Inside the future of payroll technology

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If there’s one way to inadvertently drive your business into the ground it’s by making mistakes on how you pay people—or by failing to pay them at all. That’s why the most mission critical component for any business’ back end is arguably its payroll operation. Like so many other business operations, technology has become an indispensable part of success.

There are three main areas in which technological change is making a difference to payroll: cloud computing, mobile computing, and application programming interfaces (APIs).

Developments in all three areas are an attempt to ameliorate the traditional headaches associated with payroll and human resources administration, which experts, practitioners and service providers agree centre around compliance, globalization and system integration.

Shelley Ng, VP of product management at Ceridian Canada, says provincial, labour and tax laws are always changing which has to be reflected by payroll systems. It’s a challenge that grows with the size of the business, especially for enterprise-class businesses that operate across multiple jurisdictions and across multiple countries.

“We’re also seeing that globalization is not just a large business [issue],” she adds. “It has become the norm. Many HR and payroll professionals in companies of all sizes are beginning to need to support employees in more than one country. And that can be challenging because you have different legislation, different rules, and different norms that you have to be able to deal with.”

Felicia Cheek, a program director at The Hackett Group, and co-author of a 2013 payroll study, says that while small- and medium-sized businesses don’t face the same level of pressure from globalization, they share similar challenges. Surprisingly, regardless of size there is yet to be a true “end-to-end” (meaning from time card entry to payout) global payroll solution because of the complexity of rules across countries and cost-effectiveness issues where it might make sense to have a unified solution in one country with thousands of employees but not in another country where there may only be a handful of employees.

But payroll administration has certainly been made easier and more efficient with the application of technology. Cloud computing, though not new, continues to be the most significant development.

Carrie Hotz-Barth, global director, Workday Services for NGA HR (NorthgateArinso), says that prior to the advent of the cloud, tax updates would be received once a month and then IT staff would have to manually input the changes. But today, “those kinds of things just become transparent and part of your cloud solution and the maintenance and IT involvement disappears.” That saves time and money.

A 2014 study by Forrester Research identifies a number of trends in human resources management, among them what it terms the “disruptive” force of the cloud. It points out that on-premise HRM systems are, for a variety of reasons, hard to maintain. The cloud largely solves that problem, with Forrester saying software-as-a-service and cloud adoption enhances flexibility and sustainability.

Its promise is disruptive enough that new payroll providers are entering the market that start with the cloud as a baseline rather than a bolt-on to legacy systems. San Francisco-based ZenPayroll is one such company, a startup getting a lot of buzz—and a lot of investor capital—as it rolls out its cloud-based solution for small business.

Jason Green is a general partner with Emergence Capital Partners, one of the funders backing the startup. He says that while ZenPayroll isn’t the first to offer payroll in the cloud—major players ADP and Paychex have offered solutions for several years—it’s the first to do it “differently” and with a value proposition that makes it particularly attractive to small business. The target, says Green, is no longer the CIO or technology buyer.

What’s changed are two things. One is the technical architecture that it’s built on is fundamentally new and modern, which allows software to be built that’s much more end-user driven,” he notes. “The second is business model. There’s a level of simplicity, transparency and cost, and it’s just cheaper—there’s an order of magnitude lower cost that these new payroll services can be delivered on. It doesn’t require people and a lot of back office support because the software itself really is simple and easy to understand and easy to scale.”(Payworks offers a similar, cloud-based service in Canada.)

Mobile computing is a growing part of this trend, although Ceridian’s Shelley Ng says that in her experience vendors are actually ahead of clients at the moment. Ceridian has about 38,000 small business customers using its Powerpay product for which it three years ago launched a mobile app. It has just 11,000 downloads, although Ng says customers are using it as designed—to increase their flexibility to maintain payroll whether they’re in or out of the office. “It’s really about adoption and awareness,” she says.

The Hackett Group’s Cheek expects mobile will be especially driven by industries like mining and oil and gas where employees are often based in remote locations. ”They don’t necessarily have a computer but most everybody has a cellphone,” she explains, adding that devices like the Apple Watch will boost the development of timekeeping via mobile.

But it’s not prime time for mobile just yet, according to NGA’s Hotz-Barth. Yes, employees can do things like access payslips and managers can approve time, she says, “But as far as being able to run a payroll on a phone, I have not seen that to date with any vendor.”

Even Emergence’s Green acknowledges the limitations of new technology. “Back office can be run on the web and probably is more efficient on your desktop than on your phone.”

What you need to know about middleware

Another area of innovation is largely hidden to payroll administrators themselves and (if it’s been done right) completely invisible to end users. This is the arena of middleware, typically known as application programming interfaces, which is the programming and software that allows different systems within and among vendors/human resource management systems to “talk” to each other. Because there are so many disparate systems in the market, it’s critical for cost and efficiency savings to get this piece as smooth and robust as possible.

Middleware allows, for example, a provider’s human resource information system (HRIS) to interface with local payroll engines in different countries and correctly validate data. Says Hotz-Barth, “There’s a lot of innovation taking place across vendors with this kind of middleware. There’s a lot of logic built into it where before you used to basically take the data straight out of your HR system and push it straight to each country individually. And that was really hard to maintain. There was bad-data-in, bad-data-out kind of things. And so those improvements are very much streamlining and improving the quality of global solutions.”

While the most robust of any solutions will tend be available only to enterprise-class business, the good news for SMBs is that all of it is technically replicable for a smaller scale, and some vendors like ZenPayroll are already heading down that road. For small business owners like Phoebe Fung, proprietor of Calgary-based wine bar Vin Room and wine store VR Wine, her payroll administration is a mix of old and new. For payroll she uses Sage’s Simply Accounting (which has some cloud functionality) and manages it herself. A separate point-of-sale system is used for time and attendance for the 62-person operation. The two systems aren’t integrated so manual intervention is required to complete the work. She says she’s already looking beyond the day when a scaled solution that integrates those two functions is available to businesses like hers.

“I think the value in technology is that it’s not really just about payroll, but it’s about how you actually manage total compensation for your employees. The future is actually about using technology to manage total compensation—not only their paychecks, but also from benefits, to contributing to RRSP or investment plans.”

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Samson Okalow

Samson Okalow

Samson Okalow is a Toronto-based business writer. He has held editorial positions at a number of publications , including Canadian Business, Strategy and Adweek. He has contributed to numerous other publications including Playback, the Globe and Mail and Report on Business.

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