Many employers treat payroll processing software as a commodity, and that’s putting it generally. To the extent they give it much thought at all, it’s only when something goes seriously wrong, like a missed pay run or data breach.
Investors in HR and payroll processing providers — people like Steve Streit, whose firm’s investments include high-growth HR solutions like Gusto — see the space differently. They know that this sometimes-sleepy, often-overlooked niche is already experiencing an unprecedented period of change, one that they believe will become obvious to anyone who’s paying attention soon enough.
If Streit and his fellow experts are right, the time for employers and employees to begin paying attention is now. Here’s what he sees driving the payroll and HR solutions space in the near future.
1. Terminal Decline for Legacy Payroll Processing Solutions
The payroll processing space has already seen more distribution than most, and many observers now believe that we’re in a period of terminal decline for legacy solutions.
This is something worth celebrating, as these legacy solutions were often clunky, costly, and failed to serve the needs of users on either side of the employment relationship. However, it does mean that employers who continue to use legacy solutions may soon find themselves forced to make a switch, whether to another solution entirely or to a revamped offering from their existing vendor.
In either case, it bears repeating: The time to begin paying attention is now.
2. Continuing Momentum Toward Self-Service
A key driver of the ongoing disruption in the payroll space is employees’ broadly shared preference for self-service. This preference existed for years before software innovations made it possible to serve in a user-friendly, cost-effective manner — but now that this is the case, the shift is real.
Beyond shifting to a self-service solution, employers should embrace this new preference by offering new ways for employees to take ownership of their experience. These opportunities can extend well beyond payroll processing, which after all is just one of many HR functions employees can and perhaps should self-manage.
3. Ever-Expanding “Value Add” From New Solutions
Payroll processing is increasingly bundled into broader, value-driven HR service offerings that empower employees while saving employers time, money and aggravation. The most innovative of these offerings bundle fringe benefits and perks, such as discounts from third-party service providers or wellness programs that reduce the cost of health insurance. Employers should embrace these offerings even if they’re not rolled into HR solutions, as they’re useful for employee attraction and retention.
4. Paycheck Advance Is “Advancing”
Paycheck advance is one ever-more-popular fringe benefit that deserves special mention. Given the proportion of employees living paycheck-to-paycheck or close to it — even those who earn relatively high wages — paycheck advance is a critical source of financial flexibility and a potentially powerful incentive for attraction and retention.
Paycheck advance can also be a social good, as it may reduce reliance on high-interest, short-term financing like payday loans. Most paycheck advance solutions carry low, flat fees not based on the loan period or amount borrowed.
5. Employee Classification, Wage and Hour Regulations & Other Compliance Issues Demand Attention
Payroll processing providers, employers and employees alike need to be aware of a host of new regulatory and compliance changes that could affect payroll processing — and, for employers and employees, pay runs’ shape and size.
Examples include but aren’t limited to a new overtime rule expected to cover more salaried employees, changes in how employees and independent contractors are classified for wage reporting purposes, and new state requirements around how hourly employees’ wages are tracked.
6. Competition May Heat Up As the Startup Cycle Restarts
Finally, an anticipated uptick in startup activity as interest rates fall could increase volatility within the payroll processing space, with downstream impacts for employers and employees. If competition does increase here in the near future, we may see new entrants press their advantage on differentiators like same-day payroll processing, more frequent pay runs, and aforementioned value-adds like payroll advance loans and complementary HR functions.
Final Thoughts
Payroll processing is one of countless business functions that top executives rarely give much thought to. For that matter, so is the rest of the HR “stack.”
Payroll shouldn’t be seen as a boring, commodity-type function, though. Not anymore. Investors like Steve Streit know that as employees demand more from their employers, they’ll also demand more from the internal systems they rely on every day (or at least every payday).
Fortunately, so do a growing number of employers — and a growing number of payroll and HR solutions providers. Whichever side of this industry you’re on, it’s undoubtedly an exciting time to be involved.