Report Finds 40% of Companies Will Modernize Payroll Systems By 2023

Reflecting a growing appetite for payroll modernization, companies are increasingly replacing their antiquated payroll systems with technology that moves them toward more rapid calculation and payment methods, according to a new report by Alight Solutions (NYSE: ALIT), a leading cloud-based provider of integrated digital human capital and business solutions.

For the first time, cloud-based payroll systems (61%) exceeded on-premise (39%) as the dominant payroll delivery platform, according to Alight’s 2021 Global Payroll Complexity Index. Furthermore, a quarter of companies (26%) have accelerated digital payroll projects in the past year, and another two-thirds (62%) expect to go through a digital transformation in the next two years.

“The payroll function is becoming increasingly complex as companies struggle to keep pace with shifting workforce demographics brought on by the pandemic,” said Luca Saracino, senior vice president, international sales and strategy at Alight. “It was a major achievement for companies to keep payroll running at times when business continuity was challenged, but it was far from ideal. Clearly HR and payroll leaders are eager to realize the benefits of digital payroll.”

According to our respondents, the primary drivers for accelerated digital payroll projects include regulatory risk (42%), corporate strategy for outsourced business processes (39%), cost controls (27%), payroll talent shortages (19%), and M&A and business divestment activities (15%).

Respondents also reported challenges associated with payroll accuracy, as frequent legislative updates and changes to furlough and job retention programs often required manual updates to payroll systems, which increased the risk of costly payroll errors. For example, the report revealed that 27% of data breaches in the payroll processes since 2019 were result of human error, according to respondents to the survey. In Europe, companies that don’t comply with General Data Protection Regulation (GDPR) may be fined up to 4% of annual revenue or €20 million, whichever is higher. In addition, payroll leakage, resulting from poor payroll process management, may cost companies 2% of their total salary bill.

“It’s possible companies are hemorrhaging millions of dollars annually through basic payroll process failures,” said Wilson Silva, senior vice president customer experience and HCM delivery at Alight. “Luckily, they can turn those losses around quickly by simply examining the payroll processes and correcting the basic payroll errors commonly made by companies that lack visibility into and governance of their payroll processes.”