Simon Parsons, Director of Payments, Benefits & Compliance Strategies, SD Worx UK

Payroll teams have recently faced up to the need for reorganisation across the board. There has been an increased emphasis on becoming dynamic and responsive to accommodate changes to legislation, technology, corporate structures and flexible working.

As the backbone of the economy, payroll has proved invaluable in keeping workers paid through these turbulent times; payroll professionals were in fact classified as key workers during the pandemic. The past decade, with the recession and the pandemic as two massive events, has thrown many curveballs towards payroll, and 2021 is set to be a year of additional transition.

With this in mind, here are some predictions about how 2021 will pan out for payroll. Changes are set to rock payroll in the coming months, but by having the right attitude to technology and paying close attention to HMRC guidance, then payroll teams can emerge from change more confident and better organised.

Payroll automation in 2021

The introduction of new technology in terms of automation will greatly affect payroll in 2021; payroll teams are always looking to reduce the administrative burden and automation can help achieve this.

It is likely that payslips will become more interactive with more flexible options for when workers get their pay. Features such as ‘pay on demand’ and ‘any day pay day’ could see an uptick of AI usage in payroll to ensure that payment for work isn’t static but rather fluid instead. In addition, automation is opening up exciting new avenues for user interaction. For instance, chatbots can be also used to answer cursory payroll enquires to reduce requests on professional time.

Simon Parsons

However, with tightened business purse strings, a strong case for automation investment needs to be made. According to SD Worx research, nearly half (48.8%) said payroll is somewhat automated, but that more is needed, so overcoming barriers to automation like skilling and building a proper business case for it will be key. Nearly half of respondents (46.4%) cited cost as one of the biggest barriers to automation, but it certainly pays dividends in the long term, so payroll professionals need to fight for automation’s value here when approaching the C-suite.

Payroll legislation in 2021

Reorganisation trends for payroll will continue well into 2021 with legislation being a key factor; research from SD Worx found that almost half (48.8%) of payroll professionals believe legislative changes have been the most important changes in payroll over the past decade.

It will be important for payroll professionals to track updates to employment law, such as pensions auto-enrolment, changes to the national living wage and, more recently, changes to furlough pay. HRMC is set to tighten its focus on fraud crackdown, both accidental and intentional, so it’s critical to keep payroll practice aligned to the letter of the law.

The difficulty when calculating payroll in 2021 is that you need to focus on compliance, adhere to rules around initiatives like the Job Retention Scheme and follow over thirty different updates of guidance from HMRC. However, having the right technology in place can help manage these various tasks simultaneously.

Business strategy using payroll in 2021

When it comes to business strategy, payroll can be valuable for determining the future of people and talent management. Payroll is evolving from being seen as simply reactive. Nowadays, payroll is set to become more advisory in its capacity, helping companies future-proof operations. Three in five (61.9%) payroll professionals said they analysed their own data regularly to see how it can be refined, while almost a third (32.1%) said they analysed external data regularly to see how they are performing in the market.

However, over half (52.4%) of businesses do not utilise payroll data to help the business make strategic decisions. In 2021 we’ll see more businesses adopting payroll technology to boost strategic insights. Firms are awakening to the ways that payroll data might inform their strategic decisions, and with that the need for the right supporting technologies.

Payroll can provide the ability to make informed decisions ahead of time. For instance, HR managers can use the people analytics derived from payroll to help to improve areas like employee retention, overtime compensation, and labour costs, and ultimately optimise that bottom line.

Business disruption and its impact on payroll in 2021

Historically, payroll has been perceived to be something that ticks over and never alters. But now we’re seeing sweeping changes within the industry; the payroll industry has brought itself front and centre for businesses in many ways.

Corporate restructuring during the last ten years with the recession and the pandemic has impacted payroll. Over the past decade, payroll teams have needed to become more dynamic and responsive. Businesses are now less reliant on full-time, salaried employees, with flexible working practices gaining traction even before the pandemic; 44% cited flexible working and Generation Z as one of the most important changes of the past 10 years according to SD Worx research.

In 2021 it’s likely that flexible working will be more prevalent. Salary-based roles will become more flexible and this will require a corresponding adjustment in payroll, with companies adopting more of a retail-style approach to work and pay management.

Payroll data management in 2021

Data protection for payroll professionals in 2021 will be an ongoing challenge. Technology has proved absolutely vital for enabling remote working, but some of these short-term solutions raise issues around security, especially when it comes to payroll.

Handling data which relates to personal private information can be tricky. National Insurance numbers flashing up on screen in a coffee shop with people behind you can be dangerous. Payroll professionals need to be careful about confidential information when it’s suddenly visible to or in the vicinity of strangers.

Our research found that 69.9% of British businesses manage payroll fully or mostly in-house, but ironically now most of that in-house work will be done out of the office. Bringing in this element of uncertainty means payroll professionals need to keep on their toes when juggling cybersecurity alongside their day-to-day role.

What’s in store for 2021

Sweeping changes to the world of work are directly affecting how payroll is managed. It is likely that 2021 will be a year where payroll technology uptake is seen as a necessity rather than just nice to have.

Process fine-tuning with the reduction of errors, increased time saving, security, accuracy and compliance, ease of report creation and simplification of tax filing will be key to safeguard businesses from costly investigations if they are managing payroll incorrectly. The core tenets for businesses moving forward will be implementing technology, saving money and boosting employee experience; these can all be tackled with the right attitude to payroll digitalisation.