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Payroll process transformation – what do HR directors need to know?

By Chloe Lewis - Client Director - Alight Solutions

There’s no one better to tell us what HR directors need to know about payroll process transformation than an HR director herself. Chloe Lewis is a long-time HR director across three FTSE 100 (UK stock exchange) sectors, most recently as part of the HR transformation team at UK retailer, Sainsburys. Currently, she serves as client advisory director at Alight Solutions.

Q1. The Alight 2021 Global Payroll Complexity Index report says 40% of companies are looking to upgrade their payroll systems. What does this mean for HR leaders? 

Cost controls, workforce data insights, process assurance, visibility, efficiency, and governance together will serve to ensure a high performing payroll function driving getting the basics right and driving trust and engagement.

The pandemic reminded us that employees are vital to business success. All organisations need to ensure people processes are fit for the digital world of work. Lockdowns around the world highlighted the pertinence or remote access to vital applications and services. Payroll is one such.

Employee and wider stakeholder wellbeing, motivation and loyalty is closely linked to being paid accurately and on time every time, Governments also mandate this. The payroll process is strictly regulated and as is revealed in the Global Payroll Complexity Index (GPCI) report, fines for non-compliance are significant.

To have payroll in the cloud removes much of the stress of overseeing this highly challenging and essential process. Done manually or using a disparate mix of processes leaves it open to human error. Digital payroll automates much of the routine and error prone admin.

Further to this, with the parity companywide standardised brings to the payroll process, so HR leaders have the assurance payroll will operate smoothly, is secure and is low risk come what may. Artificial intelligence will highlight to any anomalies before they become an issue.

Q2. Why are HR leaders looking to upgrade their payroll systems?

Controls, visibility, policies and governance, integration with data from other departments, process assurance and efficiency, standardised visibility, and centralised data ensure better pay equity.

HR directors are also keen to bring payroll in line with the transformation of other HR functions. In many large firms, functions like learning and development, time and attendance, and leave administration are now largely self-service. Accessible via a mobile device, these are great for anyone not in a desk-based role. For HR, this increases the likelihood of people engaging with and taking advantage of L&D resources and career advancement opportunities.

The competitive advantages for both business and talent acquisition that comes from the clarity, insights, and governance process standardisation are manifold.

The operational benefits of single-source, real-time, highly accurate HR data excite the boardroom, too. Nearly all decisions, current and future, loop back to people – talent availability, cost planning, supply capabilities or performance, for example.

Throughout the pandemic, those HR directors who’ve been able to deliver such transformation have raised the profile and status of all HR departments. There’s been a clear link to performance among firms with digitised business processes and those without such processes. This loops back to why there is such a leap in proposed spending for modernisation of HR and payroll globally.

Pre-pandemic, conventional thinking around payroll was generally, “well it works, let’s leave it.” Lockdowns proved that “it works” is not enough. The past few years have proven that too many legacy and on-premise payroll systems don’t have the dexterity needed for the modern world.

While some are fast reaching end-of-life for support, the major issue with older payroll set-ups is they’re nearly impossible to access remotely without significant IT support investment. Such investment takes time, raising the risk of missed payroll, potential loss of staff loyalty, and compliance failure. Both costs are too great in an already crisis situation.

The GPCI also reveals more hidden challenges, including the very real possibility of unidentified payroll leakage. Year-on-year, this can cost US businesses tens of millions of dollars. This adds to the total cost of payroll and reduces funds available for talent acquisition, training and development of much-needed people. The business case for payroll modernisation has never been stronger.

Q3. What benefits can HR directors achieve by upgrading their payroll systems? Does it help with security and ID theft of employees?

With the correct access policies in place, there can be no more secure and efficient way to process payroll than in a well-managed or outsourced digitised payroll process. Platinum level security and personal identifiable information (PII) is by default, while automated processes eliminate the risk of human error.

Artificial Intelligence also serves to alert administrators to any anomalies before they become an issue, while robotic process automation and one-touch payroll drive mean time to payroll process completion. The GPCI report looks further at the rise in these innovations and the benefits that can be achieved by adopting them.

Q4. What features should HR leaders look for when upgrading through digital transformation? 

2022 is all about driving efficiency – not just in HR, but across the business. We need better controls, leaner processes, greater efficiency, and optimal functionality.

Digital transformation is the only way to achieve this. Whether managed in-house, by a specialist service provider, or fully outsourced, the payroll system must support continuous modernisation. It also needs to flex in the event we have another unprecedented crisis.

Payroll innovation is rapid. In the past two years, 63% of firms invested in Cloud-based payroll, up from 34.8% in 2019, according to the Global Payroll Complexity Index report.

Industry example – global truck driver shortage

People matter more than ever. Just consider the current, nearly global truck driver shortage and its impact on the entire supply chain. You can automate many aspects of a business, but without people, you can’t fully function. The failure of firms to ensure the steady supply of their products and services cannot be repeated if they want to survive.

An integrated HR and payroll process would have flagged the aging demographics of the driver population years before the shortage occurred. Firms could have implemented strategies to recruit younger drivers. However, it became clear that wages weren’t the entire issue. As inflated salaries failed to fill the gaps, it became clear that working conditions were a significant and persistent problem. When this news hit the airwaves, the industry suffered a major hit to its reputation.

Continuous performance management and sentiment surveys, both functionalities in modern HR processes, would have highlighted the problem and the shortage could have been averted. Unfortunately, many drivers took alternative, more favorable employment during the pandemic and don’t plan on returning to their previous jobs. It will take months for new drivers to train and qualify. The shortage will not be rectified anytime soon.

As we’ve seen, it is vital that HR directors lead the digital transformation - - focused on efficiencies, better operating models, and controls.

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