From full-time to freelancers: Why traditional payroll erodes blended workforce gains

From full-time to freelancers: Why traditional payroll erodes blended workforce gains

Organisations everywhere rely on non-standard employment, popularly called a blended workforce. According to the International Labour Organisation, 40% of companies in developing countries employ blended workforces, and 7.2% use them intensively. Other than temp workers, there are freelancers and contractors. The blended workforce also includes permanent part-time staff, gig-economy employees, shift workers, and remote employees.

Businesses benefit from this workforce model. However, it comes with several payroll and tax challenges:

Blended workforces give businesses more flexibility to conveniently access important skill sets, saving considerably on labour bills while ensuring they have the right people at the right time for the right tasks. But if their payroll systems cannot keep up, they increase administrative overheads and risk tax penalties, which will wipe out financial gains.

Traditional payroll’s shortcomings

Payrolls are one of the top three expenses for an organisation. Companies try to manage this cost by using blended workforce strategies to get the most bang for their human capital management. For example, farms and retailers surge workforce numbers during harvest or sales seasons, then reduce them again.

Other companies lean on contractors and freelancers to provide valuable services without pension or healthcare contribution overheads. Even permanent workforces attract agility through shift and remote work. Companies astutely incentivise productivity through benefits such as bonuses and share options. Remote work has also created opportunities for employers to reduce costs and access professional skills while employees gain work-life benefits.

All of these activities use payroll software to manage those many nuances. Yet, while blended workforce strategies have progressed with gusto, payroll systems lag.

Traditional payroll systems are rigid. They were developed for older employment models, not blended strategies. They reasoned you could customise the software as your employment picture changes. But, customisation creates rigidity and forces a company to rely on payroll systems that become increasingly harder to change. Eventually, it’s the payroll system and not the company that dictates the effectiveness of their employment strategy.

Traditional payroll software has several major shortcomings. A primary drawback is limited capabilities for handling different payment types, such as hourly wages, commissions, bonuses, or project-based payments for contractors. They often inhibit better benefits administration for the growing variety of employee types. Traditional payrolls cover standard tax withholding requirements yet are expensive to adjust as new tax arrangements and laws come into effect.

Cloud-native payroll and the modern company

Traditional desktop payroll software was simply not built for modern companies. Such systems are also increasingly out of step with modern company requirements. For example, companies that want to leverage data and automation struggle to shift traditional payroll administration out of its silos. They can’t leverage granular and distributed reporting features or integrate payroll into other business systems without incurring more costs and technical lock-in.

These shortcomings have spurred the development of more flexible and digitally-aligned cloud-native payroll platforms.

Cloud-native systems run on scalable cloud servers, delivered to users through high-speed networks in apps, desktop software, and browser windows. Every business benefits from cloud-native software, often through email services, office applications, collaboration platforms, logistics management, databases, cybersecurity, and payroll administration.

Business-wide reporting and real-time access to employment data are staples of cloud-native payroll—CFOs and managers can directly create reports to ensure oversight and savings. Integration with other business systems is much simpler, less expensive and disruptive. This new generation of payroll software automatically updates tax and other legislative changes, even across different jurisdictions. It automates tax withholding, benefits tracking and allocation, contractor management, and other payroll-related workflows.

Cloud-native payroll frees payroll administration from its silos. Payroll administrators, human capital managers, and other authorised stakeholders can access payroll services securely from anywhere at any time. The best cloud-native payroll platforms even give employees time-saving self-service features through web portals and chat clients like WhatsApp.

The cloud-native difference

Cloud-native payroll is a revolution, leaving previous systems in the past. Vendors of traditional payroll and accounting software know this, and many are desperately using ‘cloud washing’ to make their systems seem cloud-native.

However, those systems cannot easily scale, integrate, and provide robust data-driven access to any authorised user. Above all, they still try to wring licence fees and purchase costs from customers, whereas cloud-native payroll offers per-user subscription and operating expenditure payment options.

These features decisively make cloud-native payroll platforms the choice for managing blend workforces. Traditional payroll software was built for a different era, and companies that still rely on them are feeling the constraints of that rigidity. Those systems erode the gains from blended workforces because of more intensive administration, troublesome integration, and poor access to workforce data and reporting. Cloud-native payroll is designed for businesses with modern blended workforces.

Cloud-native payroll platforms are built for modern business conditions and ambitions. Companies can start small, scaling up as they develop their employment strategy. In an era when more businesses rely on blended workforces, cloud-native payroll platforms help them build their futures.

Get in touch to see how PaySpace can help you build your blended workforce for the future.