Payroll: Boring Commodity or Business Opportunity?

Payroll is mission-critical for every organization. One of the most basic expectations of employment is fair, accurate, and on-time pay. Processing payroll correctly every pay cycle may not win over employees, but getting it wrong can quickly derail the entire business.

Employees may promptly voice their displeasure by sharing their experience on social channels, threatening legal action, or finding a new employer. Regulatory authorities and media may chase and broadcast any hint of noncompliance.

While there is broad consensus on the “scary” aspects of payroll, most people would shrug their shoulders in response to the question of how payroll can contribute to the digital transformation of a business. Payroll is just a commodity, it should be inexpensive and compliant. Apart from that payroll is boring. Is it really?

I don’t think so.

Operating payroll today is highly complex and often painful. Modern cloud technology in conjunction with legal compliance know-how from around the globe opens the door to a very exciting world of innovation. Payroll is ripe for disruption. Here are three areas where we envision such disruption.

1. Take the Pain out of Payroll

The primary source of consternation and pain in payroll is legal compliance. The vast heterogeneity and unpredictability of local regulations are overwhelming for every business. And let’s face it, this pain is not going away. In fact, it will likely worsen as we observe a growing number of legal changes year over year, with growing complexity as more countries adopt real-time electronic reporting to governing authorities. But the question is: Whose pain shall this be?

SAP’s position has always been that the pain of keeping our payroll software legally compliant shall be with SAP, so that we can minimize the burden for our customers and help them focus on their actual business. Over the past three decades, SAP has invested massively into growing a powerful organization that is dedicated to this very task, a global network of localization experts with strong local roots, who collaborate with customers, partners, and legislators – in each country.

While SAP’s commitment to global legal compliance and its organizational capabilities are certainly unique, our aspirations for the future of payroll go much further. Our dream is to say good-bye to those days in which payroll and IT people need to spend their Christmas days in the office to apply the year-end legal changes to the system, adapt their configuration, and run regression tests. We want to leverage our cloud technology to automate legal compliance. We believe the best payroll is a payroll you cannot see.

That’s a bold statement, so how can cloud technology help us in this endeavor?

Traditional software systems are based on a monolithic architecture. Think of a plate of spaghetti. You pull on one end of one spaghetti and you will likely see an impact somewhere else in the spaghetti pile. In the same manner, when you apply a legal change to one corner of your payroll system, you need to test the entire system to ensure you didn’t introduce unwanted side effects. The key to automation is modularization in the architecture. When we can confine the impact to one module, we can push legal changes into the system without the risk of side effects. To stick with my pasta metaphor, cloud-native software architecture means evolving spaghetti into ravioli.

2. Untap Business Value by Embedding Real-Time Payroll into an Intelligent Enterprise

It’s easy to imagine how automation of legal compliance dramatically reduces costs and minimizes risk of noncompliance. But what about digital transformation in the context of payroll? Just a buzz word?

We don’t see payroll as a siloed application, but as an integral part of HR and finance. By enabling each of these applications to talk to each other in real-time, a world of new valuable insights can open up for the business and its employees.

Just imagine using financial modeling tools while negotiating with trade unions. Businesses can compare their package options including total rewards and time and attendance, and understand how they impact social insurance and taxes.

Plus, any HR event — from an employee’s time tracking and change in marital status to a pay increase and spot bonus — can immediately trigger a recalculation and update across the payroll service. Payroll will always be up to date. It can relieve payroll departments from the burden of batch-based cycles. No more master data maintenance freezes. No more resource-intensive and stressful days of cleaning up payroll data. No more surprises. No more estimating of labor cost, financials can work with actuals at all times. How employees get paid — periodically, daily, or as self-service — will no longer be dictated by system limitations. It will be a business decision, allowing employers to further differentiate themselves in a competitive talent market.

3. Make Payroll Interactive and Fun

Last but not least, what’s in it for employees? For most employees, payroll is just a black box that generates incomprehensible pay statements. A good measure for the confusion caused by payroll is the number of Dilbert comics on the topic. Another, less entertaining one is the large volume of service tickets employees create every day because they don’t understand their pay.

Wouldn’t it be nice if we could talk to our pay statements and get the right answer immediately? Ask our digital assistant:

  • “Why is my 401k contribution less this month?”
  • “Where is my overtime pay?”
  • “If I took over my colleague’s night shift, what would be my additional take-home pay?”
  • “What’s the impact of this company car on my net pay?”

Payroll is headed for exciting times. Not only will modern cloud technology help us take the pain out of payroll. A real-time payroll that is embedded in an intelligent enterprise will also drive improved employee experience and business performance.

Gain a deeper understanding of the latest human capital trends and how companies can leverage intelligent technologies to transform their workforce experience for the future by reading the Deloitte report, “2018 Global Human Capital Trends.”

Dr. Daniela Lange is vice president of Product Management for Payroll, Time, and Total Rewards at SAP.