Jerome Smail, business journalist, speaks to a selection of experts about how payroll professionals can influence the overall strategies of their employer

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The widening operational remit of payroll is a subject frequently discussed in the pages of this magazine. But if the function is so important in so many different areas of an organisation, why shouldn’t it have more influence?

So, looking beyond the fundamental requirement of paying employees accurately and on time, how can payroll professionals influence their employer’s strategy?

To find out, I asked some leading experts in the field:

Jason Davenport MCIPP MIoD, CIPP non-executive director

Elaine Gibson MSc ChFCIPP MCMI FHEA, director of people and quality at Dataplan

Ian Hodson MSc ChFCIPPdip, head of reward/deputy director of HR at University of Lincoln

Samantha Johnson LLB(Hons) ChMCIPPdip, CIPP policy lead.

 

Will the label of ‘payroll’ forever hold back the department and associate it with operational rather than strategic activities?

Jason Davenport: All areas of business get rebadged over the years. Individuals drive for that change as much as organisational departments themselves. Payroll has moved on from wages and may well become something more aligned to ‘remuneration’ in the future, perhaps. It is for the leaders of the payroll service (whether in-house or outsourced) to ensure that the function is given the credence it deserves.

The important aspect of being recognised as a key function within a business is to ensure value is gained from the service provided. This can come in multiple ways – customer surveys, ensuring all key performance indicators are met and accuracy and timeliness are all key to payroll. So is ensuring that translates to 100% of employees receiving accurate net pay, from which they can base all their financial decisions.

All the rich data captured by payroll creates a very powerful lever if considered alongside total cost of operation for the business. Labour costs, pension costs, reward packages, retention, sickness and other productivity measures are all a very significant contribution in the success of the business if managed well. Just as sales is seen as critical, the role of payroll is critical, as has been recognised in the recent pandemic, with all the positive support to payroll professionals shown by central government.

Elaine Gibson: I am sorry to say, yes, I think this label hinders associated professionals. If the business is payroll, e.g., a service provider, it puts payroll front and centre, as clients recognise and require the professional service, but if the service is in-house then the recognition does not seem to be there. The employees are concerned only with what hits the bank on pay day. Perhaps, if there was a label related to taxation, that might make people notice more but that would be a major culture shift in the world of business.

Ian Hodson: I really do think that the term payroll has a certain unconscious set of associations attached to it, which may not be relevant anymore and hold back the profession. Perhaps this is why personnel departments became human resources (HR) and are now being rebranded as people and performance; it is part of transition to form a new identity.

I am a huge ambassador of our profession being individuals who can influence and deliver impact, but we always seem to have to shake off the operation reputation, which forms the invaluable business understanding of our career pathways. I do think the label of ‘reward’ is the short-term solution to this, and it does conjure up a different set of responsibilities that move away from transaction processing to supporting recognition, well-being, engagement and motivation agendas.

Samantha Johnson: No. The label of payroll is key to give people an accessible language to understand a bit about what we do as a function. It is also an all-encompassing term, including in-house, bureau, payroll as a service etc., which helps identify us as a sector.

Operational payroll is also what gives the function its strategic capability. Having a detailed insight into the terms and conditions of employees and clients, processing pay regularly and being able to analyse and understand the data trends gives payroll its unique selling point.

Operational and strategic payroll activities should work hand in hand, using the operational knowledge to identify and deliver meaningful change into the business. That is how payroll makes a strategic impact.

 

How can payroll support wider HR practice principles and values?

JD: Mental well-being as well as physical health well-being is now typically a board-sponsored initiative. Greater productivity through increased engagement is a proven benefit of rewarding employees. Looking after employees to ensure both health and well-being solutions are offered to support a work/life balance and investment in themselves reaps rewards for the business in multiple ways. Increased productivity, improvement in staff engagement and retention are just a few of those to be considered.

HR may hold the strategic responsibility for how those initiatives are deployed and payroll has a vital role to play in ensuring key data for review is made available. For example, there may be targeted communications to a particular department or group that payroll holds key data on in terms of absence, leave taken, overtime worked, attrition etc. When this is collectively reviewed, it may highlight an issue or area where performance needs to be assessed to provide the respective managers with support.

EG: I respond to this question with a question – what are the HR values and principles? Payroll know theirs, e.g., to pay people on time and accurately. There are so many facets to HR, e.g., HR generalist, people management, employee relations specialist, and I would expect the values to be slightly different depending on the area they work in.

IH: I think payroll is a critical partner and cog to many successful initiatives and implementations from a people perspective. We should never forget that in more challenging financial times of austerity, payroll can help spread payments and support short-term loans if individuals need to pay for visas, wish to undertake development or pay for season tickets. Helping individuals be savvy savers through workplace payroll vehicles like individual savings account schemes can help manage financial well-being and the intrinsic links it has with mental health.

In respect of values, the ethical stance of organisations still needs to be more transparent and visible. Payroll giving to charities, facilitating electric car schemes and cycle schemes, and communicating the ethical investment of the pension schemes can all help underpin the organisational values. We should also never forget the ‘trusted voice’ of the payroll team as a communicator across the organisation.

SJ: Payroll is a people-facing role. Whether working with clients or employees, you have to deliver guidance, support and information in an accessible, customer-focused way. Many of the underlying payroll values already align to HR practice principles. However, some businesses do this better than others.

Where payroll is working alongside an HR function, it’s important that employee lifecycle processes are designed as a single process with multiple stakeholders. Often, problems occur where processes are drawn up in isolation within functions, creating barriers to communication and efficiency. Where payroll and HR work with each other well, these teams often deliver the most exceptional service.

 

Can payroll operate as a profit centre and, if so, how?

JD: In several ways. If a business reviews each of its functions and determines there is a service that could be sold at a cost to its internal customers, that provides a budget for the team to work to. This could be by payslip produced, for example, which is then charged each period to the cost centres served. Additional charges may be agreed for other activities, such as calculations outside of the system. I have seen this exact model work in a large private sector organisation.

In a number of public sector organisations, the investment in an in-house team has then been supported by that team offering services on the platform used to other businesses in the area, or other public sector organisations. This creation of a commercially focused team can then generate genuine growth and return for the organising body.

EG: A professional service provider generates profit as a standalone business. In-house, I struggle to identify how payroll could be a profit centre, unless they provide services such as e-payslips and troncs for external business partners.

Internal payroll is generally a necessary but significant cost to business; however, the specialism should ensure compliance to legislation, saving the business from fines and penalties.

IH: As with many functions, we always look at payroll as an overhead, without looking at the potential cost savings it helps make. That may be through salary sacrifice schemes, implementation of systems, analysis of expense claims, overtime or absence or even evaluating the technology solutions.

We need to be realistic that payroll functions are not set up to generate profits for the organisation – that is what sales departments do. However, we can be a lot more considered to measure, capture and report the efficiency of the operation and the wider impact perhaps in a yearly report of the function that captures the value-add deliverables.

I also think that there are economies of scale on payroll operations, so combining functions or shared services should never be ruled out as a consideration.

SJ: If payroll is provided as a service, it can absolutely deliver profit to a business. In some accountancy practices, for example, payroll is labelled as a loss leader, but if done right, this shouldn’t be the case.

Understanding the detail behind the cost per payslip enables payroll service providers to react with agility to the client’s size and requirements, while also ensuring that a profit is viable. In-house payroll faces a greater challenge in becoming a profit centre and demonstrating a return on investment through direct income is limited in scope.

It’s possible to provide payroll to other businesses. This is often modelled in the public sector across multiple schools or police forces, for example, but in private sector, confidentiality and competition come into play much more heavily, creating barriers to application.

However, payroll can demonstrate how it indirectly impacts the bottom line. Critical analysis on costs by the payroll department could highlight anomalies that lead to a change in way of working and cost savings. Payroll could play a lead role in salary negotiations, using its breadth of knowledge and data to help the business make more informed, cost-effective decisions. It’s important that payroll teams track and monitor how they impact these business changes and cost savings, and give themselves the evidence and tools to demonstrate the true impact they have in their business.

 

How can payroll define its seat across hybrid departments, such as tax, HR, finance, project management office, information technology, legal, etc.?

JD: By presenting itself as a value-driven service to the organisation. Delivering exceptional service, demanding a high standard (which involves ensuring inputs to the payroll department are accurately provided, in an efficient manner), reporting accurately and within timeframes required all ensures respect is given to the service provided. Build upon these foundations with great data analysis, and you then create management information that is incredibly powerful.

Recognise those departments listed as internal stakeholders and regularly meet to understand their needs and how payroll and pensions data can support decision-making and you can create a series of reports that best serve the needs of the departments and the business, which should also be continually reviewed.

Payroll can be informative, supportive, and can lead in areas of the business if those responsible for it are ensuring they are acting on latest information or reviewing trends over periods of time.

EG: The knowledge payroll holds about its employees and associated costs is valuable to any business; however, it is usually ignored in favour of HR data. The latter, unless part of an integrated payroll and HR system, is usually the area most out of date. So, when it comes to strategic decision making, your payroll professionals are the ones to consult; they can provide data on cost centres, salaries, oncosts to include employer pension and National Insurance, plus much more.

All departments mentioned above need to be made more aware of the payroll data value via internal promotion and awareness.

IH: I think payroll needs to ‘big itself up’. We will never forget the objective of getting pay and the associated returns right but the other operations around that have evolved significantly. That is the space others seem to have a better reputation in.

I think we need to be better at approaching pieces of work as projects and capturing business cases, delivery plans and post-project assessments, and lean on senior management to help change the perception of the team and the work they do.

I think payroll teams are great at building relationships and are not restricted by having multiple points of influence with other business areas. Building these effective relationships and working partnerships is the first step to being seen as cross-organisational strategic influencers which is where payroll can rightfully position itself.

SJ: Payroll is multifaceted, and too much emphasis is given to whether it should sit within a department, or as a department in its own right. This view is very one dimensional. Payroll can be delivered in-house, for a business of one employee, up to more than 100,000 employees.

Where payroll sits will depend on the culture and history of the organisation, how its systems are set up, and how its processes are developed and defined.

Some businesses have a requirement for payroll to partner more closely with finance or HR, others may have a single department that encompasses all three, some may have a standalone payroll department. In payroll bureaus, there will be similar debates around employment services, or tax departments.

Ultimately, the key is for payroll to work collaboratively with their key stakeholders, and if this is the approach, they will always be able to have an impact, regardless of the cost code they sit in. 

 

• Policy article
• Professional magazine