Digital payroll futures - some thoughts from SAP and others

Payroll, the first enterprise function to be widely computerized, is among the last to move to the cloud at larger organizations. This surprisingly complex operation is so critical that no one wants to change systems so long as it's still working well. In many cases, it's been running so long that no one remembers enough about how it was set up to risk a substantial modification or rewrite.

Like the core transaction systems on which most banks run, the philosophy that 'If it ain't broke, don't fix it' rules supreme. Especially because, as SAP SuccessFactors president Mike Ettling told me when we discussed the matter at November's SuccessConnect EMEA event:

Very often, you can't simplify and transform it, because of legislation, often union rules.

Yet even for payroll, change is in the air. As with any process that's remained more or less static since the 1950s, the advent of connected digital technology brings the opportunity for a radical rethink of what payroll should look like in the modern era. A team at SAP is starting to think the formerly unthinkable, says Ettling:

One of the fundamental principles of disruption you've seen in a lot of industries is the whole thing about distribution — distributing the workload from the center out into people, into the masses, and giving power through control and execution into the masses. So there's a lot of thinking going on in our process around 'What is the disruption of payroll for five years from now?'

Self-service payroll

This thinking leads to the notion that payroll could become a self-service activity. Instead of the payroll department managing a single monthly pay run, individual employees would decide on when and how much of their pay to draw down, and the system would automatically manage that, says Ettling:

We're thinking about the whole payroll paradigm, which says, 'Why do you, perhaps, need a payroll department? Why can't you pay yourself?' for example.

Why can't I decide, 'Hey, I need to get paid, I need some pay this fortnight,' just click the button and pay myself, trigger my pay ...

These are ideas which are being whiteboarded at the moment.

The conversation reminded me of another discussion of payroll futures which I had had two years previously with David Woodward, chief product and marketing officer at what was then Ceridian UK & Ireland, before its acquisition last year to become part of SD Worx. His take is also people-centric, but from a different angle:

As I always do when meeting with workforce management vendors, I asked how Ceridian will handle the workforce of the future, extending across permanent staff, contingent workers, subcontractors and crowdsourced resources.

Do you mean, he wondered, that if someone has three or four jobs with different employers, will Ceridian integrate all of that into a single interface and payslip to deliver to the individual?

Both Woodward and Ettling's suggestions are radical changes from current practices, and there are obstacles to putting either in place. Payroll is highly regulated and closely tied to how the tax system is administered, which means some changes may have to wait for the authorities to catch up in terms of what they'll allow.

Moving payroll to the cloud

The other drag on progress is this prior investment in systems that, while they may be inflexible, do their work reliably. But pressure is building for change, not least the growing desire to move back-office systems onto cloud computing platforms. That led SAP to introduce a service last year that allows its customers to move on-premise SAP payroll systems into the cloud, simply because IT departments did not want to hold on to payroll when the rest of the HR system was moving online. Customers wanted a less disruptive option than moving to an all-new cloud payroll system alongside the SuccessFactors EmployeeCentral (EC) HR system, says Ettling:

Enterprise clients said to us, 'We're running SAP on-premise, global for payroll. It's working. We don't want to rip it up, but it is highly customized, so there's no point going to EC cloud payroll.

We want to move everything into the cloud, and my IT guys are telling me, 'Yeah, that's good, we'll support that, but we don't want to support your leftover payroll solution. If you go into the cloud, take all of this damn stuff to the cloud.' Often, the IT was saying 'We won't reduce your cost, if you're going to leave a little bit on premise. It'll cost the same to support payroll as it does the whole suite.'

That led to SAP creating an implementation of its on-premise payroll solution that runs on HANA Enterprise Cloud (HEC), called Managed Payroll. It's operated by partners with significant payroll expertise — NGA HR, Epi-use and Accenture — but billed directly by SAP. Ettling explains:

A client will come along, we'll take their maintenance, we'll re-write it in a price per employee per month, lift it into an Accenture datacenter. [The partner] will operate it, they will do the AMO [application management outsourcing] on it. The contract's on our paper, we're paying one of those three partners to do the delivery.

They then end up with EmployeeCentral in our public cloud, SuccessFactors in the public cloud, and that highly customized bespoke payroll lifted into a private cloud, and they've got nothing left on-premise. That was what the clients asked us for, and that's what we went out and built.

Once in the cloud, it's much easier to contemplate further changes, probably after completing implementation of the cloud-native HR system. But it will be a while before there's any appetite for that, which gives SAP time to come up with new ideas for payroll futures, as Ettling explains:

We have a next-generation payroll initiative underway, which is looking at, 'Today we're the market leader. We're the only global payroll software solution out there. What's that going to be in five years' time?' So there is absolutely a next-gen payroll initiative which we have underway, which is looking at the payroll engine of the future.

My take

A potential move to more people-centric payroll opens up some intriguing possibilities, especially with the rise of more transient employment and the 'gig' economy of self-sourced work. Back in the 1960s, most people had just one job, and it was commonplace to spend an entire career at a single employer. In that context, it made sense for payroll to be an enterprise function. But why should that be the case today?

Perhaps it makes more sense in the 21st century for banks — or next-gen fintech institutions — to run payroll. They could act as an intermediary between the individual and whichever organizations that person has contracts with. The insight gained into their overall income and work patterns would allow them to tailor lending or savings offers accordingly.

There could be some fascinating digital payroll futures emerging from those whiteboards at SAP and elsewhere.