How to use AI with payroll

Payroll is no longer just about processing payments. It’s a data-rich powerhouse that informs decisions across HR, Finance, and Operations. Payroll data can reveal pay equity gaps, helping HR build fairer, more transparent structures. It can also track workforce trends, improve resource allocation, and enhance compliance.

When supported by AI and automation, payroll offers insights across the board, expanding from its traditional back-office function into a key business driver. Yet our Bridging the Gap – From Good to Great in Payroll report shows only 50% of companies have fully implemented these tools, highlighting a critical gap between ambition and action.

So, how can businesses unlock payroll’s full benefits, and what role do people play in this transformation?

Why people still matter

Even with the rise of AI and automation, people remain at the heart of effective payroll management. While AI can flag discrepancies, it’s skilled payroll professionals who decide how to resolve them. Similarly, automation may streamline tax filings, but people ensure regulatory changes are understood and implemented correctly.

Upskilling payroll teams to integrate AI into decision-making is essential. It’s the combination of skilled people and advanced technology that unlocks payroll’s true potential.

AI’s expanding role

AI in payroll goes beyond simple automation. When there’s strong integration across systems, it can provide the insights that supports people to shape business decisions.

By analysing data trends, AI helps payroll teams flag errors, forecast costs, and guide HR and Finance on hiring, budgeting, and workforce planning. For example, linking engagement, performance, and absenteeism data can identify high-risk roles, enabling businesses to retain key talent and reduce recruitment costs.

AI-driven compensation modelling also supports fair pay by benchmarking salaries against market standards and highlighting wage gaps. It can also combine payroll data with benefits information to recommend personalised benefits packages that boost employee satisfaction, improve financial planning, and inform wellbeing choices.

Additionally, AI strengthens compliance by cross-referencing payroll data with regulatory updates, reducing the risk of fines and keeping businesses on top of changing requirements.

Automation – boosting efficiency, minimising errors

While AI delivers insights, automation keeps payroll running smoothly. Automating core tasks like tax calculations, regulatory reporting, and data entry reduces human error and time spent on manual fixes.

Our 2024 Company Payroll Complexity Report found that nearly half (47%) of payroll processes are still managed manually, leading to errors and expensive off-cycle payments. By automating these tasks, businesses can save time, reduce costs, and improve compliance. Another major benefit is scalability. As companies expand into new markets, payroll complexity grows. Automated systems can handle large data volumes, adapt to new regulations, and manage a global payroll without sacrificing accuracy.

Integration – the missing link

Despite the benefits of AI and automation, only half of businesses have fully implemented them, according to Workday’s Strategic Ascent of Global Payroll (SAGP) report.

One major hurdle? The lack of integration.

Without it, payroll teams struggle to uncover valuable insights. In fact, 52% of SAGP respondents lacked confidence in their own data, and 11% of payroll professionals in CPCR said inconsistent data quality was a huge pain point.

Integrating payroll with other essential areas like HR and Finance provides a clearer view of turnover, compensation trends, and workforce costs, providing critical insights for better decisions.

Maximising payroll’s potential

While many companies have the technology, only 50% currently use metrics to measure payroll performance, and 36% don’t measure it at all, meaning there’s a risk of missing key insights and improvement opportunities. Here are four steps to help:

1. Skill assessment and development

Evaluate your payroll team’s skills against the demands of AI and automation and provide training where needed, such as in data interpretation and managing automated workflows. A targeted plan equips your team to work confidently and efficiently with the technology.

2. AI and model optimisation

To keep AI and automation delivering high-impact results, regularly refine models and processes. Adjusting predictive analytics and compensation models to adapt to new workforce trends, business priorities, and external factors ensures they continue to support evolving business goals.

3. System and data quality checks

Consistently monitor data quality and system integration to make sure information is accurate and actionable. Regular checks ensure data reliability and boost user and business confidence.

4. Establish clear metrics and accountability

Without performance metrics, businesses are stepping into the unknown. Set measurable KPIs that track payroll efficiency, accuracy, and compliance. Clear metrics and accountability help teams and businesses identify weak spots for continuous improvement.

Read the full report

Unlock the full potential of payroll with Strada’s insights and expertise. Download our Bridging the Gap – From Good to Great in Payroll report for more on transforming payroll into a strategic asset. For one-to-one support tailored to your business needs, contact our team today.