01 March 2021

The pandemic has compelled businesses to radically revise operational practices and services. Jerome Smail, freelance journalist, presents the views of industry luminaries

There was a time when spending your time at work with your head in the clouds was considered a bad thing. But that was before the advent of innovations such as the internet, software as a service and remote working.
Now, cloud technology is conquering all before it – or so it seems. So, what does the future hold for payroll within this brave new world, especially given that working from home appears to be the new normal? To find out, I spoke to a selection of top payroll professionals at the cutting edge of the industry:

  • Jason Davenport MCIPP MIoD, CIPP chairman
  • Chris Deeson, UK country lead at Keypay
  • Pauline Green FMAAT ACIPP MBCS, compliance manager at Intuit QuickBooksUK
  • Brian Sparling ChMCIPPdip, senior manager, global payroll operations at Ceridian.

In addition, a team of payroll experts at Moorepay have contributed; and there is a special contribution from Simon Bocca, founder of PayCaptain.

How widespread is the use of cloud-based payroll software at present, and has the Covid-19 pandemic been a catalyst for its greater adoption?
Jason Davenport: From a CIPP membership perspective, the recent Future of Payroll survey showed 37% of members already have software in the cloud, and that this number was set to increase. Anecdotally, there are many more requests for information being received about software in the cloud. The pandemic and need to move to remote working have certainly been catalyst for the review and consideration of whether cloud technology is the right fit for a business.

Chris Deeson: Cloud payroll already represents a sizable and growing proportion of the SME [small- to medium-size enterprise), bookkeeper and smaller accounting markets. Cloud accounting software is ubiquitous in these sectors and payroll software often stands out as the only non-cloud solution in a practice. The pandemic has significantly increased the uptake of cloud payroll and has been a catalyst for many to make the commitment to change. April 2021 will see a new high tide mark for true cloud payroll.

...catalyst for the review and consideration of whether cloud technology is the right fit for a business.

Pauline Green: The use of cloud-based payroll is rapidly increasing, particularly in the small- and medium sized employer base. For smaller businesses that do it themselves, the ability to do their payroll anytime and anywhere is definitely a bonus. We have some running their payroll on a Sunday night at 10p.m. You don’t want to be in an office on your own at that time, but from your living room it’s not an issue!
Intuit, and I am sure other companies, have found that the pandemic has certainly increased the adoption of cloud-based payroll. As the initial lockdown happened in March, it did enable people to switch to cloud-based software at the start of a new tax year easily.

Brian Sparling: In general terms, the use of cloud technologies in business is widespread when you think of sales, marketing, HR [human resources] and operational functions where the use of collaboration tools, CRM [customer relationship management] and ERP [enterprise resource planning] systems are widespread. However, in payroll our function seems to be a little late to the party. In research we carried out recently, we identified that only one in three organisations are using a cloud-based payroll technology today – although we did report that 72% of respondents were evaluating their technology options, so even before the pandemic, we are in midst of a technology refresh cycle.

However, I do think it’s fair to say that the pandemic will accelerate this process. The experience of the last twelve months or so has signalled that our organisations require access to decision-making tools on-demand.
Indeed, we saw that in the wake of the 2008 financial crash, organisations rationalised processes and turned to the first wave of emerging cloud technologies across all business functions to optimise their operations.
Moorepay team: Our Annual Payroll Survey in 2020 found that 44% of surveyed professionals use cloud-based payroll software. Further, a year-on-year comparison revealed a 14.6% increase in cloud-based payroll software usage from 2019 to 2020. The shift was already happening pre-pandemic, but the impact of Covid-19 has highlighted the benefits of storing payroll data in the cloud, rather than on-premise, and, coupled with the ongoing requirement for employees to work from home, has pushed many businesses to make the switch.

Is it inevitable that cloud-based software will become the standard for the industry and, likewise, will remote working remain a widespread modus operandi in the industry even after the pandemic, thanks to its increasing adoption?

JD: Many industries have extraordinarily complex challenges, so it is good to ensure when embarking upon a review that all the nuances are accommodated. I would certainly expect to see this type of offering continue to build over time, and as the offerings develop, so will the market.
Hopefully, what will become more available as we come out of the pandemic is flexible working. I think business leaders have witnessed just how diligent and supportive payroll and pensions teams are and how committed they are to getting the job done, whatever the hurdles. If employers can be more flexible, that has to be a win-win for all concerned.

CD: It is absolutely inevitable that true cloud software will become the standard for the industry – the only question is around the timescales. Barely anybody looks at desktop solutions for accounting or HR these days and payroll will be the same.
Starved of investment, desktop and traditional server-based solutions will rapidly reach the end of their economic life, as we’re already seeing with the retirement of brands.
The bookkeeper, accounting and non-specialist bureau markets will drive the way along with SMEs. Software specialising in specific areas, such as public sector or education, will probably be the last to cling on as a desktop standard, but it is hard to envisage in five years’ time businesses wanting to go through the annual process of downloading new tax versions of their software when their competitors are finishing one tax year and immediately starting on the next.

...based upon present trends, we anticipate that cloud software will become the default and surpass on-premise...

PG: Adoption of cloud-based software will only increase, especially as the provision of super-fast broadband increases across the country. This will also help the adoption of remote working.
The pandemic has probably brought forward by five years the adoption of cloud-based technology and working remotely. While working remotely will become more common, a hybrid flexible approach to where people work is the more likely outcome. A lot of people are missing the collaboration and ‘water cooler’ moments that an office brings. However, if you are wanting to concentrate without distraction – maybe when running payroll – the ability to work remotely is good to have.

BS: I don’t think it’s inevitable. Many organisations continue to see payroll as a function that, if it isn’t broke, why fix it? And while others may choose to outsource the function, I do think they might miss the strategic value that payroll data and insights can add to their organisation.
There is, understandably, some hesitancy in companies moving their payroll operations to the cloud. After all, we are talking about systems that are critical in the running of their business that contain highly sensitive, personal information.While these were common reservations pre-pandemic, the Covid-19 crisis forced us all – successful, in the main – to adapt to a new way of working.\

MT: Cloud-based payroll software is more reliable, flexible and secure than on-premise software. It’s also easier to maintain and upgrade, and scale as businesses grow, and it’s already become the standard in many other areas of business software.

Despite its many benefits, our payroll survey found that 41% of businesses are still using on-premise software. However, based upon present trends, we anticipate that cloud software will become the default and surpass on-premise in 2022.

Many of the payroll professionals with access to cloud-based software have enjoyed the benefits of working from home. The desire to continue to do so will likely remain – and this is backed up by the CIPP’s findings that 67% of businesses have seen an increase in the received number of flexible working requests. For the payroll professionals who have been able to work effectively from home – thanks to their cloud-based software – the desire to continue to do so will not go away.

What are some of the reasons of resistance within the industry to cloud-based payroll software at present, and are any of them valid?

JD: As noted earlier, cloud does come with parameters in terms of standard offerings – albeit they are being developed and expanded all the time. In order software providers manage the databases effectively for all clients, version management and upgrade routines are important to be followed to maintain support. For some businesses this is a challenge dependent upon how their systems are configured and changed currently.
I know that cyber security and risks of hacking are a consideration. However, all providers must be able to demonstrate a level of continual penetration testing and a high standard of protection to answer those fears. There is also the concern from internal IT departments that are used to being responsible for server hardware and maintenance and may have to be convinced that the cloud solution is right for the business.

CD: There are definitely sectors where the choice of true cloud software is limited – for example, education and the public sector. Then there are sectors and companies that are not comfortable with cloud-hosted data.
More generally though, the two significant issues are inertia and price.Price often comes down to a lack of appreciation of value. Software A is more expensive than software B in pure licence costs, but when you take into account more efficient processing times, automation, the improved client experience, the lack of IT support and servers, then the pricing is cheaper overall in the cloud. Payroll administrators are undervalued but still more expensive than software.

Inertia is the same issue that the industry has always seen in terms of switching software – it looks different and we are wary of change.

PG: In the past there has been concern about security of cloud-based payroll, but as more and more of everyday life has moved online, like banking, this concern has become less relevant. If you use a mobile phone app then there is no reason not to use cloud-based payroll!

BS: Look, companies are going to evaluate technologies based on their own requirements, so all concerns are valid. Some may regard the process of transitioning to a new payroll system as too much of a risk. From our perspective, we’ve done it for every one of our 4,500 customers so we’ve picked up lots of experience.

Other companies are concerned about how data is managed in the cloud and again, we are talking about a technology that has evolved over two decades into what it is today: a safe, secure platform that is used by governments and financial institutions globally to manage the most sensitive of data.

MT: There is a common misconception that putting your employee data in the cloud is risky because the cloud isn’t as secure as a server. But this simply isn’t true. Cloud providers offer the latest technologies and continually invest in controls that strengthen security, protecting data from any potential threat.

Featured in the February 2021 issue of Professional in Payroll, Pensions and Reward. Correct at time of publication.