The terms employee pay and payroll sound so similar that it’s easy to treat them as the same concept and use them interchangeably. But the reality is that they are very different propositions – and understanding the distinction between the two is critical for businesses who want to make pay more than “just payroll”.
On one hand, payroll represents a more process-driven, functional, and transactional discipline, although at face value, this description sounds more limiting than payroll really is. The importance of these processes on business performance, internal operations and compliance shouldn’t be understated.
Employee pay, on the other hand, is about more than just the processes of payroll. Employee pay builds on the traditional remit of the payroll department. Taking into consideration how pay influences the employee experience and wellbeing of employees both inside and outside the workplace, and how these factors influence the overall health and success of the business.
In this blog, you’ll learn about the three main areas in which employee pay and payroll are different, and how understanding those differences can help you change the way you think about pay.
Compared to payroll, employee pay has a much wider role to play in guiding overall business strategy. Payroll metrics tend to be solely focused on financial KPIs or those relating to efficiency, such as payment accuracy, statutory compliance, data integrity, operational efficiency and so on.
Employee pay metrics represent a shift in philosophy as they place people – i.e. the workforce – as the yardstick by which success can be measured. These include more quantifiable KPIs such as employee absenteeism rates and workforce turnover and retention, as well as more human considerations like employee experience, brand perception and their overall financial wellbeing.
The key difference here is that payroll metrics only really concern the payroll department and how it operates. Employee pay metrics influence almost every area of a business, and concerns every single employee within the organization.
The fact that employee pay influences much more than the payroll department means that a change of mindset is essential, especially in the context of evolution and adaptation.
When a payroll function and its metrics have limited ramifications outside of its own department, it can take more of an insular view when assessing how it operates. If the payroll function is operating perfectly well and there are no major efficiencies to be found, then there is little driving the department to explore ways to improve.
With employee pay, however, the function is so heavily embedded within the overall operations and culture of a business that it cannot afford to stand still. An employee pay function must always look for ways to innovate in order to better support the workforce and improve on those more ‘human’ KPIs. Earned Wage Access, where employees have access to a self-service tool that allows them to be paid how and when they want, is an excellent example of how businesses can achieve this.
A change from a payroll function towards an employee pay function turns the traditional balance of the employer-employee relationship on its head. Under a payroll function, the onus is on benefitting the business, rather than the employee. An example of this is the rigid monthly pay schedules most payroll departments operate. These have many advantages for the business – such as efficiency, reduction in errors, and reduced costs – but are often inconvenient for employees.
An employee pay function looks at pay through the lens of the employee. And as such, considers not only what is best for the business, but also what will benefit the employee experience too – leading to innovations such as Earned Wage Access. At a time when employee experience, and how well their employers care about them, is in sharp focus, it can’t be underestimated what a profound difference this could make to the productivity and wellbeing of a workforce.
For businesses that have operated successful payroll functions for so long, breaking out of the existing mindset to transition towards employee pay may well prove challenging. But the benefits of doing so far outweigh the risks, to the point that it’s a win-win for employee and employer alike.
Employees benefit from a human-centric pay strategy that considers their wider lifestyle and wellbeing, and makes them feel more valued. Meanwhile, employers get the benefit of greater flexibility within pay, richer data that improves their strategic decision-making, and a more motivated, productive workforce that’s committed to the business longer-term.
These benefits underline why employee pay can – and increasingly will – be of far greater value to businesses than a traditional payroll function.
CloudPay’s global payroll solution is trusted by international businesses the world over to make employee pay a supportive, strategic function of their organizations. Take a closer look at our technology here.