Payroll software has been the sick man of accounting technology for many years, dragging its feet while countless new tax and bookkeeping solutions, propelled by advances in artificial intelligence and big data, appear.
But that may be about to change as a raft of new offerings emerge, promising to revolutionise payroll software and align it with 21st-century expectations.
Duane Jackson, the creator of KashFlow, the UK’s first ‘software as a service’ accounting venture, has launched Staffology, a web-based application designed specifically for the UK that introduces the application program interface (API) concept to payroll technology.
And on January 14, global HR and payroll services company NGA Human Resources (NGA HR) announced a partnership with blockchain technology experts Gospel Technology, backed by Salesforce Ventures.
NGA HR’s products and services innovation team has been piloting Gospel Technology’s enterprise secure data platform with a view to integrating it into its payroll services architecture. Blockchain has the potential to raise the level of trust in HR data and services thanks to tamper-proof ledger and system logs.
The future of payroll technology suddenly looks a lot brighter, and in no small part thanks to the strides Jackson has made.
“I think the market has been keen to move to the cloud, but there has been a lack of viable options,” he told AccountingWEB. “Whilst there are cloud-based payroll products on the market they're not particularly modern, either in appearance and usability or in features.”
Why has the payroll software market lagged behind?
According to Jackson, the main reason the market has lagged behind is that unlike other products such as CRM, bookkeeping or accounting software, payroll lacks an ‘MVP’ – Silicon Valley-speak for Minimum Viable Product.
“The idea is that you build the minimum feature set required to take a product to market to see if you can get traction,” said Jackson. “For example, with KashFlow I initially launched a very basic invoicing application. It only grew to a full-blown accounting application over a period of years as we added more and more features.”
When it comes to payroll, developers can't take that approach, he said, as the product has to have virtually everything or it's useless.
“No one will start to use a payroll application that just does the bare minimum,” said Jackson. “It would leave them with a problem as soon as something like statutory maternity pay or alternative calculations for directors’ NI crops up.”
There is also the matter of approximately 285 pieces of legislation impacting payroll in the UK, making it a legal minefield for anyone trying to navigate through. Chartered accountant Matt Portt, of Portt & Co, said the slow evolution of the sector can also be attributed to a couple of hefty legislative changes.
The first was Real-Time Information, stemming from 2011/12, when firms went from filing a one-off submission such as a tax return once a year, to submitting to HMRC each time they pay their employees.
“HMRC sends out a brief of what it wants the data to look like, and then it is on to the software providers to interpret that and come up with a solution, and work out how to send that to HMRC,” Portt told AccountingWEB. “From that perspective, it is a huge amount of work for software providers.”
And on the back of that came auto enrolment – the government initiative that required every employer in the UK to put their qualifying staff into a workplace pension scheme and make contributions towards their employee's pension.
“Almost every payroll vendor has had their development team 100% on auto enrolment projects for what seems like the last five years,” said Portt. “Moving to the cloud, yes they are aware people want it, but it’s also always been a secondary consideration over the needs of building a compliant product”.
“The high development cost was somewhat less of a problem before the introduction of auto enrolment,” added Jackson. “That introduced a very large hurdle that anyone entering the market would have to contend with.”
“Over the past five years or so there has been very little innovation,” Jackson continued. “For those that were already in the market, it made sense to build the auto enrolment features to protect their current revenue.”
For prospective new entrants, it significantly increased the amount of development time required to start from scratch.
Given that payroll is a highly commoditised product there has also been very little incentive for new entrants, said Jackson, adding that the risk:reward ratio is significantly better elsewhere.
“The lack of new competition has meant existing vendors could rest on their laurels,” he said.
Rather than becoming easier over time, with more advanced technology at the fingertips of developers and a demand from clients to move with the times, the problems in payroll have become worse, said Jackson.
Could APIs be the key to unlocking the payroll market?
Jackson said a basic requirement most users look for in a payroll system is an API, as this can unlock the kind of features that encourage people to move systems. Current offerings without APIs do not have compelling features such as two-way integration, and so users don't move.
“HR has transitioned well to the cloud,” said Jackson. “Whilst payroll is a natural bedfellow for HR, most SaaS HR vendors don't have the time, inclination or resources to build it themselves.”
He said “a handful” had contacted him in recent years, as well as high-tech accounting firms, asking specifically if he can recommend a UK cloud payroll product with an API. With nothing out there, he got bored of waiting and decided to have a crack himself, starting in mid-2018.
Staffology introduces comprehensive APIs to payroll tech, enabling integration with other products, something that has been missing until now.
With the built-in ability to white label the software, Jackson is hoping to gain interest from other software vendors and platforms that want to provide payroll functionality to their users but don’t have the resources or inclination to build it themselves.
“I thought the hard bit would be the annual updates, so I originally built my product against the 2012 tax tables and took it through all of the annual changes to date, creating a process that enabled me to implement future annual changes in under 20 minutes,” Jackson said.
Backing up Portt’s view, he said the toughest part turned out to be auto enrolment and all of the small, difficult areas to be supported. “If I knew the real answer to my question about how hard it'd be I probably wouldn't have started,” he said.
Staffology is currently in a private beta testing phase but Jackson hopes to have the product ready for general release by the start of the new tax year in April 2019.
It has already passed the important milestone of gaining HMRC recognition for RTI filing and has laid down a marker for everyone else to follow.
Challenge for payroll professionals
“The challenge now is for payroll professionals to get to grips with new technologies,” said Jade Bradfield, executive at document outsourcer Datagraphic. “To view technology as we do legislation. It’s something that needs to be complied with, so let’s use our research skills to understand and embrace it.”
She said as the workplace evolves, new technology will influence operational tasks, and automation tools such as robotic process automation and artificial intelligence will streamline processes and deliver data-driven insights.
“This will open the door for payroll managers to focus their skills on more strategic and creative roles - that robots can't do,” she said.
Payroll managers could one day become data analysts: providing strategic insight to the board or reward partners: communicating financial and well-being information to educate employees, said Bradfield.