At the end of the last day of the pay period, payroll must, without fail, be processed. The result is a definitive line item in the general ledger. It requires no explanation. It’s absolute, something the accountants understand. And employees understand too. Miss payroll, or get it wrong, and your employee sentiment scores will nosedive. As if this weren’t enough, however, there is much more to payroll; there are, in fact, two sides to payroll—the concrete and the abstract. Both are important.
Payroll is more than a number
We at 3Sixty Insights speak of the two hemispheres of human capital management. The term we use for anything in the management of an organization’s employees that easily translates to a financially quantifiable number is “concrete HCM.” That would make payroll the most concrete aspect of HCM.
3Sixty Insights also has a term for anything in HCM that doesn’t easily translate to dollars, but that we know translates undeniably to organizational success: “abstract HCM.” Employee sentiment encompasses most of abstract HCM—the emotions, ideas, and philosophy behind employee engagement and company culture – all the things we can’t quantify in concrete financial terms but understand as valuable to driving success for employees and the organization.
And it’s the abstract HCM in employees’ pay that makes payroll much more than a number. Think about the things in HCM that have the highest potential to negatively impact employee sentiment. Getting payroll wrong is right up there, possibly at the very top of the list. This is the most straightforward connection between pay and employee sentiment, and it makes payroll one of the most abstract aspects of HCM. And the potential consequences of payroll mistakes and inaccuracies are only negative. Process payroll correctly every time and nobody notices, just like the power company gets no pat on the back when electricity flows uninterrupted all day, every day. Fortunately, organizations can use payroll to influence employee sentiment positively—i.e., in a manner that employees will notice and appreciate.
Improving Competitiveness in the Job Market
Organizations everywhere in the world and in every industry may see a lot of movement in their workforce in the coming weeks and months as many countries and regions emerge from pandemic lockdowns. Anywhere from 40 percent to more than 50 percent of workers plan to leave their employer for another once the pandemic ends, according to reports.
Some call it the coming Great Resignation. The circumstances were building before the pandemic. As 2019 drew to a close, before we knew of the disruption to come, the Korn Ferry Institute found nearly one-third of professionals planned to seek a new job in 2020. As with most things, however, COVID-19 has changed the dynamic. Work from home, hybrid working arrangements, and other variables will become permanent options for many, and WFH, especially, narrows the criteria that a jobseeker considers most important in a potential new employer. Salary and compensation have always been important for job seekers, but an emerging post-COVID world is making these more important than ever from a sentiment standpoint.
It’s a clear example of abstract HCM, and employers need to take notice. Any employer on its game understands that effective compensation planning is important to combat employee attrition and to attract top talent. Luckily for organizations, much of the data needed to inform compensation planning can be found in payroll systems. The key is to have the right payroll systems and tools in place to access that data and leverage the insights for strategic planning.
Supporting Pay Flexibility
Employees secure in their finances are more productive. Let’s acknowledge that here is another example of payroll having an effect on the organization that is best described as abstract. After all, can you show that pay flexibility led to financially quantifiable gains in productivity recorded in the general ledger? Not exactly—as an accounting department, you can’t. As an organization, however, it’s something that you just know. This is the essence of abstract HCM.
An employer can positively influence employee sentiment significantly by giving staff options in terms of when and how they receive their pay—i.e., not just at the end of every standard one- or two-week pay period, and not just as a direct deposit into their banking account. Beyond the added benefit of attracting top talent, pay flexibility supports existing staff’s financial wellbeing, which can lead to better performance while also supporting employee retention efforts.
In March 2019, 401(k) Specialist reported on a survey of 10,000 Americans that found businesses in the United States were at the time losing $500 billion yearly due to productivity and other issues traceable to the effects of financial stress on employees. Surely this dollar amount rose as the pandemic exacerbated financial stress for many. Bank of America’s 2020 Workplace Benefits Report finds, for example, that employees describing themselves are “financially well” is down nearly 20 percent. Organizations have an opportunity to address some of these issues with payroll modifications that provide employees with more flexibility to manage their finances. This is good for their employee wellbeing and for the health of the organization’s talent acquisition and retention efforts.
Promoting Diversity, Equity, and Inclusion
What could be more abstract about HCM, more impactful to employee sentiment, than ensuring that all employees feel included and equal commensurate to their roles and in no way underserved, underpaid, or maltreated based on their gender, sexual orientation, or race? At the same time, you can’t get a more concrete understanding of pay equity, a major component of this abstract dynamic within your organization, than with an easily digestible report on your pay data.
Payroll-related analytics can play a central role in promoting diversity, equity, and inclusion (DE&I) by providing the insights an organization needs to see where they stand regarding pay equity versus relying solely on a gut feel for things or a general sense of a diverse and accepting culture. All of those things can be positive for an organization, but insights into pay data will help guide your efforts. You’ll gain an accurate understanding of the greatest pain points so you can prioritize DE&I initiatives. In short, you’ll know where to begin.
Aside from all this upside, there’s also the challenge of an emerging regulatory framework around aspects of DE&I. Several nations now require employers to furnish regulatory bodies with pay data as it relates to gender and diversity. It’s an interesting footnote to the idea that abstract HCM can quickly become concrete HCM—here, an urgent exercise in risk mitigation.
Getting There with Modern Payroll Systems
Payroll is rich with data on workforce trends that can inform best practices for organizations to leverage for planning and optimizing across multiple business functions in addition to payroll, such as HR and finance to name just a few. It’s important to remember that only a modern payroll system captures and manages the data to inform such initiatives designed to influence employee sentiment. And modern payroll systems are the only kind capable of accommodating the flexibility needed for employers to leverage payroll as an abstract value-add on top of the critical and concrete function of ensuring each employee receives the right pay at the right time.
About Brent Skinner, Co-Founder | Director & Principal Analyst, 3Sixty Insights
Immedis is excited to introduce Brent Skinner as a guest blogger. Brent is co-founder and principal analyst of the HCM technology practice at 3Sixty Insights. Drawing on his current research and his background as the former principal analyst of HCM technology for Nucleus Research, Brent enjoys exploring and discussing the #futureofwork.
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