There’s a big change taking place around the world right now in terms of the role that payroll has to play within wider businesses.
Many organizations are shedding the traditional approach of treating payroll as a standalone operation, one that is purely functional and transactional in making sure employees are reliably paid the right amounts at the right time. Instead, they are turning towards the concept of ‘employee pay’, where the existing payroll function combines with the more human elements of how pay affects other areas of the business, from employee experience to financial wellbeing.
For companies that have a perfectly effective payroll function, it may be hard to understand why they should move to employee pay. After all, why fix what isn’t broken? But this approach would seriously overlook the important positive differences that employee pay can make in a number of different areas.
These two hypothetical businesses help explain the scale of what’s possible:
Business A has been running a normal payroll function for decades, with a well-established and professional payroll team that everyone within the company can rely on. Nobody has any major complaints about payroll, and so senior management assumes that no changes need to be made.
Focusing solely on the functional elements of KPIs (such as accuracy or efficiency), the payroll team is blinded to new innovations that improve employee experience - such as Earned Wage Access. This is causing an undercurrent of dissatisfaction among the workforce, which senior management and the payroll team are entirely unaware of.
Employees are paid on a rigid monthly basis, and many on lower pay grades struggle to make ends meet in the last few days before their next payday. At the same time, their friends and contacts who work for other companies within the same industry are enjoying far more flexibility with their pay, and so they feel like Business A is letting them down by not exploring the same innovation.
This dissatisfaction has led to a drop in morale, and employees are feeling less motivated about doing their jobs. Productivity has fallen and absenteeism has risen, meaning that Business A is finding it increasingly difficult to hit sales targets and fulfill orders on time. Payroll and other data may have helped Business A’s management to pick up on these problems and respond quickly, but a lack of any technology to process and analyze the data means they only noticed the issue when it was having a direct impact on operations and profitability.
Business B has taken a more open approach and is running an employee pay function. By focusing on more human-centered KPIs, as well as traditional payroll metrics, business B is always actively seeking new innovations to improve employee experience. As part of this, they have adopted an Earned Wage Access application to replace the traditional monthly payroll process.
By using this system, employees can use a web portal or a mobile app to check their wage balance, which accrues on a daily basis. They can withdraw however much they have earned, or a portion of it, to their personal bank account whenever they want, without needing any approval or processing from a member of the payroll team.
This flexibility means that employees feel they have far more control of their personal finances. They no longer have to endure ‘payday pain’ towards the end of each month, and can withdraw funds to cover their housing and utility costs as they arise. What’s more, they can use the EWA platform to instantly access funds needed for unexpected bills, such as car repairs.
Their improved financial wellbeing has made them feel more positive about their employer, and they are happy that Business B has taken proactive steps to support their needs. This has driven the workforce to be more motivated and productive, and absenteeism has dropped significantly since the EWA solution was introduced. In fact, the employees are so satisfied that they have sung the praises of Business B to their friends - including to a number of employees of Business A, who are now actively looking for job opportunities at Business B...
These scenarios, of course, are hypothetical. But they underline the knock-on effects that an employee payroll function - or the lack of one - can have on a business and its employees.
It’s understandable that, for businesses happy with their existing payroll, that it will take a certain leap of faith to move towards an employee pay function. But the benefits that it can deliver are so great, and the market for talented employees is so competitive, that any business that sticks with existing payroll functions alone will quickly find itself being left behind.
CloudPay’s global payroll solution is ideal for businesses exploring the brave new world of employee pay, and how it can integrate with their wider business operations. Learn more about what we do and how we do it here.