4 Milestones of Payroll Success: The Holistic Journey HR Leaders Must Navigate

In today's fast-evolving payroll environment, a robust strategy and innovative solutions are essential. We've seen how vital it is to focus on compliance, technology, and a people-centric approach to stay competitive and future-proof payroll systems.

Technology has revolutionized the HR function, automating manual work, offering deeper insights, and transforming recruitment, talent management, and overall organization. Payroll is no exception. 

But in this rapidly developing landscape, the road to payroll success isn’t always clear. We’ve worked closely with industry experts to address the most common payroll challenges, demonstrating how effective payroll solutions play a crucial role in business success.

The demand for innovative payroll solutions has been driven by increasingly complex working patterns, such as flexible working and intricate employment legislation. This is already transforming the payroll function, with much of it now automated.

A good example of this shift is the growth of gig work and earned wage access—where staff receive part of their income before payday. 

This trend, common in the hospitality and retail sectors, shows that businesses need new ways to pay their employees.

The payroll landscape is becoming more dynamic, and it’s now a key topic in boardrooms. What works today may not be suitable for the future. So how do we ensure our payroll solutions are built to last?

“When you’re dealing with payroll, you’ve got to get it right. Some organizations think payroll is just a process like recruitment, but it isn’t. You need a partner with expertise who can handle compliance issues, legal requirements, and provide strategic payroll planning,” says Oliver Gee, enterprise development director at SD Worx UK.

Future-proofing payroll requires adaptability to changing regulations, people trends, employee expectations, and technological innovation. To meet these challenges, HR leaders need to take a step back and assess where payroll fits into the wider HR ecosystem.

At SD Worx, we asked over 5,000 HRDs and 18,000 employees across Europe what makes payroll successful. 

Our Payroll Navigator research found four key milestones that every organization must meet to build a robust, future-proof payroll system: crafting a payroll strategy, conquering payroll compliance, streamlining payroll technology, and creating a people-centric payroll.

Before implementing new payroll technology or processes, it's crucial to step back, ask the right questions, and begin crafting an appropriate payroll strategy.

“Organizations need to ask themselves how much change they are going through. Do they need a provider who can work across multiple countries and jurisdictions? Should they consider a managed payroll provider or Software-as-a-Service (SaaS)? It’s important to look strategically at how you do things, not just change service providers,” says Gee.

Craig Edwards, another enterprise development director at SD Worx, adds, “Don’t just change your payroll provider and dump the same processes onto them. Think about how you will implement your new solution. Most of the time, your processes will need changing too.”

The decision often comes down to keeping payroll in-house versus outsourcing it to an external provider, or choosing SaaS versus managed payroll services.

Our survey shows that most European businesses mix their approach, with 83% using a combination of in-house and outsourced solutions. The choice between SaaS and managed payroll often depends on company size, payroll complexity, budget, and internal expertise.

Smaller businesses are more likely to outsource payroll entirely, while SaaS is more popular among companies with 100-499 employees. As businesses grow, they often develop internal payroll expertise. For example, 67% of companies with more than 2,500 employees feel they can manage payroll internally. At this stage, organizations start to realize the benefits of more sophisticated payroll management and look for ways to personalize the process and take control of their payroll strategy.

One of the biggest payroll challenges is compliance. Failing to comply with regulations—such as those around National Minimum Wage—can lead to fines, legal issues, and reputational damage. Often, companies aren’t deliberately flouting the rules, but simply can’t keep pace with the complexities of payroll legislation.

“Our data shows that just over half (56%) of companies feel they have sufficient internal expertise to manage payroll. At smaller enterprises, this drops to 44%,” says Lorenzo Andolfi, a senior researcher at SD Worx.

“In addition, 55% can’t implement legal changes quickly, as legislation becomes more complex and changes more often. Accordingly, companies are investing more in compliance,” he adds.

Craig Edwards agrees that few companies deliberately underpay employees, but without expert advice, mistakes can be made.

“Most fail because they don’t take into account other considerations, don’t seek out advice, and ultimately don’t understand the rules. Compared to potential fines and reputational damage, seeking external expertise is a small cost. Compliance is a minefield, and it’s very easy to step on one,” he adds.

As a pan-European organization, SD Worx provides consultants with local knowledge across various markets, which can be crucial for security and scalability as businesses expand into new regions. In the UK, our consultants help clients solve issues and ensure compliance on payroll and taxation matters.

The sheer number of HR and payroll solutions on the market can make choosing the right one a challenge. It’s easy to pick software that is too advanced—or too simple—for your needs. Choosing a solution that doesn’t integrate with your existing HR systems can lead to frustration, data silos, and more errors.

“Technology is changing so fast,” says Andolfi. “Having a fast and accurate payroll process is still an issue for many companies. There are also many different technologies being used, which makes integration harder.”

According to our research, 45% of European organizations are investing in HR technology, but only a quarter are focusing on system integrations. This oversight can be costly. Integrated systems ensure that updates to employee status, benefits, and regulations are reflected across all platforms, aiding compliance, improving efficiency, and streamlining processes.

Many organizations are now looking to cloud-based solutions, which offer scalability, accessibility, and flexibility. “Once you’re on the cloud, you’re on the system,” explains Gee. “The cost is managed, you always have the fastest speed, you can scale, and you have good productivity tools. Performance and reliability are solid, and you always have the most upgraded technology.”

One of the biggest factors driving the future of payroll is changing employee expectations. The digital workplace, economic volatility, and flexible working have altered the kind of payroll services employers need to offer.

Firstly, the employee experience needs to be seamless, matching the expectations of today’s digital consumers. “Self-service is key,” says Edwards. “People want to be able to interact with their business, access payslips and P60s online, and on their phones. Technology should be equally usable for an 18-year-old and a 60-year-old.”

Secondly, financial insecurity is becoming a bigger topic in light of the current economic climate. Research from the European Barometer on Poverty and Precariousness shows that 29% of Europeans consider themselves in a precarious financial situation. Our research aligns with this, revealing that 25% of employees wish they could request a pay advance from their employer.

“The financial wellbeing of employees is something that employers are increasingly worried about,” says Gee. “There are many additional services employers now offer, such as pay advances or rapid payment needs.”

Ensuring accuracy and on-time payments has always been important, but it's even more crucial in a challenging economy. Our report found that 22% of employees were paid late on more than one occasion last year, while 34% noticed errors in their pay.

The impact of this can be seen in retention rates. The report found that 29% of employees who were regularly paid late were looking for a new job, compared with just 10% of those who were paid on time. Similarly, 25% of employees who experienced pay inaccuracies were job hunting, versus only 9% of those who received accurate wages.

Having the technology to ensure accuracy and rectify mistakes promptly is critical for any payroll provider, as employees who feel valued and respected are more likely to stay. “If someone on minimum wage is missing a third of their pay, that’s a huge problem for them. And from a business point of view, if you don’t pay people on time, they will leave,” adds Gee.

Modern payroll is about so much more than just processing payments. Today, it’s a fundamental part of your business strategy and employee experience, with complex data, pain points, and compliance challenges to consider. Choosing the right payroll partner has never been more important.

Getting it right means considering your payroll strategy, navigating compliance, streamlining processes, and putting people at the centre of your offering.

This article was originally published in conjunction with SD Worx on Raconteur.