Investments in the payroll technology market are lagging behind other areas of HR tech, according to Houlihan Lokey’s most recent HCM Technology Market Update. While some segments of HR are drawing investor attention, payroll — despite its importance to business – has lacked the continuous innovation necessary to keep up with market demand.
The investment bank found the payroll landscape is evolving rapidly, driven by an array of factors. Evolving regulations, the rise of remote workforces and the expansion of international operations have all contributed to the growing complexity of payroll management, it said. The situation is further complicated by “the ‘war for talent,’ global workforce and flexible working … look beyond geographical boundaries to source the best talent,” said Houlihan Lokey Managing Director and Head of European Technology Sascha Pfeiffer.
Although payroll is “the most important entitlement that an employer provides,” organizations can struggle to get the basics right, so they resort to manual processes, Pfeiffer added.
Solutions and New Tech
Still, Houlihan Lokey said that payroll’s investment landscape is “dynamic and promising,” despite these challenges.
While payroll platforms aren’t receiving the most investor interest, their role in business operations is critical, Houlihan Lokey said. With growing economic and labor challenges, many organizations are interested in investing in innovative solutions and strategies that will help them remain agile and competitive in today’s business landscape.
One key development is the adoption of hybrid payroll models, which combine in-house payroll functions with outsourced vendors. By leveraging in-country partners with local knowledge, companies can manage payroll operations in different regions while maintaining compliance.
Employer of record services have also emerged as strategic solutions for organizations managing a global workforce. EOR providers not only help ensure compliance but also support the consolidation of payroll processes. No longer viewed solely as compliance solutions, EOR providers are considered to be essential partners in accessing and retaining global talent in non-core territories.