Positioning Payroll Closer To The Employee

The payroll function presents a bit of a conundrum for the employer-employee relationship. While accurate and timely wage compensation is arguably the most important factor to keeping employees happy, historically, employees have zero interface with their organization’s payroll system.

But employee needs are evolving, and payroll must keep up. New employment models are surfacing, professionals are changing jobs more rapidly and seeking employment abroad, and expectations about how they receive compensation are quickly changing.

Payroll functionality needs to adjust in order to keep peace with these shifts. But as Dan Westgarth, COO of payroll firm Deel, recently told PYMNTS, there is also an opportunity for a deeper evolution within payroll to deepen its connection with the employee, and potentially expand its role within the back office.

Unloading The Global Burden

Enterprise digitization has made it easier than ever before for organizations to seek talent abroad. The problem, however, is that remaining compliant when hiring and compensating professionals in another jurisdiction is a massive headache.

“Payroll is typically not possible unless the company hiring has a legal presence in the country,” said Westgarth, pointing to the burden of establishing that legal presence, and becoming educated on local labor regulations — not to mention the logistical headache of actually moving money across borders.

But this is far from the only pain point in payroll today. Historically, employees have had little choice in how they get paid, including the timing of compensation as well as the vehicle through which they access funds. And, as part of the broader human resources ecosystem, Westgarth said more professionals are finding it unacceptable for a lackluster experience in both compensation and benefits — pain points that intensify when hiring goes global.

He pointed to one example of the challenges of employees hired across borders who were “almost treated like second class citizens.” He added, “They don’t get the same level of technology, and they have to do a lot of extra admin themselves.”

A Deeper Evolution

Many of these pain points might be traced to the fact that payroll has historically been a back office function of the enterprise, not directly facing employees themselves. But the employee ecosystem is shifting. One of the biggest changes has been in employment habits as professionals switch employers more frequently than they have in decades past.

Increasingly, the payroll experience is becoming an important part of employee satisfaction and retention. As such, employers are facing new pressures to introduce a better payroll experience — and that means presenting employees with greater choice and control.

That might come in the form of introducing early wage access, or on-demand wage access, rather than forcing professionals to budget in accordance to a monthly or biweekly payroll cycle. It could also mean offering workers choice in how they receive compensation, whether it be via payroll card, direct deposit, their local fiat currency or even cryptocurrency.

Facilitating this choice is part of Deel’s initiative to drive payroll innovation, an effort that recently attracted attention from investors that placed $156 million in the firm, which has given it unicorn status.

But boosting the employee-facing experience of payroll is not the only opportunity for employers. Increasingly, as the silos that have historically separated payroll from other functions of the enterprise involving expenditure and payouts disappear, payroll may have the opportunity to broaden its functionality in the back office.

According to Westgarth, one of the most promising opportunities lies in invoicing. As more professionals turn to contract and gig work, the lines are blurring between what constitutes an employee and a vendor — and as a result, the separation between accounts payable and payroll is growing murky as well.

“I think there’s a big invoicing opportunity out there, especially in cross-border,” he said, noting the payroll technology that facilitates global payroll payouts could also ease friction in international invoice payments. “Ultimately I think these international payroll platforms will also get into invoicing.”