Strategic payroll: The importance of payroll for business strategy

There’s no doubt that payroll is a crucial business function, since it ensures the continuity of salary payments and hence keeps the staff happy and willing to work. In the eyes of many, the purpose of payroll is to get employees paid accurately and on time. Nothing more, nothing less. Being primarily perceived as an add-on department that has no direct link to or value for other business functions, the strategic dimension of payroll is often overlooked. 

Payroll can create strategic value for businesses, which is why organizations should rethink the way they see their payroll function and work towards making payroll more strategic. In this blog post, we’ll explore how organizations can leverage payroll for their business strategy and what it takes to turn payroll into a strategic function.

For many businesses, payroll is an important, yet undervalued business function. It’s usually seen as a back-office activity which is completely separate from the other business units, not offering any additional value than the operational purpose it fulfills, which is to make sure the staff is paid.

Sure, paying employees is crucial to ensure the continuation of the business, since unpaid employees will soon stop showing up for work. But there’s more to payroll than meets the eye. 

In the era of digital transformation and big data, payroll is set to be more than just a support function. By adopting a new way of thinking about payroll, businesses can turn their payroll into a strategic function that delivers valuable data insights which can be used across various departments.

A well-working payroll function is a strategic asset which can be leveraged to improve the overall business strategy and employee experience, serve as a basis for informed decision making and compliance, and provide valuable insights into your global workforce.

Payroll provides insights into your global workforce and operations

There aren’t many other business functions that handle such vast sets of employee data as payroll. In many cases, however, the potential of payroll data remains largely unexplored as the data is collected, used for payroll processing and then only sits forgotten somewhere in the cloud.

Businesses that opt for a global payroll solution offering detailed reporting options gain a competitive advantage.Treating payroll data as a strategic asset can help you gain deeper insights into patterns and potential problems related to your global workforce and operations. For instance, looking at long-term payroll data could reveal possible correlations between overtime and an increased turnover rate in certain positions.

Learn more about payroll data and how to use it for your business in our related blog post.

Payroll enables strategic decision making

Detailed data insights into your workforce and operations are the basis for making informed business decisions. Having all the information you need in numbers and figures allows you to make the best possible decision, especially when it comes to workforce planning. Not only can data gained from payroll processing help forecast labor costs in a specific geography - and hence allow you to take measures to control them over time - but it can also be used for strategic hiring decisions. 

For example, comparing the average cost of a full-time employee in a certain region to overtime pay for current employees in that division will quickly show whether it makes more sense to hire a new employee or to keep paying your existing team for overtime. Overtime can also be used as an indicator for which business functions are currently experiencing a higher workload and should therefore be prioritized when setting the next hiring budget.

Payroll plays an important part in employee experience and talent attraction

In the current war for talent, businesses are under more pressure than ever to retain talented workers, which means they have to offer them the best possible employee experience. Payroll and employee experience are closely interlinked. First and foremost because not getting paid accurately and on time is a real deal breaker in any employment relationship.

But the role of payroll for the overall employee experience is far greater than that. Looking at turnover rates, absenteeism and other payroll-related patterns can provide data-driven guidance for financial well-being strategies as well as for initiatives to diversify payment options.

What’s more, offering employees self-service functions and thus allowing them to consult their payroll data wherever and whenever is an important step towards providing employees with a satisfying digital employee experience that you can also use for your employer branding. The payroll experience you offer your staff has a direct impact on your business’s reputation and can be a decisive factor to attract new talent.

Payroll delivers crucial data to ensure compliance

International organizations face a number of compliance challenges, and many of them are directly linked to payroll. Most employers probably think about payroll regulations when they hear the terms “payroll” and “compliance” in one sentence, hence forgetting about the second part of the equation, which is the role of payroll for ensuring compliance.

By carrying out the regular payroll reporting which is required in most jurisdictions, your payroll team makes sure the business stays on the safe side when it comes to financial compliance. Furthermore, having access to detailed data on overtime pay, annual leave and more allows you to make sure you are in line with local labor laws regulating working hours, leave periods and more.

Payroll data can also uncover hidden gender pay gaps in your organization and protect your business from potential lawsuits. In short: When working out a compliance strategy for your business, payroll shouldn’t be missing.

Whether it’s employee experience or strategic decision making, there’s no doubt that payroll can bring a positive change in many areas of your business. However, to make these positive changes happen, payroll needs to become more strategic. But how to set your payroll function up to deliver meaningful data that can guide strategic business decisions? What are the necessary requirements to leverage the strategic value of payroll?

Align payroll with your company goals and vision

Workforce costs represent somewhere between 40% and 70% of a company’s overall operational costs. Workforce-related decisions and company budget should therefore be aligned with each other, leaving it to payroll to deliver the necessary data insights. Payroll reporting and data collection should hence be set up to allow the organization to check whether strategic intents are met.

Make payroll more employee-friendly with self-service functions

Accessing payroll-related information via our smartphones is no longer in the distant future. The newest generation of employees is digitally-driven and used to managing their lives through a range of smart devices.

In order to connect with these employees and create an outstanding employee experience which can be used as a valuable asset for employer branding purposes, businesses need to be forward-thinking and adopt payroll self-service functions that allow employees access to their personal payroll data, wherever they are. 

On the other hand, the payroll system should be easy to use for employees who need to work with it. An easy-to-use solution is crucial for smooth payroll operations that can create real value for your business.

Enable integration of payroll and HR systems

As we’ve seen before, payroll can support important hiring and workforce decisions by delivering the necessary data insights. To enable a seamless data exchange between the payroll and HR functions and avoid time-consuming manual data handling and back and forth emailing, businesses should integrate their HR and payroll systems to create a single source of truth for all their HCM data. This also provides for simplified payroll reporting. 

Read more about the benefits of integrating HR and payroll software in our blog post on payroll integration.

Leverage technology to receive detailed payroll reporting

During each payroll process, the organization collects big sets of data which can be used for strategic purposes. However, organizing this data in the form of spreadsheets and analyzing it by going through each document is far too time-consuming and complicated - not to mention the high risk for errors. 

To avoid errors, save time and receive all the strategic data insights they need, businesses should leverage technology to automate their data flows and consolidate their data in a comprehensive, centralized, cloud-based payroll platform that offers a broad variety of reporting features, including separate reports for different countries.

Invest in a payroll solution that allows for strategic payroll management

Businesses that process payroll in-house will probably find that setting their payroll up to deliver strategic value requires a lot of time and upfront investment. To save time and money, you should consider investing in a global payroll solution that is designed for strategic payroll management. 

Lano offers you a cloud-based global payroll platform that streamlines your international payroll processes and consolidates payroll data from all your entities in a single source of truth. With clean reporting features for multiple payroll providers and automated data flows between service providers and the Lano platform, you have full control over your global workforce costs.

And thanks to our open API, you can integrate Lano with your HR systems and all your other workforce management tools. Book a demo to learn more about how Lano can help you leverage the strategic value of your global payroll.