Payroll resources - reasons to move to managed services

By Marcus Beaver, Country Leader UK&I at Alight Solutions

October 21 2022 - The skills gap is costing businesses £6.6bn a year with more than half (56%) experiencing shortages. The payroll industry isn’t excluded from the impacts of the shortage of skills and as a result, payroll leaders are looking at future resources for their organisation. We’ll likely see a hybrid of payroll staffing and technology including robotic process automation and artificial intelligence (AI), with the eventual objective of touchless payroll.

Beyond the payroll staffing shortage, there is a drive for data-led business planning. Companies need to align strategies based on their data, not intuition. Luckily, much of this information can be pulled from existing HR and payroll data. The data can then be used to shape a rewarding work experience, one that is right for employees and drives the outcomes that are important to employers - but only with the increased use of digital processes.

AI and Robotics uptake is low

Despite good results, the adoption of AI and robotics is still low. There has been a slight increase of around 7%, but most of this can be linked to the increase in cloud payroll and the integration of chatbots and other tools to improve employee self-service and a better employee experience.

Yet, human brains aren't wired to make evidence-based decisions at the speed and accuracy of artificial intelligence. This builds the business case for transforming payroll processes, whether in-house, managed, or outsourced.

How to set up payroll to address future scale and complexity

Even with the staff to run it, the reality is that most organisations lack both the time and resources to successfully navigate a multi-country payroll transformation program on their own.

Modern technology-enabled managed services provided by an experienced partner is an option for many organisations to guide them through a global payroll transformation as well as the need to scale and address payroll complexity.

The use of cloud payroll processes now exceeds that of on-premise. However, there is a tendency to mitigate risk by maintaining an element of on-premise technology. Four in 10 that have moved to the cloud still use on-premise processes to support or complement their digital investment, stating this "hybrid approach" was part of a phased migration or replacing end-of-life technologies.

Using AI and automation to replace repetitive processes, for example, onboarding or addressing data processing errors can save time and costs for employees. Another factor supporting the business case for automation is it encourages employee self-service. It also makes the introduction of new payroll models more straightforward, improves compliance, and is more reliable than legacy payroll systems.

Change brings uncertainty and challenge

It’s widely recognised that to succeed in the digital economy organisations must modernise. Technology-enabled managed services can address not just the modernisation of payroll, but also the challenges of payroll scale and complexity to deliver results alone or as part of a wider transformation initiative.

Realistically, the ability to use payroll data intelligently is critical as part of an agile, compliant, cost-effective business.

Managed Services: What are businesses looking for?

Where old-school outsourcing once helped companies take out cost, businesses now expect managed services to also add value across an organisation. By next year, 40% of businesses will modernise payroll systems with managed services core in their strategy and delivery. The primary drivers included regulatory risk (42%), corporate strategy for outsourced business processes (39%), cost controls (27%), payroll talent shortages (19%), and mergers and acquisitions (M&A) and business divestment activities (15%).

To be successful, businesses need deep industry expertise combined with global reach and state-of-the-art technology. By lifting the burden where it’s heaviest, managed services can truly transform key operations, enhance performance, and introduce innovation. This frees up leaders to add more value and focus on what matters - driving growth and maintaining competitive advantage in a rapidly evolving, more complex world.

A technology and data-led approach to payroll is increasingly important in supporting an organisation’s strategic initiatives.

Future-proofing payroll

Resourcing for in-house payroll specialists is not set to get easier anytime soon. Resourcing involves the attraction and recruitment of individuals into the right role at the right time and cost.

A question to ask here, with the increased use of automation and AI in payroll, what skillsets specific to payroll do you require, if any? For example, payroll administrators in the event of payroll modernisation will offer less value to the business than payroll data specialists.

The latter is perhaps where the greater gaps are. But working with the finance team and digital data analytics to translate the outputs into meaningful business intelligence is a skill that offers greater value to the business - provided these skills are progressed in line with innovation.

A managed payroll service removes the need for traditional payroll personnel. Those already within the business can be trained to take on new roles more suited to an automated payroll process.

The ambition of many forward-looking CEOs is for a frictionless enterprise with free-flowing data. Their objective is to revolutionise non-core, but critical activities with easy-to-integrate solutions that lift the burden in tax, risk, compliance, finance and beyond. This can help them create long-term value, improving security and efficiency as well as ensuring compliance. Managed payroll is just one of the links in this chain.

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