Revealed: the top payroll challenges for HR Directors

Just like their peers in other departments, HR Directors need to know and contribute to the vision, mission, and financial success of their organisation. Payroll, despite sometimes being miscast as ‘back office’, underpins all of this. Not only is payroll one of the biggest cost centres in any organisation, but it also plays a big role in shaping the employee experience.

HR Directors, who hold responsibility for payroll in nearly three-quarters (74%) of organisations, are uniquely positioned to take the lead in addressing a number of challenges.

They not only face the significant task of understanding the biggest payroll issues and how to tackle them, but also how to communicate this information to their fellow decision makers in the boardroom.

If successful, HR Directors can ensure the right actions are taken to drive payroll efficiency, mitigate compliance risks, and maintain strong employee relations.

So, what are the top payroll challenges?

We surveyed 250 HR Directors to find out – and here are three key areas we want to highlight.

Driving payroll performance using automation

More than half (56%) of HR Directors highlighted using automation to support efficiency and accuracy as one of their top three payroll challenges. As the payroll function continues to evolve, automation may be the key to maintaining high standards and taking back valuable time by streamlining manual tasks.

The main barrier to adopting automation in the payroll function is the mindset that “things have always been done this way”, so there is no need to change. Unfortunately, this mindset will put organisations at a competitive disadvantage as needs and objectives become more demanding. Automation will not only streamline mission-critical tasks such as data collection, transfer, and validation, but also lead to stronger business continuity processes, compliance controls, and use of data.

For HR Directors, the path to adopting automation starts by alleviating concerns that it may lead to a loss of jobs. Most experts now believe that while automation will eliminate traditional roles, it will also create new ones. Payroll staff can transition into broader HR or finance roles – those which still require that essential ‘human’ element.

The best way to assess your organisation’s automation needs is to map out how its payroll requirements are likely to change in the coming months and years, asking questions such as:

• Are there any new payroll regulations on the horizon which will affect your employees?
• Is your organisation going to expand into new regions?
• Is your current payroll system delivering true cost and time efficiency?
• Is your HR department becoming more data-driven?

Taking the time to assess these requirements will help you to determine whether your current payroll software setup is future-proofed, or if you need to look at solutions with more advanced automation capabilities.

Ensuring compliance with payroll-related legislation

Around a third (34%) of HR Directors told us that ensuring compliance with legislation is one of their top three payroll-related challenges. Building a culture of compliance is essential due to how quickly rules can change, from increases to National Minimum Wage rates, to new initiatives like gender pay gap reporting, to emergency measures introduced to support workers and their employers during the global coronavirus (COVID-19) outbreak.

A large part of building payroll compliance is making sure it receives the attention it needs at boardroom-level. We found that over half (54%) of HR Directors don’t currently report on payroll compliance in boardroom meetings. Although 30% of these leaders conceded that they should start reporting on it, 24% maintained that payroll isn’t deemed strategic enough to warrant such attention.

It corresponds that 42% said their organisation’s senior leadership team either doesn’t understand the potential business impact of non-compliance, or does understand but isn’t implementing strategies to address it.

And what exactly are the consequences of non-compliance?

• 81% cited increased operational costs
• 75% cited increased employee churn
• 71% cited damage to the company’s reputation
• 67% cited government-imposed penalties and fines

It’s clear that non-compliance not only hurts an organisation’s finances and reputation, but its relationships with employees too. A bad payroll experience can lead to a serious loss of trust and engagement.

Pinpointing the exact cause of non-compliance can be difficult. In most organisations a combination of actions must be taken to put compliance at the heart of the payroll function, including:

• Working with employees to receive accurate payroll information
• Conducting upgrades for payroll systems so they meet the latest legislative requirements
• Ensuring payroll team members are up-to-speed with legislation
• Communicating these actions at boardroom-level

Harnessing the power of payroll data

Communicating the importance of payroll at boardroom-level is a recurring theme within our research findings. What better way to do this than with data?

While HR is rapidly embracing the strategic use of data, a function like payroll can easily be forgotten, especially if the HR department can’t deliver regular and impactful reports. We found that a third (32%) of HR Directors currently have this problem.

A major part of the problem is a lack of understanding around why payroll data is valuable and how best to use it.

On its own, payroll data can be extremely valuable as it helps you – as well as your colleagues in the Finance department – to better understand and optimise one of the major costs involved in managing your workforce. But the true potential of payroll data is unlocked when it’s combined with your core HR data and other business variables.

Taking this approach, it’s possible to glean much deeper workforce insights, helping you to find answers to questions such as:

• Is your pay, rewards, and benefits strategy contributing positively to your employee turnover rate?
• Are the staff members who work the most overtime also those with the highest levels of absenteeism?
• Which benefits and receiving the highest and lowest rates of employee adoption?

Your ability to create timely, valuable, and easily understood reports ultimately depends on the technology you have in place to collect, manage, and analyse data in real-time. Your payroll and HR system needs to integrate information from different sources in a single source of truth. It also needs to be able to automate the process of building a variety of reports – including strong data visualisations and forecasts – to satisfy the needs of different stakeholders, from your frontline HR staff to the CEO.

Find out more

To learn about how Zellis can help support your complex payroll requirements, visit our Payroll page.