As the world of work continues to evolve, interest in how employees are compensated for their contributions to organizational growth has steadily increased over the past couple of years.
A decade ago, many workers would be satisfied with just having their paychecks arrive on time. But in 2023, People leaders like you can testify that New Gen employees, especially white collar knowledge workers, want more than that.
Beyond on-time paychecks, New Gen employees also require a consistent employee experience and streamlined payroll processes to stay happy at a workplace.
What does this mean to you?
In order for your organization to stay competitive in the talent market, you have to rethink your approach to payroll and employee compensation. Instead of trying to fit old systems into modern workplaces, consider how you can innovate your payroll processes to get more out of your employees and drive business growth.
In this guide, we will outline what you need to know about payroll innovation including best practices for creating an effective payroll system and building an inclusive payroll strategy.
What is payroll innovation?
Payroll innovation is the upgrading of systems and technologies used by HR departments to compensate employees.
While many people think that payroll innovation is all about software, it actually consists of processes that influence HR’s use of software. Payroll innovation requires a change in how HR professionals view their roles and how they package their services to employees in the workplace.
This change in mindset is what then drives the use of technology, not vice versa.
Compared to other business functions like marketing or customer service, the payroll industry (and its solutions) seem to play catch up when it comes to innovation. This is a reality we see every time we talk to organizations across Nigeria.
First, a significant chunk of Nigerian organizations still use spreadsheets for computing and managing their payroll information. As these organizations grow, so does their database. Eventually, they realize that it is impossible to stay agile while using spreadsheets to handle their payroll database.
Some other organizations already made the jump from spreadsheets to software. But their solution required them to invest a lot of time handling repetitive tasks, like calculating the gross-to-net salary of every employee for each pay cycle or calculating due taxes.
These are tasks that should be automated with the right software in order to free up valuable time for more strategic initiatives, with one study proving that automation can reduce payroll processing costs by 80%.
Another study showed that, despite the relationship between payroll and improved business performance, gaps in payroll innovation is one of the biggest challenges faced by organizations looking to invest in their payroll processes.
The first step to addressing this gap is to design an effective payroll system for your organization.
Pillars of an effective payroll system
When it comes to building an effective and growth-focused payroll system, there are four pillars you must keep in mind.
- Seamless processes and accuracy
- Employee-friendliness and transparency
These pillars should form the foundation of your payroll system. Without them, you’ll never be able to build a payroll system that (i) helps the organization meet its long term goals, and (ii) satisfy the needs of a modern employee.
Seamless processes and accuracy
The integrity of your payroll system will be called into question if you can’t verify the accuracy of your output at any given time. And this will lead to mistrust within your employee ranks.
A survey even proved this, revealing that 1 in 2 employees will start job hunting after just two payroll errors.
The reason why accuracy is a big payroll system challenge is because there are multiple inputs that need to come together for you to compute an employee’s final compensation.
Parameters such as time offs, overtimes, benefits, employee performances, and taxes must all be taken into account. And it is important that these data are transferred seamlessly from where they are stored into your payroll engine.
How can you build accuracy and seamless transfer of data into your payroll system? The answer has 3 parts:
- Adopt a single point of truth for your employee information.
It is easier to maintain the integrity of your data if it is stored in a single place. Transferring your employee information from one system to another leaves you open to errors that will mess up your payroll. An HRM platform like Pade prevents this by storing data across every employee’s life cycle on a single platform, giving access to much deeper payroll insights like pay accuracy, time to process, overall payroll costs and so on.
- Outline how every payroll parameter impacts employee compensation.
Create a list of every input that goes into the computation of every payroll, from pay grades to working hours. Then create policies that address how each parameter contributes to every employee’s compensation.
- Conduct payroll preview before processing paychecks.
Create a report of your payroll before deposits are activated and have an employee or department other than those responsible for payroll to crosscheck for accuracy.
We mentioned earlier that payroll innovation isn’t just about the software you use to facilitate your payroll processes. That’s still true, but the nature of software you eventually decide to work with will determine how far you go with innovation.
Technological innovation doesn’t spread fast in payroll due to the fragmented landscape. Different countries and organizations have unique laws, structures and policies set up to manage payroll. This makes a one-size-fits-all software solution almost impossible to adopt for payroll functions.
So it was really no surprise when Ceridian revealed that 85% of organizations faced some kind of limitation with their payroll technology.
You most likely face some challenges with yours too; your organizational quirks make it tricky to adopt a standard payroll platform which in turn stifles the growth of innovation in your department.
Unless you can build your own software, adopt a payroll solution that is flexible enough to be deployed in many use cases. Ideally, this solution can easily be embedded in your workflow so you can benefit from innovation without having to change what you’ve built.
What’s the point of using a payroll system that isn’t tax compliant? It is definitely a legal and financial liability.
Debating the importance of tax compliance to a payroll system is a moot point. But despite this, Edidiong Etukiren — Pade’s in-house financial analyst and consultant — pointed out that staying compliant with tax laws creates an extra burden for organizations during payroll season.
Here’s how to incorporate tax compliance into your payroll system:
- Use payroll software.
You shouldn’t still be calculating your payroll and taxes manually if you’re serious about payroll innovation. Use a payroll software to automate these tasks in order to stay compliant and reduce the occurrence of errors.
- Keep track of important deadlines.
In order not to trigger a penalty, ensure to keep track of important deadlines for submitting all withholdings and filing your taxes.
- Classify your employees accordingly.
Another mistake many businesses make is misclassifying their employees as independent contractors. Only employees can have taxes deducted from their paychecks and your organization could be fined if a misclassification is discovered.
Employee-friendliness and transparency
As mentioned at the beginning of this article, building a payroll system for today’s world of work requires you to take into consideration the needs and behaviors of your employees.
Payroll systems (and HR in general) have historically been transactional. No one cared much for the experience as long as they got paid on time. But today, a consistent employee experience is essential to building an effective payroll system.
This is a trend that is already evident on the global scale as 83% of employers give their employees access to a self service portal with pay and benefits information. Within our customer base, we’re also seeing strong signals that show that employee-friendly software is key to building effective payroll and HR systems.
For example, our employee self-serve portal is widely used to generate payslips, track performance, and monitor benefits, all of which have a direct impact on employee experience and motivation to do work.
When building out your payroll system, give your employees access to a self-serve portal to increase trust in your organization and improve their payroll experience.
How to craft a payroll strategy that complements your people strategy
When you talk to your employees, you realize that payroll means much more to them than you think. It is an EVENT that puts food on their tables, sends their children to school, and funds their dreams.
When the Society for Human Resource Management surveyed 450 candidates, 59% (roughly 6 out of every 10) said that their salary is the main factor to being fulfilled in their career.
That survey was carried out in 2018. Payscale carried out a more recent research, and while salary still tops the list of career motivating factors, employees are more deliberate about how they get their compensation.
From the results of the survey, here are two strategies that you must keep in mind when building a payroll strategy that delights your employees.
Rise in benefits importance
Employees are much more concerned about the benefits that come along with their compensation.
Infact, 88% of job seekers will consider access to better health, dental, and vision benefits when choosing between a high paying job and a lower-paying job with better benefits.
It is telling that organizations around the world already notice this shift and are building workplaces that take this into account.
Compared to 2022, more organizations are offering their employees mental health and wellness programs, paid sabbatical, extended family leaves, and so on. You can also build a modern, employee-centric workplace by giving your employees access to certain benefits.
Pay transparency in your organization
Pay transparency is a controversial topic in Nigeria (and Africa). A big reason for this is its varying levels of understanding and implementation among organizations.
There is no perfect level of pay transparency. As with other organizational decisions, it should be dependent on your organizational culture, brand strategy, business goals, amongst other factors.
But one thing that is certain is that employees right now expect a certain level of transparency and there are two ways you can heed their call.
The first one is transparency of pay processes where you let each employee know what they need to know about how their compensation is calculated. This type of transparency is easy to achieve with a platform like Pade where your employees can easily login to view their performance objectives and track their progress.
The other way is transparency in terms of being open with salary in your organization. Every employee knows what the other person takes home at the end of the month.
Pade + Payroll: build an innovative payroll system for your organization
If there’s one thing you take away from this guide, hopefully it is that payroll is no longer a transactional process. Rather, it has a huge impact on your people strategy and employee experience.
With this in mind, it is important to adopt payroll systems and processes that put the employee needs at the center. Investing in a people management platform like Pade will help your organization manage and automate repetitive payroll processes.
But Pade’s robust platform isn’t just limited to payroll. You also have access to request management, benefits, performance, and many more features that make it easy to manage your employees from a single platform.
If you’re ready to innovate your organization’s payroll with a platform built for a new world of work, schedule a demo with one of our product experts today.