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The Future of Payroll: 4 Trends to Watch

Sammi Caramela
Sammi Caramela
Business News Daily Contributing Writer
Updated Jan 23, 2023

Payroll is adapting to the needs of organizations and their employees.

  • Payroll software has made significant progress in adapting to the needs of small and midsize businesses and their workers.
  • Payroll software is adjusting to the gig economy, integrating with HR and AI, and turning to the cloud. 
  • The best payroll services stay abreast of payroll trends to better serve businesses and employees. 
  • This article is for small business owners and HR managers who want to keep an eye on the latest payroll trends.

Payroll is an essential function for any business. Your payroll system ensures accurate compensation for your team while accounting for payroll taxes, company benefits and other deductions. 

Payroll hasn’t always been at the forefront of innovation. However, payroll systems are evolving to accommodate changing work patterns and new technologies that enable more seamless payroll processing. 

Whether you use a payroll service or you process payroll in-house, it’s essential to keep up with the latest payroll trends. We’ll explore four payroll trends to watch and share top payroll providers that can handle this function for your business.  

Features that are the future of payroll

Here are four key ways payroll software is changing to support the future of work.

1. Payroll is adapting to the gig economy.

With freelance work on the rise, payroll systems must adapt to a broader variety of worker categories, including independent contractors. Among other adjustments, non-salaried workers often expect real-time or on-demand payments rather than waiting two weeks or a month for a traditional pay period. With faster payroll processing, HR and department managers must be able to spot issues and resolve them quickly. 

“Instant payments are becoming more and more popular as an option for hourly workers – getting paid immediately, or nearly immediately, after they’ve worked a shift,” said Ravi Dehar, head of marketing for fintech company Plaid.

Businesses can pay workers faster via mobile payments. This feature is available through apps such as PayPal and Venmo, which are increasingly popular. However, especially when calculating taxes and maintaining records of paychecks and cash flow, payroll administrators must be aware of the challenges these arrangements may bring. 

Did you know?Did you know?: Businesses today also are handling payroll taxes for remote workers. They must adhere to workers’ local and state tax obligations and understand the challenges that come with employees who travel out of state.

2. Payroll is shifting to the cloud. 

Cloud computing enables access to data on any device in any location with an internet connection, revolutionizing how we work. It has facilitated numerous SaaS (software as a service) business models for data storage, backup and enterprise software. According to Gartner, more than half of enterprise IT spending in key market segments will shift to cloud applications by 2025. Payroll is no exception.

“There are payroll companies that already operate in the cloud, and most likely, that will only grow,” Dehar said. “Heading to a bank branch to run payroll will quickly become a thing of the past for most business owners if it hasn’t already.”

Cloud-based payroll processing offers many benefits, especially for small businesses with limited resources. Two advantages, in particular, are cost savings and flexibility, said Angelo Frisina, founder and CEO of Sunlight Media LLC.

“As an organization grows, it can expand its use of cloud services as needed, without extra hardware purchases and with little or no software,” he said.

Cloud solutions also include automatic and routine software updates and data backups, and cloud-based payroll software helps organizations stay current with tax compliance and other regulations. This is a move that every small business should consider.

Key TakeawayKey takeaway: When running payroll for nonprofit organizations, leaders and HR managers must adhere to complex tax-exempt compliance rules and procedures.

3. Artificial intelligence is affecting payroll. 

Although the idea that robots will take over the world someday is a bit far-fetched, artificial intelligence is transforming business, including elements of payroll.

“We’re seeing technology, in general, helping business owners save time when running payroll,” Dehar said. “On Homebase [a worker scheduling tool], for example, business owners can get a text when someone missed a clock-out – and employees will also get notified via Homebase Messenger, along with the option to reply back with their correct clock-in time. Reducing timecard errors is a huge timesaver.”

According to Frisina, AI can classify employees to ensure they’re in the correct tax brackets. If any issues arise, HR departments can then use chatbots to help employees with non-urgent requests. If an issue is urgent, those bots will send the request to human administrators.

TipTip: The best CRM systems are also adopting artificial intelligence technology, thereby creating self-updating, auto-correcting systems that streamline relationship management.

4. Payroll is prioritizing HR integration.

A company’s human resources management system (HRMS) plays a big role in the payroll process. It’s crucial for HR managers to ensure all data is protected, classified and easily accessible. Payroll data that’s integrated into an organization’s HRMS is easier to manage and protect.

“As labor laws get more complex, it’s important for business owners to keep an accurate set of data around payroll,” Dehar said. “So, in addition to reducing payroll errors, you’re also storing historical payroll data securely in the cloud. Likewise, having your different systems talk to each other – like your scheduling app, your timeclock and your payroll provider – reduces errors and saves you time.”

Additionally, when payroll systems and HR are integrated, there’s more opportunity to accommodate employee preferences surrounding payroll. For example, employees may need the following extended payroll capabilities:

  • More frequent pay periods
  • Payroll advances
  • Pay cards
  • Direct deposit options
  • Student loan repayment
  • Micro-investing
  • Payroll apps
  • Mortgage payments

Accommodating employees’ payroll preferences and meeting their financial needs with advanced payroll capabilities may help you attract top talent. Payroll flexibility is an appreciated job perk that could be a differentiator when people seek employment. 

Top payroll providers with advanced features

Staying on top of payroll trends is effortless when you use a payroll service. The best payroll services ensure employees are paid accurately and on time while offering automated payroll tax preparation, insightful reports and more. 

Here are some of the top payroll services to consider: 

  • Paychex: Paychex is our pick for the best payroll service for larger businesses. With more than 50 years of payroll industry experience, Paychex can manage challenging payroll compliance issues and tasks, including local taxes, shift differentials and customized reporting. Read our review of Paychex Payroll to learn more. 
  • OnPay: OnPay is our choice for the best payroll service for very small businesses. It has a straightforward cost structure, an easy-to-use interface, excellent customer service, and the ability to handle all payroll and payroll tax responsibilities. Read our review of OnPay for more information. 
  • Gusto: Gusto is our choice for the best payroll service with HR tools. Gusto can handle all of your payroll processing and payroll tax responsibilities while fulfilling numerous HR needs. Read our review of Gusto to learn about features and costs. 

A more integrated future

Remote work and the gig economy have made the process of paying workers more complex than ever, but cloud computing, AI and other software developments help small companies save money while tracking payments and employee data. Small businesses can save money and time by working with payroll services that embrace the future.

Alex Halperin contributed to the reporting and writing in this article.

Image Credit: Thea Design/Shutterstock
Sammi Caramela
Sammi Caramela
Business News Daily Contributing Writer
Sammi Caramela has always loved words. When she isn't writing for business.com and Business News Daily, she's writing (and furiously editing) her first novel, reading a YA book with a third cup of coffee, or attending local pop-punk concerts. She is also the content manager for Lightning Media Partners. Check out her short stories in "Night Light: Haunted Tales of Terror," which is sold on Amazon.