5 Reasons to Invest in Payroll Automation

Jul 20, 2021

Companies that invest in automation save money and can react faster to market changes or opportunities.

Payroll is one of the most challenging processes to automate, particularly for large enterprises. Many enterprises avoid investing in today's solutions because most fail to automate more than a handful of steps, resulting in a long and disjointed process.

But for the organizations that manage to successfully automate payroll end-to-end, the payoff is huge.

Here's why payroll automation could put your business head and shoulders above the competition.

What is automated payroll?

Payroll automation refers to the use of computer software to automate the collection and calculation of payroll data.

Sometimes payroll automation software will include forecasting and analysis tools to assist with enterprise resource planning.

Ideally, a payroll system will integrate with other core systems across the business in HR, Finance, time-management, and sales to reduce the manual handling of data.

The Trouble with “Full Automation”

It’s important to remember that the “automation” we’re talking about today is only partial. There are always manual elements in the process, some more troublesome than others.

Teams using traditional ICM software are automating some of the admin, but the rest of the process remains manual. Humans are still required to handle data or make decisions at several stages, and these manual stages create a task bottleneck. That slows the whole process down to the speed of its slowest data-handling component: the human.

Every time we automate one of these manual bottlenecks, the whole system can move slightly faster (up to the pace of the next manual bottleneck). Until we’ve automated every single one of those steps, nothing is fully automated.

1. Reduce administrative time

One key benefit of automating is a huge reduction in payroll administration time. The bigger the organization, the more time is saved when you automate a function.

Although software capabilities have developed at a frightening pace, many enterprise Finance teams still use Excel macros to calculate and administer compensation and payroll. That takes up most of their time and naturally results in payroll errors and commission disputes.

The sheer volume of work involved means many payroll professionals are stuck on the “payroll treadmill.” They're constantly rushing to get to the next payday on time, with never enough time to work on strategy, career goals, or personal development. As you can imagine, that leads to frustration, burnout, and high attrition rates.

2. Decrease payroll errors

A surprising number of large companies still use a combination of spreadsheets and incredibly hard-working analysts to manage their compensation and payroll.

These manual processes result in overpayments and underpayments, which has a knock-on effect on employee morale — and attrition. 49% of Americans will start looking for a new job after just two mistakes in their pay. Consistently messing with your top salespeople's commission is a good way to encourage them to move on quickly.

Automation almost completely mitigates these errors because it relies on clean data and stringent validation to work. That means reduced commission disputes and payroll re-runs, which means less conflict amongst sales, operations, and finance teams, amongst other things. Everyone is happier when they get paid right.

3. Easier and faster auditing

Companies automate payroll to ensure compliance with legislation like ASC 606, IFRS 15, and the Sarbanes-Oxley Act.

Tax rates and codes are often built into the automation software or programmed in by the user. That reduces the time needed to attach and cross-reference tax codes and producing fewer errors and complaints from the taxman.

Most solutions will come with a built-in secure changelog to keep track of every single change or adjustment and who performed it. That can significantly reduce the costs and resources needed to complete the regular auditing required by law for many firms.

4. Better reporting and analytics

The single most in-demand feature for payroll automation software is on-demand analytics and reporting. Most modern payroll software relies on human employees entering the data, updating plans, and managing the automation rules.

The "dirty data" created from these semi-manual processes renders a huge amount of data useless for reporting and forecasting without serious validation and manipulation. Most compensation automation software comes with a pretty dashboard — but does it tell you anything useful? Too often, the answer is no because the data is unreliable.

Someone has to manually validate and organize it so it can be used to make decisions at the board level. That could require resources equivalent to several full-time staff in a large business. And there are not that many experienced payroll data analysts out there — there are barely enough payroll analysts as it is.

5. Reduced costs

The most attractive benefit of payroll automation (for most enterprises) is reducing the costs of paying wages.

Reduced errors and administrative time drive most of these cost savings. Several articles mention that the American Payroll Association estimated these cost savings at as much as 80%, but we couldn't find the source of this statistic to verify that.

Once the cost of implementing, integrating, and managing the software is accounted for, we suspect this number may be significantly lower. Any automation should reduce associated with payroll.

The Dirty Truth About Payroll Automation Software

The truth is that for all their clever marketing, most automated payroll systems only automate a portion of the payroll process. They also shift much of the administrative and programming burden to employees. Adding incentives and commission payment is even more complex.

Yes, we can automate many payroll and sales commission processes, but we're still a long way from total payroll automation. Many of the earlier systems shifted much of the manual work to employees in a self-serve fashion. That placed the burden of programming the automation onto financial analysts when it should be on software engineers.

Payroll Automation and Productivity

There's no question that automating payroll processes increases productivity and reduces costs — particularly for small business owners. The biggest resource for SMBs is time, and automation can help small enterprises to buy back time that could be spent growing the business.

Enterprises have a slightly different problem when automating their payroll: data integrity. They typically have ample resources to invest in software to automate sales compensation and payroll. Cleaning and managing the data needed to automate effectively takes a lot more work and several dedicated employees.

The next generation of automation is already here, and it plugs many of the gaps left by the legacy SaaS solutions.