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Cloud Payroll Applications: Advantages and Disadvantages
Payroll Blog Post

Payroll in the Cloud: A Closer Look at the Pros and Cons

I love lists. From the moment I wake up in the morning to right before I head off to bed, I’m making lists. Personal lists, business lists, grocery lists, to-do lists, even restaurants-I-want-to-try lists are all being written constantly. So, I decided to marry that “love of lists” to my equally strong affinity for payroll technology to see what I could come up with. The end result was this post on cloud payroll applications; a list of sorts about the pros and cons of these HCM software solutions. After all, we’re currently in the throes of an era where there are literally dozens of payroll, HR, talent management, and broader HCM solution providers that are offering cloud-based applications; and from what I’ve heard from business leaders there are still some rather big questions about the positives, negatives, and even the pitfalls surrounding cloud payroll software solutions. So here we go; first with the pros…

Cloud Payroll Application Pro #1: Cost Reductions

Let me say up-front that there are a whole host of items that go into determining exactly how much a payroll software application will cost and whether cost reductions will be gained. Most often referred to as TCO (or Total Cost of Ownership) this metric is based off of each businesses unique circumstances that contribute to creating unique cost implications. So, before you get too excited about this first entry in our pro list, be forewarned that a full cost-benefit analysis should be conducted before committing to the cloud deployment model.

That said, when most businesses look at the subscription fees that are associated with cloud payroll applications, there is no denying that upfront capital expenditures for license fees, hardware, and software maintenance are significantly lower than traditional on-premises options. Notice I said capital expenditures there? That’s because subscriptions can shift those costs from the Capital column to the Operational one—making payroll IT expenditure a lot more even and predictable and less susceptible to cost surprises and overruns. Just keep in mind that the only sure thing that will be reduced cost-wise is the cash you need at first, because only your business can fully determine whether TCO will be lower in the cloud. So, let me suggest this to add to your to-do list: create a multiple year cash projection model. That’ll help you come up with whether this “pro” stays that way for your business.

Cloud Payroll Application Pro #2: Current Technology

I’m sorry, I’ve got to say it…some of the payroll software applications out there on the market today are just downright old; and not in the good kind of way where age brings wisdom. And while I’m not in the habit of naming names, you providers (and client businesses) that are leveraging payroll software that is several decades old know who you are. Now on the one hand, you can easily make the argument that “if it ain’t broke, don’t fix it”; which from the perspective of payroll technologies would on the surface seem rather sound. After all, what innovation is really happening with payroll anyway, right? Well, to be honest, quite a lot actually; that’s why current technology easily makes it onto the “pro” side of the list for me.

Now I don’t mean to insinuate that all on-premises payroll solutions or providers are using antiquated tech, but the cloud payroll deployment model is specifically built to keep clients up to date with their applications. Think about it from an operational context…was mobile payroll even on your radar 5 years ago? What about evolving compliance issues? And if you’re a multi-national corporation, what about supported geographies? Sure, on-premises solutions can handle those capabilities, but when? Do you have to wait years for a major upgrade to happen that contains those capabilities? That’s really one of the most salient points about cloud payroll, because vendors that operate in this space are delivering rapid refreshes and keeping companies on an update cycle that allows for those newer feature sets to be rolled out at a much faster pace.

Cloud Payroll Application Pro #3: Faster Implementations

Anyone who has gone through a business software implementation of any kind knows all too well how painfully slow it can be at times. But the nature of cloud payroll applications is such that a good amount of that “pain” can be taken out of the process by reducing the length of time that it takes to deploy. In fact, a recent Deloitte survey found that 47% of organizations highlighted “quick implementation” as the single top benefit of this model. Why? Because you don’t have hardware to implement for one; and you don’t have software to install for another. Still, maybe the biggest reason has more to do with the user experience that cloud payroll applications can offer. What I mean is that these SaaS solutions tend to be more intuitive and focused on the goal of being user-friendly. Aside from helping with keeping adoption rates up, this can seriously cut down on user learning times.

Alas…now is time for the cons…

Cloud Payroll Application Con #1: Integration Issues

While it’s not always the case with some of the larger vendors in the pace like Workday, Meta4, and the like, the fact of the matter is that integration remains a fairly big issue in the world of cloud payroll applications. After all, unless you’re on the lower end of the SMB market, payroll tends to be a departmental function. What that means is that you’re going to need integration capabilities for back-office software applications like Finance and Accounting, or in enterprise environments ERP solutions. Now that’s not to say that it isn’t possible to achieve those integration goals with a cloud payroll provider; especially those that are leveraging Integration-as-a-Service (the other IaaS besides Infrastructure-as-a-Service) to provide templates and pre-packaged options. However, that needs to be figured out up front, because not doing so is going to virtually defeat the purpose of having an automated solution in the first place due to manual workarounds, and multiple, disparate data entry points.

Cloud Payroll Application Con #2: Customization Problems

The flip side to cloud payroll’s reputation for having agile, highly configurable solutions is that in many instances, you’re stuck with what they give you. And as it is with most things in life, that’s generally not a problem until you need to customize the solution to meet your business’s specific requirements. A prime example of this is the argument for multi-tenancy; whereby vendors’ profitability comes from economies of scale. What that ultimately means is that there is a limit to the amount of tailoring that can be done. Before you get into bed with one of these cloud payroll providers then, get to know where they stand on this issue. For instance, find out if they have capabilities in the form of Platform-as-a-Service (PaaS). Because in the end, you’ll want to leverage those cloud payroll benefits but still have the flexibility to get what your business needs without having to modify the underlying source code.

Cloud Payroll Application Con #3: Security Concerns

We’ve come a long way in terms of the data security measures that are needed and available in the cloud payroll world, but there are still key risks like unauthorized system modification and data manipulation that plague this deployment model. In fact, as Ernst & Young (E&Y) recently framed the issue, cloud technologies face “challenges when it comes to application security, identity and access management, authentication, encryption and data classification”. So make sure that your vendor of choice has 3rd-party information security audits (e.g. SSAE 16) and offers independent attestations (e.g. ISO 27001). But on top of those measures, follow E&Y’s advice and make sure that your cloud payroll provider has an information security plan (with data privacy references); data center operations that have real-time fail-over and delivery redundancy; a data governance structure; and disaster recovery plans (with specific methods and objectives).

The Bottom Line on Our Payroll in the Cloud List

Not too long ago, a 2011 information security survey from Ernst & Young found that 61% of businesses are currently “using, evaluating or planning to use cloud computing-based services within the next 12 months”. And if analysts’ predictions are correct, this deployment model may soon be the preferred software solution type for companies the world over. But know what you’re getting into before you go down that road for your business. Sure, the cost savings coupled with the avoidance of on-site overheads and quick time-to-value are all positive; and can make this option seem appropriate no matter what your organizational circumstances are. But, that may not be the case. So, be aware that a situation-specific individual needs and cost-benefit analysis should be conducted in order to fully and objectively understand both your potential pros as well as cons.

 
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