reporting: Automating payday filing in New Zealand and STP in Australia, eliminating the need for manual uploads or reports to the IRD/ATO.

Integrations form a critical part of the ecosystem that constitutes an organisation's people, finance, and business systems, and can be invaluable if managed and supported well.

Automation and AI

Payroll is a transactional system and therefore is well-placed to be supported by AI and automation. Vendors are already introducing AI, machine learning (ML), and natural language processing (NLP) into their payroll software. Here's a deeper dive into their transformative impact:

Building Baselines and Detecting Trends:

• Advanced Analytics: AI analyses historical payroll data to identify patterns and trends, helping organisations predict future payroll needs and identify anomalies or inconsistencies.
• Trend Analysis: Machine learning algorithms detect subtle trends that might indicate issues like potential fraud, discrepancies, or areas for cost optimisation.

Exception-Based Processing:

• Efficiency Gains: AI processes payments by exception rather than examining every transaction, reducing workload and minimising errors.
• Focus on Outliers: AI flags only transactions that deviate from the norm, allowing payroll professionals to focus on resolving anomalies.

Real-Time Calculations:

• Instant Updates: AI-powered payroll systems perform real-time calculations, reflecting changes in hours worked, deductions, or benefits immediately.
• Immediate Corrections: Real-time processing allows for immediate corrections if discrepancies are found, reducing the risk of pay errors.

Chatbots and Virtual Assistants:

• Employee and Manager Support: AI-driven chatbots assist with payroll-related queries, such as understanding payslips, requesting leave, or making changes to payroll information.
• Natural Language Processing: Advanced chatbots use NLP to understand and respond to queries in plain language.

Natural Language Reporting:

• Simplified Reporting: AI enables users to generate complex reports and queries using natural language commands, eliminating the need for specialised knowledge of SQL or other reporting tools.
• Customisable Reports: Users can create and modify reports dynamically based on their specific needs.

High-Speed Processing:

• Large Volume Transactions: AI and automation handle large volumes of payroll transactions quickly and accurately, reducing processing time and increasing efficiency.
• Scalability: AI-driven systems easily scale to accommodate growing payroll demands, ensuring consistent performance.

Workforce Management Software Use Cases:

• Cost Calculation and Prediction: AI predicts labor costs based on various factors, helping organisations budget more effectively.
• Staffing Predictions: AI algorithms predict staffing needs for different times, events, or seasons, optimising staffing levels and reducing costs.
• Event Planning: AI helps organisations plan more efficiently for future events by overlaying data such as weather patterns, sales history, and past event performance.

AI and automation already play a large role in payroll software, driving efficiency and enhancing business processes.

Compliance

Compliance remains a perpetual challenge, particularly in New Zealand with its complex payroll legislation. Here are detailed examples of how payroll software supports compliance:

Tax Calculations:

• Automated Tax Withholding: Payroll software automatically calculates and withholds the correct amount of taxes based on current tax laws and employee information, ensuring accurate and timely tax payments.
• Regular Updates: Compliance modules are regularly updated to reflect changes in tax legislation, minimising the risk of non-compliance.

 

Holidays Act Compliance:

• Accurate Leave Calculations: The Holidays Act in New Zealand requires precise data and calculations for annual leave, public holidays, alternative holidays, sick leave, and bereavement leave. Payroll software automates these calculations, ensuring employees receive their correct entitlements.
• Complex Leave Scenarios: The software handles complex leave scenarios, such as parttime employees or those with irregular work patterns, ensuring compliance with the Holidays Act.

Payday Filing and Single Touch Payroll (STP):

• Automated Reporting: In New Zealand, payday filing requires employers to report employee earnings to the Inland Revenue Department (IRD) every pay cycle. In Australia, STP requires similar reporting to the Australian Tax Office (ATO). Payroll software automates these filings, reducing administrative burden and ensuring timely compliance.
• Error Reduction: Automated filing reduces the risk of manual errors, ensuring accurate and consistent reporting to tax authorities.

Employment Contracts and Union Agreements:

• Contract Management: Payroll software stores and manages employment contracts and union agreements, ensuring payroll calculations align with agreed terms, such as pay rates, overtime, and bonuses.
• Union Dues and Contributions: The software automatically calculates and deducts union dues and contributions, ensuring compliance with union agreements.

Data Privacy and Security:

Compliance with Privacy Laws: Payroll software helps organisations comply with data privacy laws, such as the Privacy Act 2020 in New Zealand, by securely storing and processing employee data.

• Access Controls: Advanced payroll systems implement strict access controls and encryption to protect sensitive employee information, ensuring compliance with data protection regulations.

Audit Trails and Reporting:

• Comprehensive Audit Trails: Payroll software maintains detailed audit trails of all transactions and changes, providing a clear record for compliance audits and internal reviews.
• Regulatory Reporting: The software generates comprehensive reports required by regulatory bodies, ensuring timely and accurate compliance submissions.

By leveraging AI and automation, as well as robust compliance features, modern payroll software not only enhances operational efficiency but also ensures organisations remain compliant with ever-evolving payroll legislation. This dual focus on innovation and compliance is essential for maintaining trust and avoiding costly penalties.

The Future of Payroll Technology: Predictions for the Next 5-10 Years

The landscape of payroll technology is evolving rapidly, with several key trends expected to shape its future over the next 5 to 10 years. These advancements promise to revolutionise how payroll is managed, offering greater efficiency, accuracy, and integration with other HR functions. Here are some predictions for the future of payroll technology:

Advanced AI and Machine Learning

Predictive Analytics and Insights

• Trend Analysis: Payroll systems will leverage AI to predict payroll trends, identify potential discrepancies before they occur, and optimise payroll processes.
• Employee Behaviour Insights: Machine learning will analyse patterns in employee behaviour, such as attendance and performance, to predict payroll needs and optimise resource allocation.

Automation and Self-Service

• Fully Automated Payroll: Advances in AI will enable fully automated payroll processing, reducing the need for human intervention and significantly cutting down processing time.
• Employee Self-Service Portals: Enhanced self-service portals will allow employees to manage their payroll information, request time off, and access their payslips in realtime using AI-driven chatbots and virtual assistants.

Real-Time Payroll Processing

• On-Demand Pay: Real-time payroll processing will enable on-demand pay, allowing employees to access their earned wages anytime rather than waiting for the traditional payday.
• Dynamic Adjustments: Payroll systems will automatically adjust calculations in realtime based on changes in work hours, overtime, or deductions.

Blockchain for Transparency and Security

Enhanced Data Security

• Immutable Records: Blockchain technology will ensure that payroll records are immutable and secure, providing a tamper-proof ledger of all transactions.
• Data Privacy: Blockchain will enhance data privacy by allowing only authorised parties to access sensitive payroll information.

Transparent Payroll Transactions

• Audit Trails: Blockchain will provide clear and transparent audit trails, making it easier to track changes and ensure compliance with regulatory requirements.
• Smart Contracts: Payroll agreements and transactions will be executed through smart contracts, automating and verifying payments based on predefined conditions.

Mobile Payroll Solutions

Anywhere, Anytime Access

• Mobile Apps: Payroll systems will increasingly offer mobile apps that allow employees and managers to access payroll information, make updates, and approve transactions from anywhere.
• Remote Management: Payroll administrators will be able to manage payroll processes remotely, ensuring continuity and flexibility.

Enhanced User Experience

• Intuitive Interfaces: Mobile payroll solutions will feature intuitive interfaces that simplify navigation and usability for all users.
• Real-Time Notifications: Employees and managers will receive real-time notifications about payroll changes, approvals, and updates directly on their mobile devices.

Customisable and Flexible Solutions

Tailored to Business Needs

• Modular Platforms: Payroll systems will offer modular platforms that can be customised to meet the specific needs of different industries and business sizes.
• Scalable Solutions: Payroll technology will provide scalable solutions that grow with the business, easily accommodating changes in workforce size and structure.

Support for Diverse Work Arrangements

• Gig and Freelance Workers: Payroll systems will adapt to the growing gig economy by offering features tailored to the needs of freelance and contract workers.
• Flexible Pay Structures: Organisations will be able to implement flexible pay structures that accommodate various compensation models, including performance-based pay and bonuses.

Integration with Emerging Technologies

IoT and Wearables

• Time Tracking: Integration with IoT devices and wearables will enhance time tracking and attendance management, ensuring accurate payroll calculations.
• Health and Safety Compliance: Wearables will provide data on employee health and safety, ensuring compliance with regulations and reducing payroll-related liabilities.

Virtual and Augmented Reality

• Training and Onboarding: VR and AR will be used for training and onboarding new employees, with payroll systems automatically updating records based on completed training modules.
• Remote Work Management: VR and AR technologies will facilitate remote work management, allowing managers to interact with employees and manage payroll processes in a virtual environment.

Focus on Employee Experience

Employee Well-Being and Engagement

• Financial Wellness Programs: Payroll systems will integrate with financial wellness programs, providing employees with tools and resources to manage their finances and improve their overall well-being.
• Personalised Experiences: AI-driven personalisation will tailor payroll communications and services to individual employee needs, enhancing engagement and satisfaction.

Continuous Feedback and Improvement

• Employee Feedback Mechanisms: Payroll platforms will include mechanisms for employees to provide feedback on payroll processes, ensuring continuous improvement and addressing any issues promptly.
• Proactive Issue Resolution: AI will identify potential payroll issues before they arise, allowing payroll teams to address them proactively and improve the overall employee experience.

Implications for HR and Payroll Teams

With changes in technology, we can also expect changes in the roles that work with it. We should all be aware of how Technology will impact on HR and Payroll roles, be prepared, and embrace this change, because change is certain. Here are some examples:

Strategic Role of HR

Shift from Administrative to Strategic Functions

• Focus on Talent Management: With the automation of payroll processes, HR can redirect their focus toward strategic activities such as talent acquisition, employee development, and retention strategies.
• Data-Driven Decision Making: Enhanced payroll systems provide valuable data analytics, enabling HR to make informed decisions regarding workforce planning, compensation strategies, and employee engagement initiatives.

Enhanced Employee Experience

• Improved Communication: AI-driven chatbots and virtual assistants enhance communication between HR and employees, providing instant responses to payrollrelated queries and improving overall employee satisfaction.
• Personalised Services: Tailored payroll services and financial wellness programs improve the employee experience, fostering a positive workplace environment and increasing employee retention.

Efficiency and Accuracy in Payroll Operations

Reduction in Manual Processes

• Automated Calculations: Automation reduces the time and effort spent on manual payroll calculations, minimising the risk of errors and ensuring timely and accurate payments.
• Streamlined Compliance: Automated compliance updates ensure payroll systems are always aligned with the latest regulatory requirements, reducing the burden on payroll teams and mitigating compliance risks.

Real-Time Payroll Management

• Instant Access: Real-time payroll processing allows HR and payroll teams to access and manage payroll data instantly, making it easier to address issues and implement changes promptly.
• Proactive Issue Resolution: Advanced analytics and AI predict potential payroll discrepancies, allowing teams to resolve issues proactively and maintain payroll accuracy.

Challenges and Considerations

Although we see technology progressing and changing for the better, with change always come challenges. These challenges are all ones that can be overcome, however we need to be prepared. Here are some to look out for:

Adoption and Change Management

Resistance to Change

• Cultural Shift: Transitioning to new payroll technologies requires a cultural shift within the organisation. HR and payroll teams may resist change due to fear of the unknown or comfort with existing systems.
• Training and Education: Effective training programs are essential to equip HR and payroll teams with the necessary skills to use new technologies confidently.

Implementation Challenges

• Integration with Legacy Systems: Integrating new payroll technologies with existing legacy systems can be complex and time-consuming, requiring careful planning and execution.
• Budget Constraints: Implementing advanced payroll solutions may require significant investment, posing a challenge for organisations with limited budgets.

Data Privacy and Security

Protecting Sensitive Information

• Compliance with Privacy Laws: Ensuring compliance with data privacy regulations, such as the Privacy Act 2020 in New Zealand, is critical to protecting sensitive employee information.
• Robust Security Measures: Payroll systems must implement robust security measures, including encryption and access controls, to safeguard data from cyber threats.

Managing Data Integrity

• Accurate Data Entry: Maintaining data integrity is crucial for accurate payroll processing. Organisations must ensure that data entry processes are precise and consistent.
• Regular Audits: Conducting regular audits of payroll systems and processes helps identify and address any discrepancies or vulnerabilities, ensuring ongoing data accuracy and security.

Conclusion

The evolution of payroll technology is set to bring significant benefits to HR and payroll teams, enhancing efficiency, accuracy, and employee experience. By embracing advancements in AI, automation, and cloud-based solutions, organisations can transform their payroll operations, enabling HR to take on a more strategic role and focus on driving business success.

However, this transformation also presents challenges, including the need for effective change management, ensuring data privacy and security, and navigating budget constraints. Organisations must carefully plan and execute their transition to new payroll technologies, providing the necessary training and support to their HR and payroll teams.

Ultimately, the future of payroll technology promises a more streamlined, efficient, and strategic approach to managing payroll, empowering HR to contribute more significantly to organisational goals and fostering a positive, engaging workplace environment. By proactively addressing the challenges and leveraging the opportunities presented by these advancements, organisations can ensure a successful transition and reap the long-term benefits of modern payroll technology.

Written by: Stephan Blumenberg - Director & Principal Consultant, Alxemy

As a thought leader in the field, Stephan Blumenberg is dedicated to helping businesses harness the power of innovative technology to optimise their HR processes, enhance employee experiences, and drive organisational success.

With a focus on staying ahead of industry trends and emerging technologies, Stephan Blumenberg empowers organisations to make informed decisions and achieve their strategic objectives in the ever