Technological innovation has been a key driver of payroll management recently and is set to shape the future of payroll for years to come.
Automation, agile payroll processing, and HR analytics are some of the advancements that have entered the payroll industry in recent years.
Organizations that have responded to these have reaped the rewards of many benefits including:
- Greater efficiency
- Improved employee satisfaction
- Higher employee productivity
- Lower employee turnover.
Given the global competition for talent, business leaders must be aware of the latest developments in payroll, how they affect employee satisfaction, and what they can do to improve their own systems.
As we approach 2024, we highlight five developments that will define the future of payroll and how you can use them to gain a competitive advantage over rivals.
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1. Flexible payroll payments
Payment structure
The growth of independent contractors, temporary workers, and freelancers (those in the gig economy) continues to define how organizations interact with their workers.
These workers tend to prefer on-demand pay instead of a salary. Consequently, payroll managers have to adapt to managing the payroll of gig economy workers differently to salaried workers.
Business News Daily has reported that even full-time workers are becoming increasingly dissatisfied with a monthly payment. As such, some payroll services are now allowing shorter gaps between paydays while others are even “giving workers the chance to collect a paycheck after each workday.”
Earned Wage Access
EWA is one of the top ways businesses have been responding to demand for flexible payroll.
Essentially, EWA is a company benefits system that allows employees to get access to a part of their wages before the payday. Importantly, EWA is not a loan or salary advance, but rather a way for employees to access money they have already worked for but that they would otherwise have waited till payday to collect.
Benefits of EWA for employees
There are multiple clear benefits of this system for workers.
First, they can pay for their emergencies without going into debt (and paying high interest on those debts).
Also, they can avoid the mental stress that often results from being in a financial quagmire while keeping their financial plans intact.
Benefits of EWA for employers
First, when employees are happy and less stressed out by their financial conditions, they are more productive and productive employees mean better firm performance.
This relationship between EWA and productivity has been affirmed by a survey by Webinar Care, a business support firm. The survey shows that 59% of users say they are motivated to go to work because of access to EWA.
Secondly, companies providing EWA will experience lower employee turnover. According to Proliant, a human resources technology firm, provision of EWA reduces turnover by 40%.
Related (and thirdly), firms providing EWA are more attractive to employees. Proliant has also shown that EWA access increases recruitment by 30%. This is especially important given the global competition for talent that we have already mentioned.
Expected growth in EWA usage
The Product as an Employee Benefit concept is proving increasingly popular.
In 2020, workers accessed about $55.8 million in EWA, according to Financial Health Network, a network of business leaders and policymakers committed to the financial health of employees, customers, and communities.
Part of the reason for this demand is the high cost of living crisis, which is increasing the percentage of workers who live from paycheck to paycheck.
Even otherwise rich countries like the US and Canada are not spared. 65% of US workers live from paycheck to paycheck according to a survey by The Harris Poll in conjunction with Barron’s, a US newspaper. In Canada, the figure is 47% according to a survey conducted by Leger 360, a market research firm.
The expectation is that EWA will become even more important as a way to overcome the mental and financial stress that often results from running out of cash before payday.
Personalized benefits
Flexibility doesn’t just apply to the timing of payments. Many organizations have realized that the non-wage benefits (such as wellness, healthcare, and skills development) they offer employees can even be more important than the salary they are paying.
Source: AIHR
Forward-looking organizations now allow employees to negotiate the compensation structure that suits them the most.
Instead of just negotiating salaries, employees can even forego salary increases in favor of an increase in benefits or new perks such as student loan repayments.
According to XpertHR, an HR software company, a flexible benefits system “allows employees to tailor their benefits package according to their individual needs”. Kenjo, an HR software provider, also believes that this trend will become even more important in 2024.
This flexibility (also known as personalization) is “the future of employee benefits,” according to Marcy Klipfel, the Chief Engagement Officer of Businessolver, a benefits technology firm. “Each employee has their own unique needs and goals, and they expect their benefits to support everything from financial preparedness to their mental well-being,” she added.
Flexible payment methods
Employees will also increase their demand for flexible payment methods in the coming years.
This trend has already begun with the growing use of prepaid payroll cards. Many companies have found it more convenient to pay their gig workers, sales reps, and even salaried workers via DDA deposits into their branded prepaid cards.
Companies also use prepaid cards and gift cards to reward employees for their performances, even more than in-office perks, cash, and branded clothing, as the chart below shows.
Source: NAPCO
As more businesses recognize the advantages of white-label prepaid cards (including improved brand awareness, more efficient payments, and improved employee retention), they will add it as a payment option for all types of workers.
2. Increased usage of AI and machine learning
The use of AI and machine learning has helped improve efficiency in payroll systems by reducing errors and the time spent on administration.
It has also driven the use of data analytics and automation in payroll management.
While the majority of business leaders surveyed by Eightforce were already using AI for various HR and payroll functions, 92% of them had plans to increase AI usage going forward.
Source: Eightforce
Compliance, a very important part of payroll, is one area where Brain Payroll, a payroll software firm, believes AI will feature even more in the future.
IT Brief, a technology news media, also believes that increasing diversity in the workforce, and its impact on the future scope of the payroll management system, will cause payroll providers to use AI and machine learning more.
“Advanced AI and ML capabilities will offer faster and more accurate classification of employees for payroll calculation, provide insight into workforce efficacy, identify anomalies that impact the bottom line, and help facilitate regulatory compliance,” they said.
It will also support consolidated and real-time data, and the analytics capabilities they provide will help “to gain vital insights to make better and faster decisions that have the power to transform operations.”
Payroll chatbots, streamlined remote worker management, and increased process automation are some applications of payroll AI that we can expect to see more of in the coming years, according to Easy Paye, a payroll management firm.
3. Employee self-service portals
We’ve seen how flexible payments are a key factor in employee retention, but self-service portals, where staff access important information, are also an upcoming trend.
Ramco, a payroll technology firm identifies this with the following statement. “A new-age payroll system should prioritize employee experience by incorporating various tools and features that enhance employee satisfaction, engagement, and convenience.”
Employee self-service portals are digital examples of this. These are websites where staff can access information such as their payslips, payroll tax forms, and time-off requests without the guidance of payroll professionals.
Source: Omni HR
Employees can also automatically track their leave entitlement, update their payroll information, enroll in benefits, use collaborative tools, and access training materials on these portals.
Self-service portals with AI capabilities can also provide chatbots that staff can ask for information and guidance.
According to Workable, a recruitment software firm, “employers that move with the times and put software like this in place are far more likely to build a relationship of trust with their staff.”
As employee retention becomes more important, automated tools like this that improve engagement and trust will become more essential for business leaders.
4. Cloud-based payroll software
Remote accessibility, scalability, and cost efficiency are some of the advantages that have made cloud-based solutions popular across all business functions.
Payroll has not been left behind. Many organizations now use cloud-based payroll software, especially via the software-as-a-service (SaaS) model. This is an alternative to payroll outsourcing, which has many disadvantages).
Business managers increased their usage of these during the pandemic.
In 2021, Wage Mate, a payroll management firm, predicted that usage of cloud-based payroll software will increase over the next five years. One of the reasons is the spike in remote work as cloud-based solutions allow remote access to payroll data.
The next step in terms of cloud technology adoption is for payroll solutions to provide multi-cloud capability, using multiple cloud computing platforms. This will further improve flexibility and reduce operational overheads.
However, as the usage of cloud-based payroll software/apps increases, data security will be a huge concern. Protecting payroll data is pivotal, so cybersecurity will also become more important as digitization grows.
5. Integration of payroll and HRMS
Integration is the zeitgeist in the world of digitization.
Everywhere you turn, companies are looking for ways to unite their systems to improve efficiency, enhance data collection, and generate data-driven insights.
This trend is also obvious in payroll management.
“Software buyers are trending toward interest in an all-inclusive, self-service system for payroll processing,” said SelectHub, a software selection tool.
This means they are moving towards “more user-friendly payroll systems, complete with additional core HR features.”
Based on this trend, Gary Anderson (interviewed by SelectHub), Director of Sales at Criterion, a human capital management solution, has predicted that the future of payroll will involve a higher demand for integrated human resource management systems.
This will occur in two ways. One, organizations that already have a payroll system (software) will choose HRMS (an HR management system) that will allow them to integrate that particular payroll system instead of starting over with a new one.
Secondly, organizations will gravitate towards an all-in-one HRMS that also has payroll functionality. In his words, “Businesses want to buy a full human capital management solution that has everything in it, including payroll.”
What an all-in-one HRMS would look like
Source: HR Daily Community
This second option can help organizations streamline their operations and is a better option for dealing with the diversity of the workforce in today’s world.
No wonder that “an increasing number of HR departments are prioritizing the full integration of payroll with ERP workforce management solutions,” according to SelectHub.
How Berkeley Payment can help you prepare for the future of payroll
One of the trends we highlighted was the increased usage of prepaid payroll cards for employee remuneration and rewards programs.
At Berkeley Payment, we help you create white-label payroll cards that you can use to pay non-salaried and salaried workers. Below is an example of a customized prepaid card created by one Locorum, a marketing technology company.
We provide you with over 300 customizable features that will allow you to create the card that best underlines your brand.
With customized and branded (white label) cards, you can improve your brand awareness, give your employees a sense of belonging, and improve employee retention.
Whether virtual or physical, our prepaid payroll cards are secured using multi-tenant architecture, PCI certification, encryption, KYC compliance, and automated payment activity review to prevent card fraud.
You can quickly integrate our card issuance API into your existing system making it easy for you to start creating both virtual and physical cards in no time.
[Do you want to make your payroll payment more flexible? Pay and reward your customers with prepaid payroll cards so they can quickly access their money. Contact us at Berkeley Payment to get started.]
Takeaways
- Payroll is one business function that has seen constant technological advancements.
- The future scope of payroll management system will continue to expand as firms have to cater for diverse categories of workers.
- In 2024, there will be greater demand for flexible payments, employee self-service portals, cloud-based payroll software, all-in-one HRMS, and the usage of AI and machine learning in payroll management.
- The competition for global demand will continue in 2024 and businesses who can improve their payroll system will gain a competitive edge.
