Why businesses are re-evaluating the role of payroll

Although payroll is a business-critical function, it often only receives attention when something goes wrong. Azets' latest report, A Fresh Perspective on Payroll, suggests it's time to rethink that approach. The report is based on responses from 205 business leaders and payroll decision-makers across Sweden, Denmark, Finland, Norway, the UK and Ireland.

Payroll only comes into focus when something goes wrong

Our latest research shows that 58% of leaders say payroll only receives attention when problems arise. And when they do, the impact extends far beyond the payroll function itself.

According to the report:

• 38% say payroll errors have led to finance or audit-related issues
• 35% have experienced late salary payments
• 28% say payroll errors have negatively affected employee trust or morale

"Make a mistake on one payroll, and you need about six perfect payrolls before people fully trust the process again."

Erik Bekkåsen, Director of HR & Payroll Services, Nordic, Azets.

The consequences are not limited to internal operations. Nearly seven in ten leaders, 69%, believe payroll errors can damage an organisation's reputation just as significantly as a tax investigation or audit scandal.

Strategic priority on paper, but not always in practice

Many organisations recognise the importance of payroll. In our survey, 61% of leaders describe payroll as a strategic priority, and most have reviewed their payroll arrangements within the past three years.

However, increasing regulatory complexity has been the greatest challenge over the last 12 months, according to 37% of respondents. When leaders were asked to assess their preparedness for specific requirements, several challenges became apparent:

• Only 31% say they are fully prepared for the EU Pay Transparency Directive
• Only 23% feel fully prepared to manage compliance related to remote and cross-border working
• Only 22% consider themselves fully prepared for ESG governance data reporting

Skills shortages are putting payroll teams under pressure

Today's payroll teams must navigate everything from employment law and tax regulations to benefits administration, systems management and international compliance requirements. Despite this, only 5% of organisations report having a stable payroll team with no significant recruitment or retention challenges.

The most common issue is a shortage of specialist expertise. Almost half of respondents, 47%, say they struggle to find candidates with the right skills and experience.

"There's a myth around payroll that it's just pushing a button, anybody can do it. It takes years to train somebody."

Stephen Abbotts, Director of Payroll Services, Azets UK.

AI is changing how payroll works, but not the need for human oversight

AI and automation are rapidly becoming part of the payroll landscape. Eight in ten organisations are already using the technology or actively introducing it. Even so, confidence in fully autonomous payroll remains limited. Only 39% of respondents say they would feel completely comfortable allowing AI to manage payroll without human oversight.

This is not about resistance to new technology. On the contrary, many organisations see clear benefits in automation. The real opportunity lies in freeing up payroll specialists to focus on higher-value activities such as compliance monitoring, workforce cost analysis and data-driven planning.

The organisations leading the way are not using automation to replace people. Instead, they are using it to change how people spend their time. Less time is spent correcting errors and more time is devoted to analysing data and generating business value.

Payroll as a strategic business tool

The report shows that the most successful payroll functions share several common characteristics. They treat payroll as a professional discipline, invest in specialist expertise and ensure payroll processes are closely integrated with both HR and finance. They also use payroll data to support critical business decisions.

Payroll is one of the richest sources of data in any organisation. Every payroll cycle generates valuable insights into headcount, costs, working hours, absence, benefits and more.

In our survey, 69% of leaders say payroll is a core part of their ESG and governance agenda. Payroll data is being used to:

• analyse gender pay gaps
• model and forecast workforce costs
• monitor diversity, equity and inclusion initiatives
• benchmark pay against market rates

Some organisations go even further, linking payroll data with performance and productivity metrics or using it to identify early signs of employee turnover before those costs materialise.

"I don't think businesses have ever truly seen the value of payroll, or understood that there's money to be saved by harnessing that data."

Stephen Abbotts, Director of Payroll Services, UK, Azets.

These are examples of what a well-run and well-integrated payroll function can deliver when it is viewed as a source of business insight rather than simply an administrative overhead.

Payroll deserves a place on the strategic agenda

The findings from A Fresh Perspective on Payroll demonstrate that payroll affects far more than salary payments. It has a direct impact on compliance, employee experience, organisational reputation, ESG initiatives and business decision-making.

For organisations looking to reduce risk, make better use of data and build stronger foundations for future growth, there is a compelling case for giving payroll a more strategic role than it has traditionally been assigned.