1 in 3 European companies name complex legislation as stumbling block in keeping payroll in order
March 31, 2022
More than 33 percent of European companies struggle to keep their payroll in order due to the complexity of local legislation, the new SD Worx Payroll Proficiency Index has found. In addition, research shows that more than 4 out of 10 companies are now exclusively using cloud technology for their payroll process.
- Internal personnel changes and manual administration processing makes it difficult for 3 in 10 companies to process payroll correctly
- Half of companies exclusively use on-premise software for payroll
European HR and payroll service provider, SD Worx, surveyed over 1,300 companies from Belgium, Germany, France, the Netherlands and the United Kingdom to gain an overview of how they process their payroll, or have it processed.
On average, European companies give themselves a score of 64.6 (out of 100) for their personal proficiency in the area of payroll processing, with the United Kingdom scoring the highest (66.6). The Netherlands (65.2) and Belgium (64.7) remain just above average, with Germany (63.6) and France (63.1) scoring lowest.
The Payroll Proficiency Index examined what factors make the payroll process difficult for companies, covering six core elements: legislation, reward, technology, workforce, capability and partners.
When it comes to pay calculations, local legislation, including its complexity and frequent changes, is the biggest pain point, with 1 in 3 companies stating it as an obstacle. Reward came second, due to the variety in types of remuneration and the flexibility of salaries. Workforce – more specifically staff turnover, different company profiles and variety of contract types - was found to be the third biggest hurdle. In addition, technology maturity, the competence of payroll experts and external partners are also mentioned as factors with an impact on the payroll process.
Tax system, changing legislation and complex social security
The complexity of the tax system, rapid changes in legislation and a complicated social security system are the issues that companies most often encounter when it comes to payroll legislation. On average, European companies give compliance with legislation in their payroll process a score of 59.1. The United Kingdom again scores the highest with 61.5. The Netherlands and Germany remain above average with 60.7, and both Belgium (56.7) and France (55.9) fall below the average.
"Payroll calculation legislation is definitely the most complicated in France and Belgium and these results only confirm that," says Tom Saeys, Chief Operations Officer at SD Worx. "Because the Belgian government has quite a few layers, the situation is extra complicated. On top of that we have the sectoral differences. In France, this is not only due to the rapidly changing legislation, but also to the variety of collective agreements, union activities and the complexity of regulations when it comes to minimum and variable wages."
Outsourcing for efficiency
Companies that outsource payroll give a higher average score of 69.7 compared to their counterparts that manage this in-house. When asked whether outsourcing payroll also makes the task easier, almost two in three companies agreed. In Belgium, 68 percent believe that outsourcing makes payroll a lot more efficient, while in the Netherlands and the United Kingdom, 65 percent also hold that opinion. France follows with 64, whereas in Germany only 55 percent feel that outsourcing makes the process easier.
"65 percent of companies find collecting and integrating data (for example, from timekeeping) easier if an external partner takes care of it," says Tom Saeys. "More than two in three companies still find it more efficient and safer to outsource payroll calculations as well. It goes without saying that payroll service providers, thanks to their expertise and know-how, can manage these processes more easily and ultimately also ensure cost optimization for their client."
Furthermore, in terms of technology, more and more companies are making the switch to the cloud, with 49 percent currently using it, and four out of ten working exclusively via the cloud for payroll calculations. The Netherlands leads the markets with 7 out of 10 companies already using the cloud for their payroll, followed by Belgium (55%) and Germany (51%), with the United Kingdom (45%) and France (31%) slightly lagging behind.
"The differences are remarkable," Tom Saeys explains. "The Netherlands uses cloud technology more than twice as often as France for payroll calculations. A wise choice because the cloud offers flexibility and greater security, especially in times of hybrid working. This trend will only continue in the coming years as more businesses understand its benefits."
About the survey
Payroll in Europe is notoriously complex. But what makes a company proficient in payroll? Are there any differences between countries? And if so, why do some perform better? SD Worx asked over 1,300 big and small companies spread over 5 countries to assess 6 different drivers that make payroll either more difficult or easier. The result is the Payroll Proficiency Index, a brand-new index to help you make the right choices. It gives you insights into the complexities of payroll in various European countries. And more importantly: on how to act when you stumble across these complexities. Zooming out, the country ranking serves as a compass for international businesses, while it gives local organisations crucial insights to increase their payroll proficiency. Additionally, you’ll find out how SD Worx can boost you with your own payroll proficiency. This is the first of a new annual series by SD Worx, starting with results for Belgium, France, Germany, the Netherlands and the UK. In the near future we will be looking at other European countries. Every year, we will share a new ranking, expert insights and proven payroll solutions.