3 Myths About Payroll Service Bureaus and Efficiency

“Neither snow nor rain nor heat nor gloom of night …” is the start of the motto paying tribute to the work of the United States Postal Service. Tack on “nor the pandemic,” and you get a phrase that perfectly describes the commitment of payroll.

The primary role of payroll — to pay employees — has largely remained unchanged in a pandemic-impacted business landscape. But carrying out that requirement has become more complex due to the sheer magnitude of change ushered in by the disruption: furloughs, temporary shutdowns, unemployment claims, updated benefits, and new payroll tax legislation, just to name a few. 

Dealing with the confluence of demands has been role-altering for payroll — and that should prompt companies to reevaluate the effectiveness of their payroll processes moving forward. 

“We have vaulted five years forward in consumer and business digital adoption in a matter of around eight weeks,” according to McKinsey research about post-COVID-19 recovery.

Take a Closer Look at Payroll Efficiency

Often touted as a way to increase efficiency, payroll service bureaus (also called payroll providers) allow lean companies to outsource payroll administration and rely on skilled services to handle payroll tasks, such as processing gross-to-net, tax filings, tax compliance, garnishment settlements, or report writing.

But given the pandemic-impacted landscape, companies that narrowly focus on outsourcing payroll administration tasks should reevaluate if their payroll setup effectively handles the dynamics of a changing business landscape:

• Can outsourcing help your company quickly adjust pay components in response to new company policies? And how long do you have to wait for a service bureau to make a change for you?

• Is a payroll bureau infrastructure adaptable to managing payroll processing remotely when disruptions occur and prevent payroll from returning to the office? 

• Can payroll data be easily shared with finance and HR so they can factor how changes in payroll expenses, such as payroll tax or benefit packages, will affect employees or business outcomes?

• And perhaps the biggest consideration: Can your payroll infrastructure support rapidly changing business requirements due to unprecedented and disruptive events?

With ongoing disruptions as the new normal, payroll teams must reconsider what efficiency means. Payroll efficiency is more than streamlined tasks and systems. It’s the ability to adjust with the needs of the business, effectively transforming payroll from a purely transactional service into a dynamic business partner.

But more often than not, the supposed benefits of payroll service bureaus are myths that prevent lean companies from becoming enduring, thriving organizations. 

Myth: Outsourcing Leads to Increased Efficiency  

Reality: Integrated Technology Enables Payroll to Efficiently Scale

While companies may gain a desired result in terms of completion of the task, outsourcing comes with a hidden cost: sacrificing control of the payroll process and the nimble flexibility to adapt to the needs of the business.

For example, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) included a tax credit for retaining employees and deferring Social Security tax payments for a specific period. 

The impact of the CARES Act for small to midsize companies was more than complying with new payroll tax guidelines. The legislation was designed to provide business relief, which meant that companies needed to consider how the employee retention tax credit and Social Security tax deferral could help the business strategy.

The CARES Act — because of the strategic business implications — showed that efficiency in payroll isn’t about outsourcing tasks. Efficiency is the ability to quickly adjust to a changing business strategy.  

“Companies are really looking for a technology solution and a service solution that can change on the fly as their business strategies change,” says Gaye Krisantz, vice president of payroll at OneSource Virtual.

An integrated technology platform, such as a cloud-based human capital management (HCM) system that includes payroll and timekeeping, enables a lean payroll team to efficiently adapt its processes to the needs of the business. So when an organization creates a new sick leave policy, which many businesses did during the pandemic, its payroll team will be able to quickly document and apply pay changes without needing to wait on a service bureau provider. 

What’s more, an integrated technology platform with a unified data core funnels the day-to-day HR transactions straight to its integrated payroll system. As a result, the platform keeps payroll up to date and frees the payroll team from data entry tasks, allowing it to put more focus on data analysis for making strategic business decisions.

“The old lift-and-shift traditional model where you just lift the traditional business practices into the new technology has gone to the wayside,” says Krisantz.

Simply put, companies that outsource payroll administration won’t be able to easily adjust bureau software as the business strategy changes. They’re missing the critical component of what truly enables payroll to efficiently adapt to changing times: integrated technology. 

Myth: Payroll Data Is Only Relevant for Financial Reporting

Reality: Payroll Data Is Important to the Entire Business

Often, relying on the expertise of a payroll service bureau is thought of as the best solution to handle payroll processing, tax filings, and payments. According to The Deloitte Global Payroll Benchmarking Survey conducted in 2020, 73% of organizations outsource some aspect of payroll.

However, Deloitte notes that while “outsourcing can reduce the administrative and transactional components of payroll administration, payroll specialists are still needed to drive policy and decision-making.”

Consider this: Companies couldn’t predict how the pandemic would affect their business — the pandemic has been described as “unprecedented” for a reason. Seasonal or historical data couldn’t reliably be used to determine staffing. But payroll data offers real-time insights into staffing trends and how payroll costs would affect the business, which enabled company leaders to be more proactive in navigating the pandemic’s impact on the business.

What’s more, the pandemic has made finance and HR collaboration a must. For HR, payroll data is necessary for ensuring that the business is compliant with current legislation and gives insight on employee and business data. For finance, payroll data is critical for accurate general ledger reporting, tax compliance, and ensuring that employee wages — which are often a company’s biggest expense — are balanced with the health of the company. 

In other words, payroll efficiency is less about producing financial reports and more about the ability to share data with finance and HR. This is possible through a cloud-based reporting and insight-giving HCM solution that has a unified data core. The ability to access payroll data is necessary for finance and HR to navigate disruptions with data-driven decision-making. And in situations where business demand changed seemingly overnight — which was common during the pandemic — finance needed real-time insight into the total cost of the workforce to make business continuity decisions. 

“This year just really put people on their toes to ask, ‘Do I really have the right data? Is my data easily accessible without requiring additional report development?’” Krisantz says. “The stress that the pandemic puts on companies to get that real-time insight into your financials and the financials across your business has been very important.”

Myth: Employees Are Only Concerned About Getting a Paycheck

Reality: Employees Want a Personalized Payroll Experience

Payroll’s primary function will always be to distribute employees’ wages on time. But employee expectations of the payroll function have evolved.

At minimum, employees want self-service access to their payroll information, including pay slips, paid time off, and benefits. And employees want access to that information from anywhere. These features have been the standard in many cloud-based payroll systems for years. 

But what has changed is the increased demand for flexibility. 

Consider this: The pandemic and other natural disasters have shown that business disruptions impact not only customer demand but also the supply chain, which includes mail delivery. Required documentation, such as first and last paychecks, COBRA forms (the option to continue health coverage), or 1095-Cs are often distributed through the mail. In the event of a natural disaster, an employer that could only send the paperwork  through the mail wouldn’t be able to assure its employees that the paperwork would arrive in a timely manner. 

To adapt to changing times, companies must enable their payroll teams to ensure payroll continuity no matter the business disruption. Payroll must be empowered with other options for issuing payments and delivering forms or necessary payroll paperwork, such as sending, receiving, and storing forms electronically. And in turn, this empowers employees to get payroll-related information and services on-demand. 

For example, earned wage access is a payroll payment option that has been gaining greater appeal since the COVID-19 pandemic. Also called accrued wage access or on-demand pay, earned wage access gives employees earlier access to pay for the hours they’ve worked. Earned wage access can help people stay financially afloat without needing to wait as long as two weeks to receive their money. Workday Payroll enables employers to deliver earned wage access via Pay On-Demand. 

“Say you've got a burst pipe. You’ve got a sick family member, maybe with COVID, and you need an immediate prescription. The earned wage access solution has become really important in the past year,” Krisantz says. 

Empower Payroll Teams to Adapt and Thrive in Changing Times

Payroll has long been an essential function to run the business. But the impact of the pandemic has required companies to look at payroll through a more strategic lens. An integrated payroll solution uses technology and data to help create positive employee experiences and align payroll with the business strategy. In other words, payroll, like most everything else, needs to adapt to thrive in changing times.