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Tax complexity the biggest headache for European payroll sector

Group of People Discussion on a Wooden Table
  • 68% of UK businesses say tax is one of their top 5 pain points when it comes to payroll processes with 20% naming it as the most challenging aspect
  • When it comes to Europe, across a total of 16 countries surveyed, 57% of European businesses cite the tax system as the biggest payroll challenge 

Six out of ten European businesses say navigating tax complexity is the biggest challenge in payroll processing.

That is according to new research from SD Worx, the leading European HR and people solutions provider. For its 2023 Payroll Proficiency Index, SD Worx surveyed 4,500 companies – from SMB to large enterprise – across sixteen countries in Europe, including the UK, France, Germany, Italy and Belgium.

The index offers critical insight into payroll performance across the continent, with respondents giving themselves a personal score out of 100 across six core areas of payroll. The index helps to identify some of the biggest challenges facing payroll professionals today.

Across Europe, the findings reveal that tax complexity presents a serious burden when it comes to the business-critical operation of processing payroll. In the UK, 68% of businesses cited tax among the top 5 most complicated parts of the payroll process, with tax complexity being ranked as the most complicated aspect of payroll by 20%. Tax was also cited as a major headache for many key markets across Europe including Italy (47.3%), Poland (36.3%) and Ireland (32.9%). However, tax complications were ranked significantly lower by Belgium (10.4%), France (12.1%) and the Netherlands (14.1%), where tax compliance in payroll appears less of a conundrum.

    Payroll’s biggest pain points

    Another payroll function proving particularly cumbersome for companies is admin complexity in pay calculations. Across all countries surveyed, navigating business structures, types of workforce, payroll fixtures like payroll schedules and collecting employee tax details are all contributing factors to complexity in the process.

    Manual processing and maintaining payroll records are all parts of the process with their own intricacies but businesses are experiencing challenges just getting there beyond the initial pre-calculation stage.  A particular struggle is dealing with admin around employee attendance and absences with 45% of companies across Europe ranking this in their top five most complex processes.

    Other challenges in the pre-calculation phase include:

    • Data Collection: 42% struggle with data collection and integration with other data sources
    • Onboarding & contracts: 38% have difficulty with onboarding, offboarding and contracts
    • Pensions & Insurance: 36% are experiencing challenges
    • Data wrangling: 33% of companies are experiencing payroll process obstacles when the payroll department first interprets the data before it’s entered onto the system

      One in three European companies using cloud technology for their payroll

      The index shows that fewer than a third of European companies (29%) are only using cloud technology to manage their payroll. At 44%, the Netherlands is taking the European lead, followed by Finland (35%), Denmark (33%) and Sweden (33%). Spain and Poland each lag behind (19%). However, Spain, like Norway, appears to be catching up by moving from on-premise software to cloud technology.

      One-tenth of the companies surveyed are combining cloud and on-premise software: payroll software that runs on servers at the companies themselves.

      Almost half of European companies (44%) are exclusively using on-premise software. However, two-thirds do recognise the value technology adds in terms of the total cost of payroll processing.

      Rachel Clough, UK Country Lead at SD Worx, comments: "Getting -and staying- on the front foot of the continuous changes to regulations and legislation in the payroll business is no walk in the park. Add to that complexity in navigating business structures, departments each with their own systems and operations and it’s clear to see why European payroll professionals are feeling the heat in this tough payroll landscape. It’s hard work that shouldn’t be made even harder by complex payroll processes. 

      In a bid to free up valuable hours in the day, dispensing with the admin and the complexity through cloud technology has fast shot up the payroll wish list. The rise in understanding of how technology can streamline and simplify processes has been exponential with more professionals than ever keen to lean into benefits like digitised employee data and automatic tax calculations. But many organisations are yet to experience the benefits with only 33% using cloud tech exclusively for their payroll. And at a time when employees are demanding the personal touch and more ownership of their data and career progression, there are massive incentives to using technology that helps keep the complicated as simple as possible.