Risk, reward and resilience: preparing payroll for challenges in summary:
According to payroll professionals attending a recent Cezanne and Caxton roundtable, the most significant payroll risks include legacy payment systems, cybersecurity threats, compliance failures, skills gaps and single points of failure within payroll teams. Building resilience requires a combination of contingency planning, trusted partners, up-to-date payroll knowledge, robust processes and effective use of technology.
TLWR? The key takeaways:
- Risks to payroll processing are commonplace – and they can undermine employer credibility
- Modern payroll practitioners face risks from outdated systems, lack of policy and good process, skills gaps, cybersecurity threats and over-reliance on single points of failure.
- But practitioners believe in a way forward: trusted contingency partners, newer forms of payment transfer, upskilling, and sharing of payroll knowledge.
Payroll processing is no risk-free endeavor. It goes wrong. Often.
Indeed, 2023 data from payment solutions provider Caxton certainly shows that almost half (47%) of UK workers have ended up with nothing or the wrong pay come payday. The impact can be devastating on employees, resulting in missed bill payments and stress. For the employer, it can undermine good employee relations and retention, hitting productivity.
Payroll practitioners – whether in-house payroll, finance or HR staff to bureau providers and outsourced services – know that timely, error-free processing is hardly a walk in the park. As attendees at Caxton and Cezanne’s Risk, Reward and Resilience: Preparing Payroll for Challenges roundtable laid out, risks, it seems, are everywhere.
From legacy banking systems and cybersecurity threats to the rise of AI, skills gaps and evolving legislation, the conversation made one thing clear: payroll teams are facing a growing list of challenges that demand careful management.
But, as attendees detailed, resilience is possible: from choosing the right managed payroll partner, to understanding where skills development can backstop processing errors, to the centering of human skills in increasingly automated processes. Choices are out there to keep payroll on track.
Read on to find out more…
The tricky game of getting payroll right
For six decades, Bacs has been the main way employees have been paid in the UK. But as one attendee shared: “The system is creaking.”
Indeed, discussion centered on the many ways in Bacs can be the payroll process pinch point: high service costs; lack of adaptability; inflexible processing time; lack of reporting capability in some instances, leaving employers unsure if they’ve got the funds to process payroll; susceptibility to manual error, and even issues with caches of files being rejected with no accuracy over which file had caused the issue. A nightmare to unpick.
So-called ‘near Bacs misses’ are increasingly common, said attendees, and newer digital banks are starting to use faster payments as a preference. Some businesses are even using faster payments – originally set-up as a contingency – in the first instance. “For the first time in my career, I don’t trust bacs [to deliver] – and that’s quite scary,” said one attendee. Yet even with this being the case, it was agreed that not all businesses have access to a contingency payroll partner. Or can even troubleshoot issues themselves.
But Bacs is hardly the only risk. Legislative change, particularly regarding pensions auto-enrolment and national minimum wage changes (and how the latter might cause issues if employers offer salary sacrifice benefits) was pinpointed as a way that payroll practitioners might miscalculate, damaging employee relations and exposing the business to financial and legal risks. There’s the administrative burden as a result of new Employment Rights 2025 Act, too; adding complexity and document piles on already under-pressure payroll staff.
Digital risk
In an era where in-house payroll software systems are backstopped by automation, integration of payroll and HR systems is commonplace, and communication is digital-first, there are a plethora of digital risks. For instance, if the time and attendance HR system modules go down, could payroll be exposed? How reliable are systems in the first instance? Are the APIs reliable? Is the broader system compliant? These were all issues discussed by attendees.
In addition, with automation increasing — or payroll outsourced and managed by partners — there were worries that payroll skills could fade, with practitioners, especially younger talent, unable to understand processes, spot errors, or offer manual backup if processing failed. Smaller businesses, it was agreed, are particularly at risk of having a single point of failure and lack of in-business payroll skills.
Then there was the cybersecurity risk, which was a lively part of the decisions. Scams such as phishing emails still catch even senior staff out, and, with AI now widespread, it is increasingly easy to authorise fake payments and steal critical financial details by mimicking key individuals in the payroll sign-off process. Lots to contend with!
Resilience and recovery
Notwithstanding the wide range of risks to payroll, attendees were positive that payroll resilience and dependability is achievable.
Contingency payroll systems and partners were discussed as a first port-of-call. Those that offered faster payments (with instantaneous response, 24/7 365 availability) were discussed as a popular back-up partner, but being a true partner (knowing processes, business needs, risk points) and having skills to seamlessly support businesses if payroll processing failed was seen as particularly critical, here.
Elsewhere, offering robust reporting capabilities, and even the ability to hold business cash and allow them to draw down at the end of the financial year on any leftover from payroll processing, was seen as a positive partner offering. After all, visibility is critical when it comes to managing risk, and the most effective teams use data not just to report on what’s happened, but to identify issues before they become problems. That’s why HR analytics is about far more than dashboards and reports.
The discussion didn’t merely centre on backups. Upskilling and awareness of payroll staff — in-house or bureau — was also seen as key to forestalling issues in the first instance. As payroll becomes increasingly strategic, practitioners are being asked to do more than process pay accurately; they’re also expected to provide insights, manage risk and contribute to wider business objectives. It’s a shift that closely mirrors the growing need for HR and payroll teams to demonstrate their value across the organisation.
The upskilling of payroll
The discussion didn’t merely centre on backups. Upskilling and awareness of payroll staff — in-house or bureau — was also seen as key to forestalling issues in the first instance. Being aware of legislation and employment law changes, and how benefits and pensions interface with payroll, as well as keeping manual payroll skills up-to-date even as automation and outsourcing take hold, was discussed as a way to both forestall and fix processing errors.
In addition, the organisation wanted to build payroll capability across the wider team, reducing reliance on any one individual and supporting future succession planning. A trusted payroll bureau partner was seen as critical to achieving this.
Positively, attendees discussed how the industry as a whole can support each other in developing payroll skills to mitigate risk, and why rigorous recruitment and onboarding of new payroll staff is key.
Preparation, preparation, preparation!
But, it’s not just about individual skills, though. Policy, compliance, and back-up — the supporting structures around payroll — were discussed as being central to payroll resilience.
Businesses should have education on compliance, policies around process, sign-offs and clear documentation, and they should be stress-testing and scenario planning in case the payroll process fails. “There’s nothing worse than when something goes wrong, and it’s the first time you have to do something,” said one attendee.
Indeed, the conversation focused on what to do if there is a cyber-attack, preparing for such, creating checklists for when something goes wrong, and ensuring external partners are well-versed in these, too.
In fact, as one attendee signed off, it’s through educating each other within the industry (and between partners, outsourced providers, bureaus, in-house teams) that risks can be mitigated. “There are risks everywhere,” one attendee concluded. “But it’s by putting our brains together [we get through these].”
Dan Cave is an award-winning HR journalist and editor. He has been reporting in the HR space for nearly a decade, and works across the business press.
