What is payroll software?

Payroll software is technology that automates payroll processes that were previously manual, saving time and improving productivity by cutting down on human error. All taxes and deductions are calculated for you, and automatic updates help ensure that you remain compliant. When it comes to payroll software, the most common distinctions are between on-premise payroll software and payroll cloud software.

What is cloud-based payroll?

Instead of multiple systems, payroll cloud software is hosted by an independent, expert third party. Payroll cloud software features one system of record for all of your workforce data, freeing you from the administrative burden and financial risk of processing yourself using on-premise payroll software.

So what is on-premise payroll software?

On-premise software is when a company pays for a license or copy of the technology which is then installed on the company’s own servers and sits behind its firewall. On-premise payroll software requires various ongoing costs: inhouse server hardware, software licences, integration capabilities and skilled IT support in case any problems arise. The business will be responsible for the ongoing costs of server hardware, power consumption and space.[1]

Common myths about payroll cloud software

According to ADP research, three common myths about payroll cloud software persist and need addressing. [2] The first is that cloud software costs more. In reality, apart from the initial investment and some increase in operating expenditure, almost all of the associated costs (such as maintenance, IT support and compliance) become the responsibility of the third- party cloud service provider. You only pay for what you use, and the scalable pricing model can adjust up or down depending on what your business needs.

The second myth is that cloud software takes away control, when the opposite is true. Companies moving to the cloud lose the operational and financial burdens of having to maintain labour-intensive systems, while retaining the choice of how and when their staff will be paid.

The final myth is that cloud solutions are less secure than on-premise payroll software. ADP research shows that the error rate for on-premise payroll software is twice that of cloud-based software. [3] A third-party vendor’s reputation rests on their ability to robustly deliver secure processes and ensure the highest levels of encryption to keep all data safe. It is in their best interests to invest in security and privacy, particularly when the COVID-19 pandemic has highlighted this and other weaknesses in companies’ existing payroll arrangements.

Why payroll software matters more than ever

As we all know, the pandemic wreaked havoc on companies’ patchwork payroll and HR systems, exposing weaknesses like never before. In a recent survey conducted by ADP, 82 per cent of companies found the pandemic challenging, especially when it came to the reliability and accessibility of payroll, as well as trying to deliver accurate, timely staff pay.[4] The research found there was widespread recognition among business leaders that payroll systems need to change to build resilience, optimise operations and reduce risk.[5] Continuing with ‘business as usual’ when it comes to payroll software is no longer an option.

The dangers of ‘BAU’ (business as usual)

So what are the risks to your business if you try to keep managing your payroll and HR data using an obsolete system? Compliance is an even bigger deal these days, due to both GDPR and COVID-19. The effort of maintaining compliance with the huge number of changing financial regulations requires dedicated compliance experts – or risks potentially huge fines (there were 56,624 regulatory alerts from over 1,000 regulatory bodies in 2019 alone.) 6  Plus, the security and privacy of your data (staff and clients’) using outdated, disparate manual or on-premise processes is a big risk.

The benefits of payroll cloud software

Given all of the above, there are many benefits to businesses from moving payroll to cloud software. This is particularly so when an organisation is growing or moving into new territories across the world. These benefits include reduced costs, ease of management, enhanced security, global scalability, constant compliance updates, and improved centralised access to critical payroll data.

More specifically, optimising your payroll software by moving it to the cloud can help to:

• Inform future planning – by enabling you to compare and contrast spend where you operate, gaining a global perspective of your true workforce costs. Analysis of payroll data can give valuable insights into upcoming issues, for a head start on planning.
• Retain key staff – insight from payroll can help you design future compensation and reward strategies that deliver maximum value to employees. For example, younger workers may favour flexible working hours.
• Drive equality and diversity – gender pay gap and diversity reporting is ever more important, and not just for reputational and legal reasons. Using unified payroll data, businesses can easily see how their company performs, and take action to improve.
• Enhance hiring practices – you can use payroll insights to understand whether temporary workers are a more cost-effective alternative to full-time employees.
• Boost productivity – payroll data can reveal actual versus budgeted headcount so leaders can easily see whether departments are operating above or below strength.
• Easily track your KPIs – check how your company’s payroll operations look using ADP’s monthly snapshot of your payroll key performance indicators, plus how they compare with other organisations.

Managing the transition to the cloud

Making the move from on-premise payroll software to the cloud is a big step and needs careful planning and management. So how best to make it a success? Rather than treating it solely as an IT software programme, it’s advisable to see it internally as a change management initiative. Make sure your teams action the following to help with what may be a large shift culturally:

• Develop the right strategy as payroll is critical to any business. Any payroll software implementation must be treated as a priority and not an IT afterthought. This will avoid having to go back to reconfigure your HR system to integrate with basic payroll requirements and deliver a better experience for all staff.
• Focus on communication by identifying the people early on who need to be brought on board. Then update each other regularly and listen to their concerns.
• Explain the benefits of payroll cloud software as not everyone in your business will be as enthused as you are.
• Show momentum by sharing regular progress updates to keep perceptions positive.8

Why the future is in the cloud

Payroll software housed in the cloud provides a scalable, flexible solution which can grow with your business over time. In contrast to on-premise solutions, cloud-based payroll software is reliable and secure, removing the difficulties of maintaining and updating systems. This enables your teams to invest their time, money and resources into fulfilling their core business strategies. Perhaps it’s time then to move from either on-premise or obsolete payroll systems that are no longer fit for purpose.

ADP has over 70 years’ experience of delivering and innovating payroll. Out of the many industry and analyst awards that we’ve received over the years, most recently we’ve been nominated by the Everest Group Peak Matrix as a Leader in Multi-Process HR Outsourcing 2021. So if you’re wondering whether we’re the right payroll software experts to help your business, please contact us to get the conversation started.