Top 10 Payroll Management Trends in 2023

Organizations incur high payroll management costs in the post-COVID era due to increased headcounts, insurance packages and training and development. For Fortune 500 companies, the payroll costs could be up to 60% of the total spending in an annual year. It is a fact that larger companies with global workforces incur higher costs in payroll management due to factors linked with international currency exchange rates, and compliance costs pertaining to national and state-wise compliances. Business leaders should have a firm vision on what their payroll costs might look like in the next six to eight months, especially when business profitability is hard to attain and economic uncertainties too hard to predict.

Before we track down the top payroll management trends for 2023, let’s define payroll costs.

What are payroll costs?

Payroll cost is the compensation an organization has to pay to all its eligible employees on a set date and mode. Payroll calculations are complex and require professional expertise to track all the components in the bracket. Most companies hire professional payroll executives to take care of their compensation management. Some organizations rely on a mix of external third-payroll agencies for their payroll management. In recent times, HR Technology-led innovations have led to a spike in the use of software-based payroll management systems that can be linked to existing Human Capital Management (HCM) platforms for better results.

What are included in payroll costs?

Payroll costs includes the cost incurred to process the salaries, wages, bonuses and commissions, including administrative and software management costs. It also includes the costs that are remitted to government agencies in the form of taxes. In a traditional HR business, payroll costs are calculated by adding the cost of payroll management software, all the salaries and wages, payroll taxes and the statutory and voluntary employee benefits costs such as medical insurance and wellness packages.

What are payroll periods?

Payroll periods are the frequency of payment of wages and salaries due to every employee. These are the common payroll periods:

  • Weekly: 52 payroll weeks
  • Biweekly: 26 payroll periods
  • Semi-monthly: 24 payroll periods
  • Monthly: 12 payroll periods

What are the steps involved in managing payroll for an organization?

Depending on the type of business and the location of the registered business headquarter, an organization has to take the following steps to manage payroll for its employees.

Calculate the gross pay or income

The organization has to design a payroll system that allows it to compensate for its salaried and non-salaried/ contractual employees based on monthly or hourly pay periods accepted as part of the agreement between the employer and the employee. With the rise of gig culture, employers could be paying freelance and contractual workers based on pay periods that may be different from what is set for rest of the employees in the payroll list.

Calculating deductions

Next step is to calculate qualified deductions as per government norms. Taxes that are forwarded to government are calculated automatically as per voluntary and mandatory deductions.

Choosing a payment disbursement account

Choosing an exclusive bank account to distribute net pay to all employees helps in streamlining of your payroll. Such an account can be easily managed, tracked for compliance and regulation, and used to reconcile pending dues whenever needed. It also makes payroll management faster and transparent as these accounts can be linked to a payroll management software for easy accounting and compliance support.

Payment on due dates

Once taxes are calculated with deductions, the organization schedules the payment as per standard cycle adhering to state and federal laws (whichever is applicable). Also, your system needs to be updated for employees that are leaving on expiry of their employability. According to Deloitte, there is an additional cost of payroll processing that should be considered when an employee leaves the organization. Most companies overlook this aspect that could result in payroll errors.

Payroll documentation

Every document is required to save and archive its employee data and payroll bookkeeping records as per state laws.

Opting for professional services or payroll management software

If you want a transparent, accurate and agile payroll system, a payroll software linked to its HCM is your best option. It formalizes your payroll system for paying current and ex-employees, contractual workers and interns. This system also allows maintenance of records of the transactions with automated accounting and bookkeeping features. Top payroll software solutions that simplify the process include Run by ADP, Paylocity, Rippling, UKG Pro, Paychex and Paycom.

Top Trends in Payroll Management

  1. It only takes two errors in the paycheck management system to drive employees to the door. 49% of employees surveyed by Workforce Institute mentioned paycheck errors reflect negatively on the organization’s ability to manage key business functions. In short, payroll management is linked to both business effectiveness as well as employee experience management.
  2. With more workers living paycheck-to-paycheck in the US, there is a significant impact of payroll management trends on the overall mental health and financial status of the employees.
  3. 53% of the organizations now use cloud-based payroll technology in their organization.
  4. Automation in payroll processing has grown significantly in the HR Technology space. Salesforce is the most-used app for automating payroll and benefits. [Workato]
  5. Owners of small-sized businesses loathe and fear the agony of computing taxes and payroll every month. Payroll computation is one of the most time-consuming tasks that owners often try to do in-house to keep the costs down. [SCORE]
  6. Organizations that use cloud-pass payroll management systems can spend up to 70% of their time using integrated apps and on-demand features.
  7. Organizations now rely on AI-powered chatbots to resolve Tier-1 and Tier-2 inquiries related to payroll and compensation management. The use of AI in payroll management has significantly reduced the time it takes to manage each inquiry.
  8. Distinct from other tools and solutions available in the conventional HR Tech stacks, modern payroll technology could evolve into a true single database architecture. These would be powered by automation and AI with the ability to continuously calculate pay. [National Payroll Institute]
  9. Payroll could be soon linked to Fintech trends that would make terms like on-demand pay and flexible salary payouts more popular in the near future.
  10. With gig economy on the rise and most organizations now employing millennials and gen-Z workers, paying salaries using digital currencies and cryptocurrencies could soon become a norm. Payroll technology would be required to become more adaptive and sensitive to payments made using these new forms of currencies.
Final thoughts

Payroll systems should bring flexibility of operations for the employers and peace of mind to employees at very stage of payment of salaries and wages. Best HR Technology companies focus on employee-centric payroll management powered by self-service automation and AI-enabled conversations to improve employee experience. Payroll software companies have a huge role to play in ensuring problems are fixed before they become a reason for businesses to flounder and employees to abandon the ship.

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