Woman smiling at her laptop while working remotely.
Human resources (HR) and payroll operations must adapt to changing workforces and regulations. Here are the top trends to know. — Getty Images/COROIMAGE

Once a behind-the-scenes process, payroll now engages and attracts employees, enhances data security, and provides real-time insights. But what’s in store for payroll in 2023 and beyond? For one thing, the challenges small businesses face aren’t subsiding. Human resources (HR) and payroll operations must adapt to changing workforces and regulations. Explore the top payroll trends and learn how they could affect your small business.

Key payroll insights:

  • Businesses continue to transition to online payroll software as the market size sees stable growth.
  • Back-office payroll processes must adjust to flexible workforces, including hybrid and remote staff across borders.
  • Payroll and payment accessibility attract members of the gig economy while democratizing data.
  • An increased focus on compliance and data integrity drives interest in adopting payroll technologies with automated updates.

Growth remains steady for online HR and payroll software

The market size of the HR and payroll software industry in the United States rose quicker than the economy and technology sector overall, according to IBISWorld. It said, “The shift towards cloud-based HR and payroll software has been a major trend in recent years.” Small to medium-sized businesses (SMBs) see online payroll systems as a solution to unwieldy spreadsheet programs or a way to bring payroll back in-house.

Report Ocean estimated that the global HR payroll software market will grow at a compound annual growth rate (CAGR) of 9.2% from 2022 to 3030, reaching $41.9 billion. Accordingly, Prudour Private Limited predicted that the cloud-based payroll software market will reach $15.73 billion by 2033, a CAGR of 10% from 2023 to 2033.

Aside from accessibility and other payroll software benefits, the continued labor market volatility likely adds to the administrative work burden. As a result, industry demand will probably increase, suggested IBISWorld.

[Read more: How to Decide if You Need a Payroll Service]

Payroll professionals adapt processes as labor challenges persist

Managing the employee lifecycle is becoming an important part of HR and payroll professionals’ roles. Yet, when employees quit, and new ones need onboarding, the paperwork burden increases. The number of people voluntarily leaving their jobs rose 250,000 in May 2023 to four million.

However, the U.S. labor workforce participation rate has decreased to 62.6% from 63.3% in February 2020. These figures have been roughly 62% to 63% since beginning a downward trend in 2008. According to the U.S. Bureau of Labor Statistics, the unemployment rate remains relatively unchanged at 3.6%.

In addition, “the average hourly earnings for all employees on private nonfarm payrolls rose by $0.12, or 0.4%, to $33.58. Over the past 12 months, average hourly earnings have increased by 4.4%. In June, average hourly earnings of private-sector production and nonsupervisory employees rose by $0.11, or 0.4%, to $28.83.”

Remote and hybrid workforces affect payroll administration

Workplace flexibility can benefit employers and employees. This includes offering hybrid and remote roles or W-2, temporary, and independent contractor positions. Yet, payroll processes must adjust for different work schedules, multi-state payments, and worker types.

In January 2022, 35% of employees had a hybrid schedule. One year later, this figure increased to 41%, according to a Pew Research Center survey. Likewise, “about a third of workers with jobs that can be done remotely are working from home all of the time.” A Gallup analysis found that “two out of three professional service workers, including roles such as engineers, administrative assistants, consultants, and computer programmers, prefer to be hybrid.”

Meanwhile, the number of respondents self-identifying in McKinsey’s American Opportunity Survey (AOS) as independent workers increased 9% from 2016 to 2022. Contract, freelance, temporary, or gig workers help small businesses meet demand during peak seasons and handle specialized tasks like content marketing or tax preparation.

In January 2022, 35% of employees had a hybrid schedule. One year later, this figure increased to 41%, according to a Pew Research Center survey.

Payroll processing adjusts to the gig economy

Millions of people deliver for companies like Grubhub, DoorDash, Uber, and Instacart. With this type of gig work, workers receive on-demand or real-time wages. Consequently, we’ve seen an increase in payroll software providers offering instant or near-immediate payments. Market Statsville Group forecasted the global on-demand pay platform market size to grow “at a CAGR of 14.9% from 2023 to 2033.”

Anywhere payroll improves employee accessibility

At the 2023 Payroll Org Congress, Pete Tiliakos, an analyst and founder of GxT Advisors, discussed several payroll trends, including employee payment methods, payroll democratization, financial wellness, and financial technology (fintech). He coined the term “everywhere payroll,” where the ecosystem is connected with seamless data sharing between secure programs.

Mobile apps make payroll accessible for employees. And in a world where phones dominate, and information is always instantly available, employee mobile apps for payroll, benefits, and HR services can improve workforce satisfaction. At the same time, small businesses face more pressure to identify budget-friendly systems that include intuitive, user-friendly employee-facing apps and online portals.

[Read more: What to Look for in a Payroll Software]

Businesses consider payroll alternatives for scaling globally

SMBs can reach customers worldwide. But this also means they must offer additional services for overseas clients, such as customer support in their time zone and language. Independent contractors and W2 employees outside of the U.S. can assist with these objectives. Yet, global hiring and payroll are complex. Employer of record (EOR) and professional employer organization (PEO) services can facilitate international growth.

MarketWatch estimated the global employer of record market “to experience significant growth between 2023 and 2030,” expanding at a CAGR of 15.03%. Growth Market Reports forecasted the global professional employer organization market size to surpass $158.99 billion by 2031, growing at a CAGR of 10.9% between 2023 and 2031.

Data integrity and compliance top the list of payroll concerns

The ever-changing regulatory and legal landscape impacts HR and payroll processes. HR staff must continually review local, state, and federal labor regulations, tax laws, and compliance requirements. It’s even more challenging for SMBs that hire across state or country borders.

The need for data integrity compounds these issues. Traditional payroll methods and paper record-keeping introduce human errors and are less consistent and reliable than digital payroll systems. Payroll technologies leverage artificial intelligence (AI) to update tax tables, complete compliance audits, and alert HR leaders of payroll discrepancies.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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