The payroll industry’s adoption of cloud-based software has grown significantly over the past 12 months. According to this year’s Future of Payroll report from the CIPP, 37% of payroll teams now host their software in the cloud, up from just 25% in 2019. It’s clear that as payroll continues to grow in complexity, organisations are demanding more of the flexibility and agility that cloud-based software can provide.

However, roughly the same number of payroll teams reported that they still use more traditional on-premise hosting, so it’s clear that there is still some way to go before cloud-based software becomes the norm. Yet this could change rapidly as a result of the ongoing global pandemic, which has simultaneously exposed the limitations of on-premise and highlighted the benefits of the cloud.

Here are three of the main COVID-19 challenges that cloud software can help address – and why.

Remote working

According to research from Zellis, nearly one in five payroll teams struggled to get access to essential IT while working from home during the height of the UK’s nationwide lockdown, while 30% experienced a loss of capacity. For many, this was due in part to their software being hosted on-premise. These organisations had to work urgently to get their payroll teams access to their software in order to meet deadlines and maintain continuity.

While some organisations are starting to re-open their offices, there is a big question over whether remote working will become the ‘new normal’ due to looming possibility of a virus resurgence in the near future. Unlike on-premise, cloud-based software enables employees to work from anywhere at short-notice, while the right security measures can ensure that payroll data is protected.

It’s also important to consider the wider benefits of the cloud in a remote working context. It provides a more reliable and mobile self-service experience for employees, meaning that updates to their important pay, benefits, and reward data are received by the payroll team in real-time. With the shift to remote working also corresponding with an increase in requests from employees to work compressed or flexible hours, the need for accurate and up-to-date information can’t be understated.


Keeping up with changing government guidance has perhaps been the single biggest worry for payroll teams throughout the pandemic. Interpreting the complexities of measures like the employee furlough scheme has only been half of the battle; the other major challenge for payrollers has been actually processing these changes through their software. In some cases, payroll teams have resorted to manual workarounds where proactive software patches have not been provided by their suppliers.

However, for those who have received more support from their suppliers, hosting in the cloud has been integral to their ability to quickly implement patches. This is one of the advantages cloud-based software has maintained over on-premise. During the pandemic, this agility has helped take a lot of the pressure off already stretched payroll teams.

As long as the pandemic continues, it is likely that the regulatory goalposts will keep shifting. Cloud-based payroll software will help organisations stay ahead of the curve.

Business uncertainty

With the UK now officially in a pandemic-induced recession, business uncertainty is also going to be a major feature of the ‘new normal’. We are already seeing a number of organisations restructuring– particularly in their workforces – to help build resilience in the face of financial hardship. Payroll teams need to be conscious of this because large scale change of this nature can have a direct impact on payroll complexity. It could, for example, involve an increase to an organisation’s use of contractors, changes to how bonuses and rewards are distributed, or even more fundamental shifts in the way payroll is run.

Why is cloud-based payroll software important in all of this? Ultimately it comes down to the increased flexibility and agility it provides by comparison to other hosting options. At its core, it allows businesses to adapt to these changing circumstances, with minimal disruption to mission-critical processes like payroll, as well as the employee experience.

Additionally, cloud-based payroll software enables organisations to manage their costs and minimise unnecessary expenditure. It is much simpler to scale up or down software usage as payroll demands change – meaning that the organisation only ever pays for what it truly needs, rather than being locked into a fixed cost.

Finally, business leaders are increasingly looking to their payroll and HR teams to glean strategic insights from workforce data, so that they can better monitor macro and micro trends – and in the current climate, to understand how these are being shaped by the pandemic. On-premise software makes this difficult, because it can cause data to be siloed. Comparatively, running software in the cloud puts teams in a much stronger position to access real-time data from across their integrated payroll and HR systems, so they can produce the impactful reports their organisations need.

This article originally appeared in the October 2020 issue of Professional in Payroll, Pensions & Reward Magazine.