This is the final part of a three-part blog series covering my perspectives on the payroll market based on NelsonHall’s latest annual market analysis, Payroll Services: Globalization and Digitalization. Part One features the payroll buyer perspective, with Part Two looking at the managed payroll service providers currently pushing the pace of innovation. Here I focus on the outlook for the managed payroll services market and what to expect as we move forward.

Managed payroll services adoption

The appetite for managed payroll services remains healthy, and the market looks to rebound to its pre-COVID growth rates over the next three to five years, as digital payroll transformation projects are accelerating and firms seek to modernize this critical process for greater continuity, resiliency, and strategic value. And this is particularly true as payroll buyers more commonly require support from managed service providers in undertaking large-scale payroll transformation initiatives. 

The mid-market buyer will remain the largest adopter of managed payroll services globally, while large/enterprise-sized, late adopters of cloud-based core HR platforms will increasingly seek to extend cloud investments with integrated modern global payroll solutions. Small market firms are more commonly seeking payroll services as a core component in broader HCM technology and services solutions and are increasingly finding their footprints creeping to new international markets and require support for multi-country payrolls.

While single country adoption is steady, multi-country service adoption will continue to outpace single country deals by as much as 5x, as firms of all sizes and sectors will continue to see their footprints pulled to new countries of operation, particularly as 'work from anywhere' continues to trend upward, and talent is sourced from new locations. With providers now capable of supporting >150 countries through a single platform, UX, and a tightly integrated operating model – and with the need to modernize and consolidate multi-country payrolls – achieving global payroll transformation through a single vendor solution is more possible than ever.

From a scope perspective, fully managed payroll service adoption will continue to outpace partial services as firms seek to tap into the digital technology vendors have been proliferating in recent years, urging buyers to focus on payroll resiliency (cloud platforms, mobile-first design, on-demand payroll capability, predictive analytics, and dynamic, real-time integrations to bring it together seamlessly).

Additionally, firms operating in fully managed payroll services models during the pandemic had much-needed help in quickly accessing reliable data, interpreting, responding to compliance directives and government support programs, and fundamentally fared better in navigating the unforeseen challenges – further reinforcing the value in managed payroll service engagements. With compliance intensifying and payroll complexity escalating, buyers are keen to adopt fully managed payroll solutions to access best-in-class operating models, vendor advisory in de-risking the critical process, and supporting future growth and scale as requirements change.

Service offerings

The renewed focus, investment, and emphasis on payroll as a critical and core element in the employee experience have created a boom of opportunity for payroll solution providers.  Recent years have seen more new technology-driven entrants and pulled some (e.g., HCM tech providers) deeper into the payroll space, crowding the market with many options. 

Thus, vendors are commonly differentiating their solutions through the employee and client experiences, providing a modern UI/UX, mobile-first design, augmented and personalized support through AI/ML, and analytic insights – all of which is underpinned by a high-touch client experience that focuses on increasing client value by enabling improved payroll outcomes and driving long-term recurring revenue retention.

With buyers focused on cost containment and often varying in their maturity to digest and manage change programs globally, vendors are creating more flexibility for buyers by unpacking solutions to enable more standalone service levels and tiered service options – thus enabling incremental service adoption to accommodate unique buyer requirements, budget constraints, and appetite for change within the organization.

Vendors are also increasingly offering pre-configured, platform-based software and services solutions for smaller/midsized multi-national firms seeking modern, compliant 'core' payroll and HR capabilities to support long-tail footprints, enabling a turnkey multi-country core HR and payroll solution that can be rapidly deployed. 

Lastly, service offerings are expanding to include add-on services to meet buyer requirements and drive increased revenue retention; the top three service additions include treasury and funding services, HR compliance support, and global mobility support and advisory.

Enabling technology

With buyers keenly focused on the employee experience and seeking to align and integrate payroll with their broader HCM tech investments and tap into modern payroll solutions, vendors are focused on advancing and differentiating their UI/UX with roadmaps focused on deeper digital capabilities, including mobile-first design, predictive analytics, and intelligent automation. Modern payroll platforms are now providing practitioners with a single, globally consolidated, real-time view of payroll processing, providing deep transparency, insights, and control over their payroll operations globally.

Providers are also focused on touchless and autonomous payroll enablement – advancing platform automation through RPA, AI/ML/NLP to remove manual, repetitive tasks, detect and address anomalies and data errors in real-time, producing more reliable payroll outcomes (timely, accurate, compliant) while enabling payroll practitioners to focus on value-added analysis and strategic projects and tasks. With payroll holding some of the richest and least utilized data sets in the organization, accessing and leveraging reliable, real-time, globally consolidated payroll insights will be key to payroll pivoting from simple processor to strategic COE and business advisor. Thus vendors are advancing payroll reporting capabilities through real-time analytic reporting, benchmarking, and guided, predictive insights.

Lastly, payroll vendors are increasingly advancing their partnerships to supplement offerings and capabilities, fill white spaces, and offer clients solutions to meet their unique needs through integrated third-party solutions. While formal payroll marketplaces are still somewhat emerging and primarily existent within the HCM technology space, they will become a standard longer-term offering with certified, pre-built integrations to leading HCM technology platforms and a broad range of complementing third-party solutions.   

Key integrated third-party solutions increasing in demand and adoption include certified HCM technology integration and partnerships, as firms seek to tightly integrate payroll (globally) with their core HR investments, followed by earned wage access (on-demand payroll) and integrated workforce management.

Although on-demand payroll solutions are largely trending and adopted most by North American-based firms and workers (due to various social and economic factors), demand is gradually increasing globally and will be a standard offering requirement longer term. While most payroll providers have partnered with fintech firms to offer the capability, look for more payroll providers to enable native on-demand pay solutions as we move ahead.

You can read the rest of this blog series here: Part One, Part Two.