5 Key Considerations for the Future of SAP HCM Payroll
The news is just a week old and already much has been said and written about SAP’s announcements regarding the future of its OnPremise SAP HCM Suite and subsequent journey to the cloud.
On Monday, industry expert, Den Howlett added a 3rd post in a series that brings the much-needed international enterprise perspective to the conversation: SAP’s HCM strategy part 3 – the bits I missed
To give context to NGA Human Resources' credibilty as a commentator, our global team of payroll specialists delivers SAP-based payroll services to more than 100 multinational organizations, in nearly 200 countries, and has been implementing SAP HCM Payroll since 1996.
Often, we work with clients who run payroll in multiple countries, using a combination of OnPremise and hosted services. To support their needs, we’ve created a multi-tenant, hosted SAP Payroll. We know, first-hand, that running multi-country payroll is complex. Based on this experience I wanted to add the following insights.
While moving HR to the cloud is the obvious choice, moving payroll to the cloud is not an automatic decision. Running payroll is a demanding process: it must be 100% correct and there is no room for errors. Every incorrect payslip translates to an unhappy employee and so executives like to follow a no-risk approach to payroll.
When it comes to replacing OnPrem payroll with a cloud-based version, there are 5 key considerations:
What’s the objective of the migration?
Where migrating HR to the cloud shows clear advantages in the areas of employee engagement, access to insights and analytics etc., migrating a payroll system has less obvious functional advantages.
Replacing OnPrem with cloud does not bring better payroll functionality and this is not specific to just SAP (I’m open to suggestions about the ‘killer-app” for cloud payroll!). Cloud payroll don't introduce “must-have” functionalities that significantly improve processes and/or services, and they don’t (yet) offer considerable innovation over OnPrem. In this sense, payroll remains a black box that calculates an outcome.
- What’s the business case?
A payroll migration project costs money. The business case for the HR cloud can be made by introducing better services for employees and having a single HR data repository.
Replacing an OnPrem payroll system with payroll in the cloud doesn't have an easy business case if the replacement is for technology’s sake only. Keep in mind that organizations with multi-country payroll need to repeat this migration for every country where they run payroll.
- What is the risk profile?
Every payroll migration poses an inherent risk, especially when the existing payroll system has been customized. In companies that have gone through several mergers and acquisitions, payroll is inherently complex. In a payroll system that has been set up many years ago, by experts who have long since left, the migration risk is high.
- Can you be sure your payroll is 100% documented?
- Is it fully understood how payroll rules influence each other (build on top of each other)?
And if this payroll correctly supports today’s calculations, why move?
- How to deal with the complexities of the past?
OnPremise payroll, especially in large companies, holds many historic regulations for small subsets of the workforce which still apply (yes, we’re talking Z-programs). Over time, these regulations disappear as employees leave. When you move to a new payroll system, you have two choices:
1) migrate the complexity (not preferred)
Streamlining means engaging with unions and works councils to “pay off” the historic regulations to respective employees in a one-time lump sum. While this is a move we recommend, it’s not always financially possible, and typically it leads to a lengthy negotiation process where the employer, as “asking party”, is disadvantaged.
Additionally, large organizations have payroll regulations that are more complex than midmarket businesses and these go beyond what’s dictated by collective labor agreements.
Cloud payrolls will have to support those customizations and even with streamlining, it’s unlikely they will simplify their payroll to a midmarket level. A cloud-substitute for Z-programs will be required.
- Marrying depth of functionality with breadth of scope
So far, we've seen the newly introduced cloud payroll solutions come to market with a limited range of functionality and geographies. They lack the breadth and depth that multinationals require.
Often, cloud payroll providers start with less complex midmarket implementations and gradually work their way up in size. It’s a sound and pragmatic approach for growth, but it also means that the references that enterprise-size clients seek are not readily available.
If you are an international company, needing to migrate several country payrolls, this won't happen all at once. It’s is a poject that will take many months, if not years.
To even happen, the program must first compete for funding against the likely long list of other projects and initiatives an enterprise wants to run. In the end, the project with the best return on investment or the most burning platform will always prioritized. Moving payroll from OnPrem to cloud simply to replace the technology, is unlikely to make the shortlist!
A final thought
There are thousands of companies running OnPremise Payroll. Migrating all of these to the cloud is a massive undertaking, one that is going to take time and effort. This brings into question the ability of the market:
- How many certified SAP Payroll consultants are still out there?
- Does SAP and its competitors have the capacitty to support hundreds of large, complex payroll migrations per year?
From this perspective, 2025 was never a realistically attainable date.
Having said this, we do believe that there’s no better time for companies to start thinking about the future of their OnPrem payroll platformsand to start to design the strategy needed to migrate payroll to the cloud - well and risk-free.
Extending the support date to 2030 is a a great first step to reassure the international client base.
In: What Next with SAP HCM Payroll?, my colleague, Michael Custers presents an overview of options to evaluate.