Companies still engaging service providers to add employee self-service, AI-based compliance and other features, ISG Provider Lens report says
Demand for payroll outsourcing remains high in the U.S. as enterprises seek new features to improve employee experience, according to a new research report published by Information Services Group , a leading global technology research and advisory firm.
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“Outsourcing providers help them advance by integrating new features into existing software.”
The 2023 ISG Provider Lens™ Payroll Solutions and Services report for the U.S. finds that payroll is one of the most outsourced human resources functions in the U.S., with many organizations now on a mission to overcome the limitations of legacy payroll platforms. ISG expects this trend to continue for the foreseeable future.
“U.S. employees increasingly expect self-service payroll options,” said Stacey Cadigan, partner, ISG Human Capital Management and Enterprise Transformation. “Companies are responding by removing barriers to digital engagement, usually through outsourcing.”
Daily pay or earned wage access features, which allow employees to access a portion of their wages outside of their regular pay period, have become mainstream in the U.S., ISG says. Enterprises consider these offerings essential to attracting and retaining talent and are working with outsourcers to make them available.
There is a continuing drive in the U.S. to enhance employee experience across all HR functions, but especially payroll, the report says. Other popular new capabilities from payroll outsourcing partners include robust digital payment methods, financial wellness solutions and AI-powered decision-making tools.
Recent and ongoing business disruptions in the U.S. and worldwide, especially the growth of remote work since the COVID-19 pandemic, have forced companies to adapt their payroll systems to increasingly complex operations and compliance requirements, ISG says.
AI and ML tools are at the core of many payroll providers’ services, helping enterprises both address the new challenges and increase efficiency, the report says. These tools allow for automated validation of data inputs, real-time visibility into potential errors and compliance monitoring. Natural language processing (NLP) is also increasingly essential, providing for conversational virtual assistants that can field employee queries around the clock.
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At the same time, many small U.S. companies are turning to outsourcing firms for simple payroll solutions that are easy to set up and use, ISG says. These systems now go beyond basic functions and offer comprehensive support for compliance, including automatic calculation of taxes, filing assistance and reporting.
“Small companies need modern payroll systems to remain competitive,” said Jan Erik Aase, partner and global leader, ISG Provider Lens Research. “Outsourcing providers help them advance by integrating new features into existing software.”
The report also explores other payroll trends in the U.S., including rising demand for oversight of affiliate companies’ payroll and the continuing difficulty of establishing fully touchless payroll due to varying state laws and other complexities.
For more insights into the payroll challenges facing U.S. firms, including aligning their service delivery approaches with those of providers, plus advice on how to address key issues, see the ISG Provider Lens™ Focal Points briefing here.
The 2023 ISG Provider Lens™ Payroll Solutions and Services report for the U.S. evaluates the capabilities of 19 providers across two quadrants: Managed Payroll Services: U.S. Small Market and Managed Payroll Services: U.S. Mid/Large Market.
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