Payroll Industry Trends for 2023
6 min. Read
Last Updated: 01/23/2023
Table of Contents
Between changes in business processes stemming from the COVID-19 pandemic, the influence of the Great Resignation, and the sharp rise in costs of living, the relationship between employee and employer has evolved. Payroll industry trends are influencing how employees and employers engage with one another. In addition to being compensated with fair and livable wages, employees want employers who demonstrate they care about their workers and are looking out for their best interests. HR Technology and innovative payroll solutions, when paired with the right employer mindset, can help companies continue to adapt.
Payroll has expanded beyond simply providing compensation for services. It has become a dynamic tool for companies to support remote work environments, accommodate various and increasing compensation agreements, and meet employees' requests for faster access to funds and pay-related information. As the end of the year wraps up and 2023 begins, it's an excellent time for employers and HR to familiarize themselves with payroll trends so they can be prepared for any potential changes. These payroll industry trends include:
1. Increased Pay
The September 2022 Employment Cost Index released by the U.S. Bureau of Labor Statistics reported that compensation costs for private workers increased by 5.2% since Sept. 2021. This is on top of a 4.1% increase the prior year. The future of payroll is clear: costs of living have escalated, and many employees may be seeking pay raises to meet their monetary obligations. The Great Resignation has shown that if workers don't receive fair compensation and a supportive work environment, they won't hesitate to leave their employers.
For employers, meeting increased pay demands along with higher costs of business operations and the possibility of lower profits can make their businesses more vulnerable. It's imperative for employers to keep a careful watch on their financial metrics and have a plan in place to help avoid challenges meeting payroll obligations. Some payroll providers may provide payroll protection that extends the collection of payroll funds from your bank account.
2. Faster Payroll Processing
What began as a payroll trend in 2021 has continued to gain traction. The increased speed of payroll technology has enabled companies to process payroll faster. Consider taking advantage of same-day pay for hourly employees and the availability of shorter payroll cycles. Quicker processing capabilities also provide management with timely reporting. With faster access to current data, HR and executive management can work together to spot trends or payroll errors at an earlier stage and respond as needed.
3. On-Demand Pay
The pandemic pushed many workers into financial distress as hours were reduced, businesses shut down, and healthcare costs escalated. By working with a third-party service, employers were able to give employees the option to access wages as they were earned, prior to payday. The service typically comes with a small fee, paid for by the employee.
Today, on-demand pay remains popular. As inflation increases the financial pressures on employees, giving them their earned wages faster can help reduce the risk of hefty late fees associated with mortgage, rent, and credit card bills. This option empowers them to manage cash flow challenges better, which in turn can improve their financial management, reduce stress, and potentially increase productivity and engagement at work. Providing on-demand payroll is one way you can demonstrate that you are doing everything you can to help your employees safeguard their financial wellness.
4. Creative Compensation Plans
Although employers may need to increase compensation to remain competitive, not all options need to come in the form of a higher paycheck. Creative compensation plans can help you invest in benefits that put more money in employees' pockets. One of the top employee benefits trends for 2023 is reducing healthcare expenses and providing employee health benefit accounts which can help you accomplish this. Similarly, a dependent care flexible spending account (DCFSA) can help ease the burden of daycare costs for children and dependent adults. Other benefits — public transportation passes, healthy lifestyle coaching, employee assistance programs, or health insurance plans that offer financial incentives for healthy behaviors — are all creative ways to increase the total compensation your employees receive from your business.
5. The Gig Economy
Gig workers and the freelance economy has been steadily growing for years and a 2020 Paychex survey exploring the freelance economy reveals that the pandemic has only accelerated its momentum. While traditional employees are typically paid weekly or bi-weekly, freelance or gig workers may have to wait weeks or months before being compensated. Employers who delay paying freelance or gig workers risk losing these skilled and talented individuals to competitors. Outsourcing payroll or using the most current payroll technology can help you ensure you are taking care of your contract-based, freelance, and gig workers with the prompt payments they depend upon and deserve.
6. Pay Transparency
When a business is open about compensation and pay-related information, it can increase HR’s confidence regarding financial decision-making. Pay transparency can also help your business look more appealing to current employees and potential new hires because they won't have to second guess their compensation package. A worker’s clear understanding of what their compensation will be and why, along with what steps can be taken to increase pay over time may help remove pay inequity and the perception of bias.
If there is any question that increased pay transparency is a trend, just look at state and local laws. Colorado adopted a salary transparency law in 2019. Since then, California, Nevada, Rhode Island, Connecticut, Washington, and New York followed suit along with the cities Cincinnati and Toledo, Ohio and New York City.
7. Higher Levels of Payroll Accuracy
Payroll accuracy is vital. Rather than processing batches of checks and finding errors on the back end, which takes time to correct, building in more front-end reviews can help ensure that payroll is accurate before it goes out the door. Expanding on the idea of transparency, allowing employees to review their pay information prior to the release of funds is another way to proactively confirm accuracy. Using Paychex Pre-Check, employees can be involved in the payroll review process and confirm that their earnings and withholdings are accurate prior to payday. Having regular access to this information can also help them make necessary adjustments in withholdings or contributions to pre-tax accounts so they can take full advantage of their benefits package.
8. Innovative Payroll Technology
A reliable partnership with your trusted payroll provider can help you take full advantage of the latest trends in payroll management. Whether you're limiting services to a basic payroll run from a third party or choosing to outsource your full HR strategy, a strong partnership early in the process can make payroll management easier and more cost-effective down the road. Taking advantage of forward-thinking technologies and payroll delivery systems can play a pivotal role in your business strategy. Fundamentals around pay — recruiting and providing pay transparency, offering a creative compensation package, or giving employees the ability to get paid faster — go a long way in establishing a trusted and loyal employer-employee relationship.
The past few years have demonstrated that major unexpected events can and do arise. Preparation and flexibility are key to addressing dramatic shifts in the economy and the workforce. Regardless of the turmoil outside of a business's control, payroll obligations and recordkeeping remain constant. If you're ready to put the latest industry solutions to work for you and your employees, Paychex can help you turn payroll into a business strategy for long-term resiliency and success.