How to increase global payroll maturity

Payroll occurs in every business at least once every month. Despite it being a recurring process, running payroll is not the same every payroll cycle. Instead, the system behind payroll and how it is managed and organized, evolves and becomes more sophisticated over time. In this context, people often talk about payroll maturity.

But what exactly is meant by payroll maturity? Why does it matter? And how can businesses measure and increase the maturity level of their payroll?

Payroll maturity describes how far a business’s payroll has evolved in terms of process efficiency, standardization, strategy, use of technology, and more. It should be noted that the concept is often used to refer to the efficiency of global payroll operations.

On a scale from immature to mature, an immature payroll would be the equivalent of a payroll set-up that relies almost exclusively on manual effort, consists of non-standardized processes and doesn’t allow for operational oversight.

A mature payroll, on the other hand, is characterized by a high level of automation and standardization which results in optimized efficiency and operational control. But there are several different stages on the way to mature payroll.

There are at least two different payroll maturity models that rate the level of sophistication in payroll based on three or four stages on a scale from:

• Low to medium to high, or

• Immature to reactive to controlled to strategic.

Let’s look at how the payroll set-up differs when moving through the different stages.

Immature payroll

An immature payroll is characterized by: 

• Manual processes,

• Frequent payroll errors,

• Low operational control,

• Lack of standardization,

• Low data visibility,

• Elevated costs,

• Very basic reporting capabilities, and

• Absence of employee self-service functions.

Reactive payroll

Classifying a business’s payroll as reactive means that:

• The focus is on maintaining the status quo,

• There is still a relatively high level of manual work involved in payroll,

• The response to problems and issues with payroll happens ad-hoc, and

• The visibility regarding data and processes is still relatively low.

Controlled payroll

When a payroll is classified as controlled, it shows:

• An increased level of technology,

• A strong focus on improved operational efficiency,

• Alignment with the overall business strategy,

• Attempts to connect payroll to other business functions,

• Integrated employee self-service functions, and

• Improved reporting with mainly consistent data.

Strategic payroll

Strategic payroll breaks with the traditional understanding of payroll as an isolated business function that fulfills a purely operational role. When payroll develops its strategic potential, it reaches the highest maturity level. Important characteristics of a mature payroll are:

• High level of payroll automation and standardization,

• Low error-rate,

• Enhanced regulatory compliance,

• High level of payroll integration with HR, accounting and finance systems,

• Tight data and system security,

• Use of payroll analytics for real-time insights and accurate reporting,

• Full operational control and visibility,

• Strong contribution to the overall employee experience,

• Continuous improvement of processes and operational model,

• Scalability, and

• Strategic value for the organization.

Payroll maturity is an important indicator for payroll efficiency and performance. Basically, the more mature the payroll, the higher the operational efficiency and the greater the benefit for the business. High payroll efficiency means:

• Cost savings,

• Enhanced productivity, and

• Fewer errors.

The maturity level of payroll also indicates how strategic a business’s payroll is and how well it aligns with the organization’s overall strategy and objectives. Having a strategy-focused payroll enables organizations to leverage payroll data to inform business decisions and enhance payroll compliance. In short, payroll maturity is directly linked to business success and business growth.

Payroll maturity matters, which is why businesses are increasingly aware of the necessity to make improvements where payroll is concerned. However, in order to enhance the maturity of their payroll systems, organizations first need to analyze their status quo. In other words, they need to assess how mature their payroll is today.

Here is an overview of different criteria that are typically used for evaluating the sophistication of a payroll:

• What is the percentage of processes that require manual effort?

• Which payroll processes are carried out by payroll software?

• What is the level of automation?

• Is the technology used for payroll future-proof?

• Are there any dependencies on certain people within the organization?

• How often does the payroll department need to deal with payroll errors?

• Is payroll integrated with other workforce management systems such as the company’s HRIS? 

• How fast can payroll data be accessed and extracted for reporting purposes?

• How often are payroll audits conducted to detect inefficiencies and recurring payroll issues?

With regard to multi-country payroll operations, businesses should further ask the following questions:

• What does the global payroll model look like?

• How many payroll service providers are needed and how are they connected?

• Are processes streamlined across geographies?

• Is payroll data consistent and standardized for all countries?

• Is payroll consolidation enabled?

• Is there a single source of truth for global payroll reporting?

• How well is compliance managed in all locations?

• Is it possible to leverage payroll analytics to get insights into global payroll data?

• Is payroll centralized or decentralized?

• How satisfied are employees with the current payroll delivery?

Based on the results of the payroll maturity assessment, businesses can take action to make their payroll operations more efficient. Areas where payroll maturity is rated low should be prioritized in the process.

For instance, if data visibility is very low and composing payroll reports becomes an increasingly difficult endeavor due to divergent data formats and pay elements, this should be high up on the business’s to-do list. Ensuring global payroll compliance is also of great importance, which is why shortcomings in this area should be rectified as fast as possible.

Assessing payroll maturity and addressing the issues one by one can be a tedious process. Alternatively, businesses can opt for a global payroll solution that is designed to overcome common global payroll challenges and allows for quick implementation. Multi-country payroll solutions hold a variety of advantages for businesses, including centralized control over global processes, enhanced global compliance, and increased payroll resilience.