Part 1 by Pete Tiliakos & Liz Rennie

This is Part 1 of a 2-part blog presenting an analysis of key trends from NelsonHall's HR Technology & Services team. Part 1 looks at the key outsourcing trends around core HR functions, including cloud HR transformation, payroll, and benefits administration services.

Cloud HR Transformation Services

The drive to digital has kept many cloud HR transformation projects on track, despite some large enterprise signings being delayed. The 2020+ HR challenges look different from those in 2019, with organizational challenges related to workforce safety, workforce productivity, security, cost containment alongside deepening cost pressures, and a need to ensure all processes are digital. Pivotal to success is the agility of HR organizations to drive restructures supporting significant market upheavals across so many industries. Adapting to rapidly changing and compliance needs will also be a challenge.

Cloud HR transformation services are adjusting to a FluidWorkLife era, defined by greater people engagement to support fluid, individual work and homelife needs in a consumer-like way – while addressing higher-speed digital deployment through improved use of automation and technology to better manage the pace of business change and industry consolidation.

Outlook:

Key themes and drivers expected from the Cloud HR Transformation Services market in 2021+ include:

• Managing workforce restructuring and HR & payroll compliance: with unprecedented layoffs and furloughs, in contrast to significant growth in industries such as online shipping, couriers, and communications, HR has played a key role in supporting the business through change. Ensuring timely, accurate, compliant payroll was the top operational priority in 2020 and will remain critical moving ahead
• Workplace tools to support workplace change: with employees working from home, a greater focus on worker tracking to support a safe return to work, enabling touchless workplace services, monitoring social distancing interactions, and supporting contact tracing
• Effective employee engagement is table stakes: employees will have diverse needs and individual personal demands, requiring greater HR flexibility, including where employee solutions might need to be co-created. Enabling tools such as HR chat to support improved engagement will increase in importance, plus more regular employee surveys or pulse-checks
• Security is increasingly important, with more cyber-attacks evident during 2020
• Greater resilience through cost improvements, digital processes, and agility are also key to HR delivery models. Priorities are expected to focus on solutions that help make workforces more resilient, including employee health, voluntary benefits, risk, and cost.  Companies will be looking for greater agility for changing business needs. In the light of COVID-related revenue and cash flow challenges across many industries, it is expected there will be a greater focus on delivering longer-term cost improvements.

Payroll Services

This past year has been a stark wake-up call for many organizations and their payroll operations. The effects of the pandemic strained and exposed operating models up and down market, leaving many firms across sectors realizing investments to futureproof payroll operations for greater resiliency can no longer wait.

At the same time, 2020 has been payroll's 'time to shine', with practitioners stepping up to answer the call and keeping workers around the globe paid on time and accurately during arguably one of the most challenging times in recent history, despite the shortfalls in capability.  

On the managed services front, the shift to work from home enabled payroll providers to put their digital technologies to the test, proving out the very solutions they had been proliferating in recent years and urging buyers to focus on: cloud platform adoption, mobile-first design, on-demand payroll capability, predictive analytics, and dynamic integrations that bring it all together seamlessly. Additionally, firms operating in managed payroll services arrangements had much-needed help in quickly accessing reliable data, interpreting and responding to compliance directives and government support programs, and they fundamentally fared better in navigating the unforeseen challenges, reinforcing the value in managed payroll services.

Outlook:

While payroll service provider revenues were negatively impacted by the global economic downturn and subsequent job losses, and buying decisions were put on hold, the appetite for digital payroll solutions and managed services is quite healthy and is escalating as we move into 2021. 

With payroll a critical, core element in the employee experience, global footprints creeping, and compliance risks rapidly intensifying, buyers are keenly focused on payroll as a key area of investment moving ahead, and thus service provider pipelines are healthy, signaling a gradual return to the growth levels experienced before the pandemic. 

Five key themes and drivers expected from the managed payroll services market in 2021+ include:

• Compliance is THE priority: quite possibly the leading driver for managed payroll services adoption today and one that will intensify as we move forward;  buyers will focus on tapping into the tools, localizations, expertise, and global capability that vendors can offer at scale in removing risk and ensuring complete and timely compliance as statutory requirements evolve
• Digitalization up and down the process: no process in the employee lifecycle has been historically more neglected or overlooked than payroll.  Vendors will continue leveraging cloud platforms as the launchpad to enabling deeper digital capabilities with a heavy emphasis on automating the highly manual process through RPA, AI, and ML infusion, inching toward eventual fully autonomous processing. With payroll sitting squarely at the heart of the employee experience and wellness, look for deeper mobile capabilities, expanded use cases for AI/ML, and NLP-enabled virtual assistants that augment users and personalize experiences with guided, predictive insights to drive best practice and data-driven decision making
• On-demand earned wage access will be a game-changer for payroll: if the pandemic taught us anything, it's just how vital and impactful the ability to move earned wages to employees in a timely fashion can be. With the employee experience, engagement, and wellness top of mind for HR leaders, on-demand payroll capability helps with each by empowering employees with greater control and insight over their earnings. Look for the solution to continue its hypergrowth trajectory with adoption led by the U.S. and Canada, but increasing slowly internationally
• Payroll becomes a strategic partner: payroll has long been viewed as a simple processor and cost center, often overlooked in key HR decision-making or strategic decisions. Yet payroll controls one of the most critical processes in the employee lifecycle and houses some of the most underutilized and generally misunderstood data sets in the entire organization. With the continued proliferation and criticality of globally consolidated predictive analytics, and benchmarking capabilities, pared with the advancements in digitalization, payroll has the opportunity to truly shift its focus toward becoming a strategic advisor to the business
• Multi-country deals will escalate: with many MNCs operating on legacy, disparate, and often poorly integrated payroll solutions globally, the appetite for consolidating and modernizing global payroll remains strong, particularly with many firms finding their global operating models ill-equipped to handle the next major disruption. With multi-country payroll solutions able to support 100+ countries on average, look for buyers to tap into vendor offerings that can consolidate, digitalize, and automate payroll globally through a single solution.

Benefits Administration Services

Benefits administration providers have continued to focus on expanding benefits offerings to tailor to specific needs, while also minimizing administration by improving processes and technology. Significant changes in the way of working have also impacted the industry. Over 2020, benefits fairs were managed online, a first for many. As a result of the pandemic, technology is the driving force to innovation, with greater focus on homegrown platforms or through managed acquisition and tighter partnerships to support ongoing changing needs and client needs for greater visibility of data.  

Buyers of benefits programs continue to expect greater flexibility to support change, greater automation, customizations of communications, and improved process efficiencies. 

As government relief packages introduced by most major governments greatly impacted health provision and benefits rules, operations had to adapt quickly to apply these changes. As a result, 2020 was a year of increased operational costs for many benefits administrators.

Outlook:

Key themes and drivers expected from the Benefits Administration Services market in 2021+ include:

• Automation and integration: benefits operations will become more streamlined with greater integrations, minimizing risk and manual interventions
• Health costs are increasing in the medium to long term: costs might have reduced in 2020 due to a lower number of medical claims; a high-cost spike is expected in 2021 due to pent up demand for health services
• Keeping up with relief legislation has been challenging, and more changes are expected in 2021: The dynamic nature of the benefits markets will mean more buyers will look to expert providers for guidance and support and bringing greater agility to support compliance
• Compliance, security, and risk management will have growing importance: especially while more processes moved online and electronically, and as companies capture more data about their employees
• Personalization through AI will grow alongside company ethics and brand as it relates to benefits design. AI will increasingly support benefit recommendation engines; personalization will also increase through more fine-tuned communication tools
• Benefit design will have a growing importance in promoting diversity in workplaces and representing the company brand
• Benefits professionals’ roles will change to become more marketeers to communicate benefit programs and be less about interface/error management and processing
• Industrializing and institutionalizing analytics: increasing use of data to support and evaluate program success, employee engagement, cost management, and drive more informed decision making.

In Part 2, Nikki Edwards will look at trends and the outlook for talent management services, including recruitment and learning services.