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Payroll

“Future of Payroll Survey” Says No Time Like the Present to Look Ahead for Keeping Up With Industry Trends

Christopher Wood, CPP  

Christopher Wood, CPP  

Thomson Reuters Checkpoint talked with Lisa Weckman, Vice President of Product Management for Dayforce Global Payroll, Tax and Payments, and Workforce Management at Ceridian, about her company’s global survey collaboration with national and global payroll associations that aims to chart what’s ahead for payroll professionals. 

According to a recent global payroll survey, the “future of payroll starts today” for understanding the industry’s major challenges, which include global workforces, hybrid work, increased compliance concerns, and other important issues. 

The survey was conducted by Ceridian in partnership with the American Payroll Association (APA) and the Global Payroll Management Institute (GPMI). In June and July of 2022, APA and GPMI members and subscribers were surveyed online. There were 882 respondents from 23 countries around the globe that represent companies of all sizes. 

Payroll of the past 

Payroll has come a long way since the ratification of the 16th Amendment to the U.S. Constitution in 1913, which gives Congress the “power to lay and collect taxes on incomes.” The Social Security Act of 1935 followed, where contributions to the Old-Age, Survivors, and Disability program were imposed through a payroll tax on both employers and employees. Then, the Fair Labor Standards Act of 1938 (FLSA) established minimum wage, overtime pay, recordkeeping, and youth employment standards. 

Many changes for payroll professionals

Since these major amendments and laws involving payroll, there has been a myriad of changes to them and the addition of many others. There are also state and local laws, rules, regulations, and guidance related to payroll. Organizations with an international presence are required to know each country’s payroll laws in which they operate in order to maintain compliance and avoid audits, penalties, and lawsuits.  

Payroll is typically a business’s greatest expense, which encompasses several different areas of a business’s operations. Technology has affected how many payroll professionals (either in-house or third parties) operate. Understanding, awareness, and compliance are paramount. It is also important to keep up with industry trends and efficiencies that can allow more flexibility to analyze data to support business objectives. 

Payroll strategies more prevalent in businesses

In March of 2022, a Global Payroll Survey from Ernst & Young (EY) said that for “organizations to reduce risk, increase compliance and build a leading operational model, creating and documenting an organization-wide formal payroll strategy is essential.” That survey showed that 67% of respondents said they had a formalized payroll strategy in place (up from 61% in 2019). 

“Formalizing a payroll strategy is really important for the success of an organization and its workers because it’s going to help those payroll practitioners embrace new technologies that offer them access to payroll data [and] the means to measure their success…by utilizing modern systems that help give them access to that information…so they can overcome those obstacles they face today,” Weckman said. 

Workers want more from payroll

Also, a recent Price Waterhouse Coopers (PwC) survey showed that employees want more from their payroll experience, where some 76% of respondents stressed about their finances said they would be attracted to another employer that cares more about their financial well-being. 

“One option employers should consider is prioritizing employees’ financial wellness,” Weckman noted. 

Does the future of payroll involve a revolution? 

According to Ceridian’s “Future of Payroll” survey, “changing business and employee expectations will spur a payroll revolution.” It is becoming more common for a payroll practitioner to need to identify industry trends, share insights, and even resolve business-critical issues. The survey suggests that the future of payroll involves using this vital part of a business’s operations as part of its overall strategy for success. 

“Payroll is going to move from that traditional back-office sort of function to a more strategic business partner,” Weckman said on payroll’s future. 

Payroll pain points

According to the survey’s respondents, the biggest payroll pain points are compliance challenges (43%), managing the complexities of multi-jurisdictional payroll (34%), and inefficient processes (27%). Despite those responses, the survey discovered that just over half (54%) of respondents said they use cloud-based technology to process payroll. The survey urges organizations to modernize their payroll systems, methods and people to take advantage of payroll’s complete potential. 

“With the advances in technology, the cloud is the future,” Weckman said, adding the following three benefits to moving to the cloud: (1) scalability, (2) resiliency, and (3) elevation of security, which Weckman believes is the most important reason.  

Strategic payroll systems

The survey explains that having payroll systems that promote efficiency and visibility aids in helping organizations become more strategic, but its findings show that 85% of organizations experience limitations with their payroll technologies. Respondents said that the main limitation is the payroll system not having the necessary features (39%). Other limitations include not utilizing the payroll software to its fullest capacity (37%) and the payroll technology requiring too much manual effort (34%). 

Issues with payroll data

The survey also showed that 69% of the respondents noted widespread payroll data issues, with the most commonly cited data challenge as not having the right tools to properly analyze the data. The survey says that “this is especially problematic because unlocking insights from data, like overall labor costs or absenteeism trends, should be an essential part of a more strategic payroll function.” 

“There’s still a lot of work to be done, to prepare organizations,” Weckman said. She noted that such preparations “will be driven by technology and advancing technology solutions” and added that “we’re on the cusp” of these changes. 

“Payroll professionals are sitting on a wealth of data,” Weckman stated. “If they can get access to slice and dice it, analyze it, they would put themselves in a position where they can now make business decisions based on that data…that are going to drive value within their organizations.” 

Key performance indicators

The survey notes that there are opportunities to better analyze payroll performance by using key performance indicators (KPIs), which allows payroll teams to make assessments of their strengths and weaknesses. The survey explains that not using these metrics allows for more risk in organizations that includes inefficiencies, compliance issues and employee dissatisfaction. 

However, nearly one-third of respondents said their organization does not have any KPIs in place. A little more than half (52%) of those surveyed said that their organization is measuring payroll accuracy and just 37% have on-time delivery of payroll as a KPI. Another survey question showed that only 33% of respondents are tracking the time to process and commit payroll. 

Weckman noted that a primary reason for the lack of KPIs is employers getting “access to data for which to build those KPIs on,” in addition to it not being “top of mind for every organization” to measure the success of a business’s payroll process.  

Improving employee experience

The survey points to “employee-centric payroll methods” as an important part of talent acquisition and employee retention. Of the organizations that responded, 61% said that they are focused on understanding and resolving pay equity issues and 49% have pay transparency initiatives. 

“Things like pay equity are top of mind for employers and when they socialize that to their employees it creates this level of comfort knowing that their organization cares about them,” Weckman explained, adding that such engagement could be around opportunities or pay, among other things. 

The survey points to the importance of “fair-pay initiatives” for employee retention and talent acquisition since more than half (55%) of respondents to Ceridian’s ”2022 Pulse of Talent: Competing for Talent Takes More Than Pay” survey noted that pay is what employees value most at a job. 

On-demand pay

On-demand pay has been a topic that has been creating some buzz around the payroll industry in recent years. It is also referred to as earned or early wage access (EWA). In July 2022, a national research study found that 79% of those surveyed want to be able to have their wages paid the same day that they work. This 79% number was 30% higher than when the same research study was conducted in 2018. 

“With today’s economic conditions, giving employees access to their earned wages when they need it has proven to increase engagement.” Weckman began. “And it helps to attract top talent, retain that top talent, and inherently increase that engagement of your top talent.” 

But, the Ceridian survey found that there is a divide between what employees want and what employers are planning to provide when it comes to EWA. Some 71% of respondents said that their organizations do not have plans to implement on-demand pay. However, a separate Ceridian/Harris poll conducted in the summer of 2021 showed that 78% of the workers surveyed said EWA would make them more loyal to their employers. 

The “Future of Payroll” survey adds that only 27% of respondents planning to offer EWA are doing so to increase employee satisfaction and engagement. The survey suggests there is a disconnect between employer and employee on EWA’s importance for employee engagement, which can cost a business money. According to Gallup’s State of the Workplace: 2022 Report, low engagement from employees at the workplace costs the global economy $7.8 trillion. 

Quiet quitting and firing

There can be noticeable effects on an organization’s workforce if the employer and its employees are not on the same page. According to a September 6, 2022 post on Gallup, the global analytics and advice firm, “quiet quitters make up at least 50% of the U.S. workforce – probably more.” Quiet quitting is where an employee merely meets the very basics of his or her job description at work. 

A recent LinkedIn poll also shows that quiet firing can be a problem too with more than 80% of respondents admitting that they have either faced it personally or have seen it before in their workplace. 

The workforce is changing regarding how they feel about what their company does and how the business goes about doing it, especially since the COVID-19 pandemic. Some employers are reacting by embracing ESG (environmental, social, and governance) and DEI (diversity, equity, and inclusion). Weckman believes that employers should treat DEI “as a key element to their culture” that results in “higher engagement.” 

This may mean more employee benefit options for mental and financial wellness, among other choices related to payroll. 

“One thing that is also starting to gain some traction is this concept of wellness days,” Weckman said regarding other trending employee benefit options. “You come back more rejuvenated and thus more productive,” she noted regarding the mutual benefit for both employers and employees. 

Increasing employee satisfaction

“Gone are the days when basic health insurance, paid time off, and retirement plans were enough to attract workers,” explains Seth Ros, the General Manager of Dayforce Wallet at Ceridian. “The market is demanding that employers step up and offer modern benefits like on-demand pay to meet employees’ needs,” he added. 

The survey believes that the payroll professional of the future will play a more strategic role in developing an understanding of how pay impacts a business, which includes the employee experience.  

Weckman said that technology is a key factor in increasing employee satisfaction. “How do you reach these individuals?” she asked, explaining that smartphones and web applications can be used on a regular basis to engage and share with employees. “Fresh innovative tools can also be very engaging,” she added and provided a personal example where a family member recently needed access to a benefit card and was able to access it via her mobile device. 

Succession planning

A basic definition of succession planning would be the process of developing action plans for individuals to assume critical positions within an organization. Ceridian’s survey cited U.S. data compiled from Zippia showing that the average age of a payroll administrator is 48 and that ”organizations may be challenged to find the payroll professionals needed to replace these individuals if they leave the workforce or when other turnover occurs.” 

Speakers at a July 2019 American Payroll Association seminar in New York City discussing the gig economy said a work shortfall may be coming (aside from the added issues due to the COVID-19 pandemic) down the road as more workers from the Baby Boomer generation (born around 1946 to 1964) retire. The seminar noted that Generation X (born around 1965 to 1980) is a notably smaller population, which may make for issues in filling available positions in various areas of an organization, including payroll. 

Succession planning can be important to keep departments in an organization running when there are changes in the workforce, but 43% of respondents to the “Future of Payroll” survey said their organization does not use succession planning and 21% do not know if such planning is in place.  

Skills training for payroll employees

Another area the survey researched was skills training for employees in payroll departments, where a bit more than half (54%) of respondents said their organization is offering development training and nearly one-quarter (24%) said their organization is not doing anything to prepare for the future. However, 78% of respondents said, “if their job duties were to change as payroll technology becomes more sophisticated, they would want to adapt their new job duties and stay in their current role.” 

Payroll disruption

A disruptor is typically some type of innovation that changes how business is conducted. Two notable examples of market disruptors are personal computers and smartphones, which have led to more innovation.  

Due in part to the COVID-19 pandemic, the payroll world became more digital and virtual from 2020 to 2022. Remote working is more the norm instead of the exception. How do payroll department manage these new ways of working with more hybrid and flexible work arrangements emerging? 

Potential disruptors

Employees are providing feedback to employers regarding needs and wants when it comes to payroll, which includes benefits like EWA and financial and mental well-being tools.  

For EWA, there may be some challenges for implementation due in part to a proposal to clarify the tax treatment of on-demand pay arrangements in the U.S. Treasury Department’s “General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals.”  

The proposal cautions employers about constructive receipt of wages, suggests businesses offering EWA to maintain either a daily or miscellaneous payroll period, and encourages withholding and paying employment taxes on EWA wages on a daily basis. This may require some innovation in payroll departments and from third-party payroll providers. 

Gig work innovation

Another disruptor may be the use of gig workers in an organization. Gig workers may not be considered employees. They may work part-time or seasonal. Since the last financial crisis in 2008 and 2009, this type of task-based labor has become more popular –especially with the younger generations. Gig work evolved more during the COVID-19 pandemic. There are laws and lawsuits over specific types of gig workers that can directly affect payroll, which includes app-based drivers and worker classification. 

New worker classification rules

On October 11, 2022, the U.S. Department of Labor (DOL) announced a proposed worker classification rule. The DOL says that the framework is more consistent with longstanding judicial precedent on which employers have relied to classify workers as employees or independent contractors under the FLSA. 

The proposed rule comes after a federal district court vacated the DOL’s rules to delay and withdraw the current worker classification rule in effect, which was put into place under the prior Presidential Administration and utilizes an “economic realities” test to determine employee or independent contractor status. 

According to a recent Reuters News article the DOL’s rule could affect the gig worker economy, particularly ride-sharing businesses like Lyft and Uber, and other task-based delivery companies like DoorDash. The article cites analysts’ figures that suggest these businesses’ costs could increase by 20% to 30% if their worker classification status changes to an employee. 

Addressing the future of payroll

Payroll professionals are increasingly asked to do more than just process payroll. As the complexities of the industry continue to increase, so will the complexities of the role of a payroll professional. The “Future of Payroll” survey makes a number of suggestions for organizations to help overcome obstacles in payroll that include replacing legacy systems and investing in technology that can help to simplify multi-jurisdictional and global payroll.  

The survey also emphasizes that payroll teams have the data necessary to deliver strategic business insights, provide the necessary tools to analyze data that supports business objectives, and set and track KPIs to understand performance and continued improvement.  

In addition, the survey suggests prioritizing financial wellness with EWA and implementing a meaningful succession plan. The present is a great time to plan for the future of payroll with forward-thinking methods that include embracing changing technologies and empowering employees. 

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