The fallout over alleged fraud at the hands of payroll software company MyPayrollHR came to a head this week when the Federal Bureau of Investigation announced a probe into the company and claims that it, or its founder, stole $35 million in payroll from its clients and their employees.
Amid federal and, almost certainly, legal action ahead for the firm, the saga is also lifting the curtain on the risks corporates face in their efforts to modernize and digitize payroll through a range of payroll technology newcomers on the market today.
In a recent interview with Karen Webster, Jason Lee, CEO of New York-based FinTech DailyPay, described the matter as “evidence of a full-scale system failure at this particular company,” and of the cracks in the traditional biweekly payroll system that leaves workers living paycheck-to-paycheck in trouble when even a single error occurs come payday. Further, he said, it points to the underlying challenge of a “glitchy” ACH deposit and reversals process, upon which traditional payroll processes in the U.S. are reliant.
MyPayrollHR may be an extreme version of how payroll errors can lead to disastrous consequences for employees, but according to payroll company Kronos, even smaller errors can lead to staff dissatisfaction and harm a company’s ability to retain talent. Researchers at Kronos’ The Workforce Institute surveyed U.S. professionals in 2017 and found that almost half would begin looking for a new job after just two payroll errors — and that more than half have already been affected by some kind of payroll problem.
Mistakes are employers’ biggest payroll challenges today regardless of location, according to Judah Hirsch, founder and chief executive officer at Philippines-based software startup Salarium.
“Each company has a different set of challenges when it comes to payroll, but we see these broken into three main components: errors on the input data [side], errors in processing, and errors in payouts,” he told PYMNTS in an interview. “For us, the largest pain point seems to exist in the capturing of the correct input data to make sure only worked staff are paid.”
Inaccurate payroll can lead to cash flow constraints for either an employee (if they are paid too little), or an employer (if a paycheck is too high), and remediating those problems can be a logistical challenge for businesses. However, what the MyPayrollHR case also highlights is the risk of fraud in the payroll arena: The allegations against the company and its CEO Michael Mann include claims that he, or someone else working for the company, manipulated account numbers to move employees’ paycheck funds into a personal account.
Whether coming from fraudsters internally or outside of the company, payroll fraud is a growing issue. In July, news surfaced of an instance of payroll fraud at KeyCorp that could cost the bank upward of $90 million.
This isn’t surprising, considering the digital and cloud shift of payroll solutions, said Hirsch.
“As more and more services are moving online, this makes them more accessible to employees and to potential bad actors who may want access to the data, or to manipulate [the data]for various reasons,” he said, adding that service providers must invest in security as part of the payroll products they build.
However, amid the pressure to ensure the accuracy and security of payroll services, employers are quickly discovering that it’s not enough to keep employees happy in today’s market.
Hirsch explained that more often, professionals have either worked for a company offering an enhanced payroll experience or know someone who has, meaning their expectations for payroll services and value-added offerings is on the rise.
With more FinTechs entering the payroll space, those value-added services are emerging in a variety of ways.
Some service providers are tackling the tradition of biweekly payroll with on-demand wage payout services (though some critics and regulators are looking into whether these products constitute another version of payday lending). Other services might include options in how employees get paid, including direct deposit, paper check or payroll card. Faster and real-time payment technologies are also examining payroll as a potential use-case to ensure employees are paid on-time.
Beyond payouts, employers have also introduced products and services like financial wellness tools to their staff members, digital benefits management platforms, time tracking and scheduling products and more.
Many of these products, like time tracking, target the employers’ ability to ensure the accuracy of their payroll payouts. However, in looking at the bigger picture, payroll FinTech has elevated employee expectations from their employers, and according to Hirsch, a new ecosystem of payroll services means human resources professionals must step up to focus on the employee.
“The trend we’re seeing is payroll-as-an-experience is becoming mandatory,” he said. “For a long time, companies overlooked payroll as they considered the receipt of payment as the attractor [of talent]. Now, companies realize that by not only looking for errors but focusing on ways to improve the payroll experience, you can increase employee engagement by showing it is important how they get paid — not just that they do.”