Pay and Benefits

Payroll and HR software, and the technology that delivers them, have come a long way since the launch of “off-the-shelf” solutions at the start of the PC revolution. However, it is the advent and development of cloud-based software solutions over the past decade that has transformed the options available.

Given the improvements in technology that have occurred in the past 10 years and the benefits that they have brought to payroll and HR teams, this article explores the options available. It looks at technically advanced considerations, and deliberates how payroll software might evolve in the next decade. 

 

Traditionally, payroll has been run in-house using software installed on the company’s own servers and IT infrastructure. These off-the-shelf packages are normally paid for upon installation, with day-to-day maintenance managed by the organisation’s internal IT resources. Upgrades in software, largely due to legislation and tax changes, mean organisations either purchase the latest software releases or, under a maintenance agreement (typically 20–30 per cent of original software cost), have service releases sent by the provider to install themselves. This kind of solution is often used by firms that want to provide in-house teams with tools to make payroll less time intensive and more accurate.

Over the past decade a second option has become available that is an intermediate solution between off-the-shelf, installed technology and more advanced, pure cloud-based options. This hybrid option allows organisations to get back-office support from the software provider, as well as data stored and processed by the provider. Here, software is installed on a corporate mainframe with data transmitted to the providers’ servers at regular intervals. This is the model used by many providers and allows for any level of additional servicing, from simple processing to a fully managed service. However, it doesn’t allow for instantaneous access to data across the organisation, unlike the third option – a fully cloud-based solution.

Payroll solutions delivered through cloud computing refers to software that is deployed over the internet and is generally licensed to customers through a subscription. Again, this can be accompanied by client-specific levels of payroll administration and managed services.

Cloud computing payroll solutions represent a major step forward for a number of reasons. First, because the application is web based, it can be accessed easily from any computer. All maintenance and upgrades are carried out by the provider remotely and users don’t need to host any software locally – meaning no IT footprint and no internal IT support requirements. There is also inbuilt scalability, as the subscription model creates predictable cost modelling as expenses are calculated per employee. Therefore, if headcount rises the business is aware of cost implications, likewise if headcount falls, cost also reduces – a major benefit for all businesses. Overall the technological advances represented by cloud solutions offer numerous advantages over more traditional types of payroll software.

One reason why there has sometimes been hesitation when considering a move towards a cloud-based solution is the simple fear of change and a perception that remote hosting means there will be a loss of control. The principle is very much the same as the development of online banking. When the option was first introduced many people mistrusted the system, but as time passed and online banking proved to be successful, the vast majority of people have signed up to the service because of its convenience and flexibility.

Corporate organisations are also well known for being risk averse, with payroll seen by some as a function that should be left well alone for fear they could get it wrong. If the current system is seen as adequate and produces few complaints, many overlook its potential strategic and cost-effective benefits.

Some organisations remember past experiences of payroll software, where “old technology” solutions failed to add value and proved to be cumbersome and expensive. In the past, payroll service providers were unable or unwilling to really connect with clients’ organisations offering only a remote, bureau service. This is in contrast to the close and sophisticated relationships cloud-based solutions allow outsourcers to build with their clients today. However, many organisations are simply unaware of, or confused by, the technological advances and prefer to “keep things as they are”.

Finally, the perception remains that cloud solutions pose a threat to security and control of sensitive data. Many organisations believe that data is somehow open to all on the internet and is safer hosted locally where the storage system is physically in view. Some industries are extremely sensitive about this issue and find cloud computing a conceptual bridge too far.

 

Contrary to the fears of some organisations, cloud computing solutions can actually provide a greater degree of control over payroll and HR data – empowering payrollers to make better and more accurate strategic decisions based on the data at their fingertips. Modern cloud-based payroll solutions allow in-house teams access to up-to-the-minute information at any time throughout the month, enabling managers to keep constant track of information such as payroll costs, absence data and holiday entitlements as the month progresses and take appropriate remedial action as necessary. Finance departments also benefit from being able to draw down financial reports “in month”.

As well as control over data, these solutions also allow for large degrees of manager and employee self-service functionality. This enables line managers and employees to access, view and update pre-defined parts of the HR database themselves, from anywhere, and at any time. So, for example, employees can check and update annual leave entries online, helping to do away with the need for paper forms.

Cloud computing also changes the way that people work and has been a huge driver and enabler of flexible and mobile working. The ability to access and update systems from anywhere reduces the need for remote server connections and makes working from home (or the train, airport or even beach) easier.

The solutions can also actually enhance data security and reliability when compared to in-house or hybrid solutions. Information is hosted in highly secure data centres meaning specialist engineers are on hand to fix any problems as an immediate priority. This is in contrast to local software models where problems require the expertise of a busy IT team. Relying on in-house teams to keep up to date on ever-changing legislation and HM Revenue & Customs regulations is also a risk and a cost for the organisation that cloud solutions can help them avoid completely.

Another benefit is that the solution also offers a great deal of flexibility. Traditional in-house software solutions work on a licences model which are usually set in bands relative to company size. This fee will stay the same regardless of any changes to the workforce, meaning that if the number of employees falls well bellow the number stated on the licence, the organisation is likely to be paying over the odds until they come to renew their licence. Likewise, if a company gets bigger they may have to pay a large increase in their licence fee. Cloud-based solutions are far more flexible, allowing organisations to only pay for the number of employees they have in any given time.

 

There are other financial advantages as cloud solutions’ costs are transparent and predictable. This is in contrast to traditional payroll software, which comes with hidden below-the-line costs in the form of the burden on in-house IT teams, with the need for regular software updates and maintenance on the company server. ADP undertook research to find out the true cost of payroll software, as opposed to using Software as a Service (SaaS). It estimated that based on managing a payroll for approximately 1,000 payslips a month, the average annual cost of maintaining software, combined with the cost of administration, is as much as £104,280. These costs could be almost halved by using SaaS solutions.

Cloud-based solutions can also help to facilitate integration after a merger or acquisition as there is no need to upgrade licences after such structural changes, no need to increase the size of IT departments or upgrade servers.

Working with providers of cloud solutions also gives payroll professionals much needed reassurance. They can be sure that all outputs will be compliant with UK law and HMRC statutory changes. The provider will be fully accountable for keeping abreast of such changes which will take responsibility away from in-house staff, allowing them to concentrate on value added, strategic tasks.

Cloud technology has transformed the way payroll, HR and finance teams interact with corporate systems and databases in much the same way that everyday life, cloud applications such as Facebook, Google and Spotify have changed the way we communicate, search for information and listen to music. As people have come to rely on being able to access information at any time and from anywhere via the internet, so too professionals are now demanding the same interactivity in their work lives. This is one reason why electronic payslips and online requests for annual leave are increasingly popular.

In the coming years we can expect professional uses of cloud technology to increase still further as companies become more and more comfortable storing and accessing information away from their own servers. As well as this, the ability to work remotely and on the move will increase too as mobile devices, such as smartphone and tablets, become ever more widespread. According to figures published by Ofcom in 2010, more than a quarter of UK citizens now own a smartphone – with figures set to rise this year.

Payroll apps, which can be downloaded for free from Apple’s App Store, have already appeared in the US and are proving popular. These apps allow payrollers to carry out the same day-to-day tasks as they would complete in the office but in a more convenient and mobile format by accessing the password-protected system via their mobile device.

 

Payroll software has come a long way since the days of punch cards and mainframes, and is a vital tool to improve the efficiency and accuracy of the payroll process. Technology means that there are now more and more solutions to choose from and varying levels of service designed to suit different business needs. The advent of cloud-based solutions is, however, one of the most significant developments. This is because of its ability to provide an accessible and predictable subscription pricing model, with improved security and access from anywhere. While small firms were quick to pick up on the benefits cloud computing brings, larger companies have since embraced cloud technologies in many areas of business, with payroll often one of the first functions to be placed in the cloud because of its functional, process-driven nature. Indeed, cloud computing firms are now, quite rightly, attracting serious interest from stock market investors – a trend that suggests the future of many business processes are in the cloud.