Mark Smith's Analyst Perspectives

The 2023 Ventana Research Buyers Guide for Payroll Management research enables me to provide observations about how the market has advanced.  

The payroll preparation process has long been an inefficient, labor-intensive set of administrative tasks designed to ensure that everyone is paid correctly and on time. Historically, this has been a transactional- and compliance-centered function that involves manual adjustments, reconciliations and answering routine questions.  

Now, advances in digital technologies and delivery models have rendered the payroll function considerably more efficient with the added bonus of delivering new value to the business through automation, data-driven decision support and direct contribution to an enhanced employee experience. In our view this technology-mediated shift to a new style of payroll management is well worth the effort. We advise that organizations seeking improvement embrace an integrated approach that not only optimizes the payroll function but also connects payroll with other HRMS, talent management and workforce management systems and their related information and processes. With this integration in place, organizations can make better and often more strategic workforce-related decisions using payroll-related data such as overtime hours worked, PTO, types of bonuses paid, benefits participation rates or the ratio of regular to contingent worker costs.  

According to the traditional understanding of payroll management, an organization either gets it right, completing payroll runs accurately and on-time, or does not. But modern payroll systems shake up this conventional wisdom through an array of approaches that deliver variable added value. While gross-to-net calculation engines may still deliver the same results, processing speeds can vary greatly, as can a particular software product’s ability to detect and resolve errors without restarting the calculation cycle. To varying degrees, vendors also differ in their software’s ability to seamlessly maintain compliance and consolidate reporting and analytics across multiple regions: national, state, local and everything in between. 

Software vendors play a crucial role in simplifying global payroll processes. They are developing systems that can harmonize payroll calculations across multiple countries, ensuring compliance with local regulations. These systems often include features like automated tax calculations, multi-currency support and built-in reporting and analysis tools. Moreover, many software vendors offer a hybrid approach themselves, managing payroll directly in some countries while partnering with local in-country providers in others. This hybrid approach can be a significant benefit as it leverages the vendor’s expertise and user experience while maintaining flexibility and compliance on a global scale. In essence, software vendors are central to addressing the complexities of global payroll, offering organizations the tools they need to streamline and optimize this critical function.  

In our view, this technology-mediated shift to a new style of payroll management is well worth the effort. We advise that organizations seeking improvement embrace an integrated approach that not only optimizes the payroll function but also connects payroll with other core HR, talent management and workforce management systems and their related information and processes. With this integration in place, organizations can make better and often more strategic workforce-related decisions using payroll-related data such as overtime hours worked, PTO, types of bonuses paid, benefits participation rates or the ratio of regular to contingent worker costs.  

According to the traditional understanding of payroll management, an organization either gets it right, completing payroll runs accurately and on-time, or does not. But modern payroll systems shake up this conventional wisdom through an array of approaches that deliver variable added value. While gross-to-net calculation engines may still deliver the same results, processing speeds can vary greatly, as can a particular software product’s ability to detect and resolve errors without restarting the calculation cycle. 

Several recent technological advances in particular have significantly reduced the time it takes to complete a payroll cycle. These advances not only include faster processing speeds but also robotic process automation, artificial intelligence and machine learning (AI/ML) that can instantly predict, detect and correct errors, and chatbots that can field workers’ routine questions. And with the application of generative AI, these chatbots have become even more conversational, making responses personal to the specific employee rather than issuing a generic company-wide response that may still require a phone call or a help ticket with an HR service center. 

To varying degrees, vendors also differ in their software’s ability to seamlessly maintain compliance and consolidate reporting and analytics across multiple regions: national, state, local and everything in between. Tax calculations, from federal to state to local school district, must be accurate and, importantly, regularly updated and maintained. This is no small task and requires considerable commitment and expertise on the part of the vendor. Similarly, the ability to manage the full complement of garnishment types, generate mandatory reporting for ACA and other federal programs, and perform calculations and audits for ever-changing minimum wage and overtime regulations should all be table-stakes capabilities of any domestic payroll software, but not all perform to the same standards. 

In recent years it has grown clear that the payroll function is ideally situated to be an authoritative source for assessing staffing and compensation trends and costs in relation to business performance as well as monitoring labor cost allocation scenarios and a myriad of other important workforce analytics. Advances in digital technology capabilities have paved the way for payroll systems to serve these functions, providing data and analytics that organizations can use to guide business strategy and goals.  

Over the last three decades, payroll management was widely outsourced. As a result, most of payroll management operations were either partially or completely severed from other human capital management (HCM) processes. Organizations thus were not readily able to utilize payroll data to manage important initiatives such as pay-for-performance strategies, optimizing worker schedules or pay equity analyses. This isolation from the evolution of HCM prevented organizations from using payroll information and planning in strategizing. 

Now, however, technology is available that integrates the various aspects of HCM, connecting HR, payroll, talent and workforce management information and processes. Furthermore, analysts, managers and executives can apply powerful analytics tools to enable better-informed decisions. More recently, tools such as robotic process automation, chatbots and AI-enabled predictive and personalization capabilities are contributing to easier and more effective workforce management.   

These advances have also played a significant part in enabling organizations to work toward providing a superior employee experience, increasingly a requirement for attracting and retaining top talent. Workers increasingly expect an engaging user experience when entering hours worked or pulling up a current or past pay stub to confirm earnings, taxes and deductions. In new payroll systems, intelligent virtual assistants can provide conversational user experiences, answering questions such as “How do I fix a timesheet error?” or “When will I receive my first check?” These questions may not be critical from a business perspective, but they are typically urgent for the employee, and with these new tools they can be addressed within minutes rather than requiring a game of phone or email tag that leads to frustration and disengagement.  

Also in the realm of the employee experience, one potentially significant advance is the possibility of flexibility around pay, including pay cards complemented by ancillary services such as budgeting and planning tools. A pay card is a debit card that can serve as an alternative to physical checks or direct deposits. Pay cards are useful for employees without checking accounts, and many vendors offering pay cards include free planning and budgeting tools.     

Over the past decade, the payroll function has become firmly established in the cloud. For organizations, this means more frequent updates and new releases without requiring organizations to retrofit customizations. Consequently, cloud-based services generally mean less reliance on an IT department to manage implementations. Nevertheless, small and midsize organizations continue to gravitate toward less sophisticated systems that provide reliability at a moderate cost, as offerings laden with innovative features often require a dedicated HR team to manage the deployment.  

This research evaluates the following vendors that offer products that address key elements of payroll management as we define it: ADP, Ceridian, Infor, Oracle, Paylocity, SAP, UKG and Workday.  

You can find more details on our site as well as in the Buyers Guide Market Report. 

Regards,

Mark Smith