Some of the most eventful years of the last two decades are coming to an end. Over the last year and a half, the global pandemic has transformed how we live and how companies do business.
At an organizational level, COVID-19 has magnified points of friction that until recently were masked by ingenuity and a healthy dose of elbow grease. To contend with these extraordinary circumstances, companies have accelerated the digital transformation of all areas of business, from marketing to manufacturing, to HR and finance.
Traditionally, payroll hasn’t been one of the top priorities of business when it comes to digital transformation. Many industries still rely heavily on manual labor and lengthy, time consuming, and repetitive processes that have become the norm. However, the pandemic has also had a significant effect on the way companies worldwide approach this side of the business.
Payroll professionals haven’t been immune to the challenges presented by COVID-19. In fact, they’ve had to deal with their own special circumstances. The pandemic forced payroll leaders to adapt to the changing regulatory environment as governments implemented measures to lessen the impact of the pandemic. Some of these remedies included tax relief programs and different supplementary income schemes for workers who were shifted to part-time work or paid leave due to the government-imposed lockdown.
This has been particularly challenging for payroll teams in multinational organizations who needed to stay up to date with regulatory changes manifesting simultaneously in dozens of countries, while dealing with internal organizational changes, such as lay-offs or abrupt shifts in staffing levels that disrupted their daily work flow.
Organizations also had to deal with breakdowns in processes and procedures that were designed for the traditional office environment and quickly adapt to everyone being disconnected and fully remote.
Usually, payroll’s job is simply to keep things running smoothly, but this becomes more important in situations of crisis and organizational transformation. However, these challenges gave payroll an opportunity to shine.
Making sure that everyone gets paid correctly and on time, while dealing with near-constant regulatory changes and process breakdown, is difficult in normal circumstances. But COVID-19 forced payroll teams to step up boldly. Many payroll teams worked crazy amounts of overtime, with seven-day weeks and all-nighters hardly being uncommon.
Because of this level of dedication, payroll has become one of the few areas of stability for many companies, many of which are beginning to emerge after more than a year of lockdowns. Business leaders recognize that payroll cannot be taken for granted and that it deserves to be part of the company’s digital transformation plans.
New challenges arise as organizations emerge from the pandemic and begin to focus on right sizing their business and setting themselves up to grow in an economy that has drastically changed.
This means cutting costs, maximizing the efficiency of every department and business unit, and auditing where resources are being spent and whether they’re being used effectively. For most organizations, this implies focusing intensely on their labor cost—the greatest expense for most businesses.
Payroll is uniquely positioned to support these efforts, because it is the go-to source of truth for quantitative data on the company’s workforce and labor costs, since payroll systems typically hold the most reliable and accurate data about employees in the organization.
As such, payroll digitalization and analytics can become not only tools to improve how the payroll team does its job, but a vital support to the overall strategy of driving efficiency improvements and cost savings across the entire organization. Take a look at the following questions:
- Where should the organization prioritize recruiting and growing the team?
- Which locations are oversized, and which are undersized?
- How much can salary costs be reduced in underperforming locations, or how quickly can new ones be staffed and spun up?
- What team’s units are paying out the most in bonuses, and how does that compare to their relative cost?
- What is the cost of overtime and sick leave for the organization and how does it vary by department/location?
These are just a few of the questions that can be answered with payroll data, but to do so, payroll and finance need to be seamlessly integrated. Payroll must have the right tools at its disposal to not only churn out payslips but to take on a more proactive, analytical role within the organization.
Payroll must continue to evolve from being a purely back-office, administrative function, to one that can impact strategy and operations through business intelligence and analytics.
For many companies, the total cost of the workforce can represent upward of 70% of its overall costs—often significantly more. This gives payroll a unique position within the organization because it has the most direct and in-depth insight into this area. Essentially, all the ingredients are there for payroll to become one of the main stakeholders in the company’s business intelligence strategy.
This is a golden opportunity for payroll leaders, because the circumstances of the last year and a half have given them unprecedented leverage in their organizations. Executives now understand the critical role payroll has in an organization’s day-to-day operations, and the part it plays in navigating through a crisis. The broader market forces that are driving the push for digital transformation have created an environment where organizations are more open than ever to efforts to upgrade their technology systems and improve their internal processes.
For many organizations, this will mean transitioning from a highly-distributed and nationally-siloed payroll model, with each country operating independently and without an overarching strategy, to a centralized, global payroll model.
Laying out a global payroll model does not only mean becoming more centralized. It means being more accountable, more transparent, and equipping the payroll function with the tools it needs to be able to provide strategic value to other areas of the organization—for example, by answering some of the questions posed above.
World-changing events that alter how companies behave and organize themselves don’t come often. It’s up to payroll leaders to seize this opportunity and stake a greater claim for relevance within their organizations.
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Marc-Oliver Fiedler is the founder and CEO of Payzaar. Before starting Payzaar, Fiedler held leadership roles at Hewlett-Packard, Oracle, and ADP. While at ADP, he became intimately acquainted with the payroll industry and the challenges payroll people face daily. This experience led him to found Payzaar, an innovative global payroll management platform with a different, open and flexible model compared to the traditional aggregators.