How to Create a Scalable, Agile, and Sustainable Payroll Delivery Model
The technological disruptions in the payroll industry today, along with recent changes in global circumstances, are all giving way for payroll leaders to identify an emerging crucial angle to this profession – strategizing flexible and sustainable payroll delivery models.
Payroll as a transformation strategy rather than a functional one
Treating payroll as a mundane functionality in the organization is gradually becoming an obsolete approach to payroll management. Being at the forefront of the current worldwide pandemic, payroll professionals are the ones working around the clock to make sure employees around the world get paid, sifting through local and global regulatory complexities, ad-hoc changes, and immense pressure.
It becomes clear that in order to streamline, simplify, and improve the payroll operation in global organizations, it is paramount to treat payroll management as a strategic operation, one that is critical to the maintenance, retention, and growth of the organization’s global workforce. To that end, I propose a payroll model that not only offers a wholesome picture into the full cost of the distributed workforce; but also meets three crucial requirements in today’s world: a payroll model that is scalable, agile, and sustainable.
The best way to go about this, is to think of the payroll operation as aimed at providing services for these primary stakeholders – the employees and multi-layered secondary stakeholders. Once payroll leaders adopt this approach, they will be able to create a stronger and agile transformation strategy.
The first step is building your investment matrix, which includes:
Building the business case
When we look at an organization’s payroll model, we need to first analyze the business case. In other words, you will need to first define how you’ll distribute your internal investment across those three pillars, depending on the industry you’re in and your organization’s revenue margins and goals. For example, if you’re a high tech company with a 40% operating profit margin, you are looking at a $25,000 revenue per employee, whereas if you’re a manufacturing company with an 8% operating profit margin, your revenue per employee is $25,00.
Basically, the distribution of your investment between adoptability, aggregation, and arbitrage will be defined by factors such as the nature of the organization, the industry and its cycles, as well as the economic condition of today and tomorrow. If you are riding the business cycle wave, you may want to invest more on aggregation. However, if your main motivation is to save costs and make it happen immediately, then you might want to invest more on arbitrage. If you have more cash flow coming in, you might consider investing more on the adoptability bucket, to give more to the local business.
In today’s technologically advanced world, organizations moving to the cloud and leveraging artificial intelligence (AI), robotic process automation (RPA), and other advanced technologies, often turn the aggregation bucket to the #1 bucket for internal investment. This happens even in businesses that have never previously considered this option, as current technology is delivering the needs of adoptability & arbitrage. This becomes even more tangible with the SaaS model of payroll.
To make this matrix complete, let us add the three pillars of execution:
This will help us in deriving:
- What will be our execution leverage to support our strategy?
- Where we will be investing our money?
- How will this provide ROI?
So, how do I achieve my strategy objectives utilizing people, processes & technology?
Let us consider this example: if you decide to spend $40 on the aggregation of processes, $35 on capitalizing arbitrage, and the remaining $25 on adoptability, which execution model will you chose to support your strategy?
To achieve the right balance, it is paramount to have a clear understanding of which direction the company is moving towards. You can understand it better by aligning your approach to company objectives and constantly calibrating with all stakeholders.
Even if you have completed everything above perfectly a year ago, you still need to revisit your model. In today’s world with technology constantly maturing, you have more agility to play with the different buckets on the one hand, but more ad-hoc changes to your payroll model on the other.
Regardless the circumstances, the model works
We live in a VUCA (volatility, uncertainty, complexity, and ambiguity) world. Circumstances changes constantly. However, regardless of the circumstances, if you have drawn your payroll execution plan deliberately and consciously based on this model, it will allow you to change, adjust and revamp your internal investment at any moment in time, according to your current business case and needs.
It is sustainable whether during a global pandemic, low economic times, adoption of a new technology, or any other business shift in the company. Once you identify where your leverage is according to the state of the company, this mindful model will allow you to constantly play with the margins, because you know each specific ‘gear.’
Here are a few things to keep in mind:
Advanced tech might disrupt the aggregation bucket altogether
It was not so long ago that tech was just … tech. If we wanted to deploy a payroll software in the company, we would need to figure out how to use it, implement it, ensure adoption among departments, et cetera. It would require massive IT infrastructure work, and the time and effort of all stakeholders involved. But today, technology is increasingly provided as a service, with minimal implementation, optimum level of adaptation to local requirements, and I can use it to improve my processes and empower my people. In other words, we can see a clear trend where technology is beginning to change and influence other aspects in the process.
Payroll is not a volume business
Unlike finance or IT, payroll is not a volume business. It is a value business driven by high variables and complexities, such as the statutory aspect, legal aspect, tax considerations, social security, local government regulations, current market conditions, business requirements, et cetera. As a result, there will be constant pressure for continues improvement in process rather than on achieving productivity by scale.
The next generation of payroll is right around the corner
Payroll has come a long way from being drawn on large ledger books to being on the cloud. While a lot more still needs to happen from both a technology and a process perspective, making employees look at their pay slips today seems almost outdated. The next generation of payroll would be to process and properly communicate the employee value proposition (EVA) instead. The emerging well-integrated, easily deployable, and high ROI technologies will help support this upcoming transformation.
Harish B K is based out of Bengaluru Area, India, where he is General Manager of Alliance Payroll at Renault-Nissan-Mitsubishi.