Canadian Payroll: Past and Future

The pace of change in the Canadian workplace is astounding. A few decades ago most payroll professionals worked in organizations whose employees lived in only one country, often one province. Most families had a single breadwinner who worked full-time and expected to retire from the same job. Many people used time cards and were paid in cash stuffed in a pay packet.

Just a few years ago, web-based payroll solutions were an exciting innovation for payroll staff. Today we use sophisticated software, analytics, web-based and mobile applications, electronic deposits and withdrawals, integrated information systems solutions, automated workflows and payroll-on-demand.

In order to anticipate the pace and nature of changes still to come, it’s important to understand the following trends shaping the future of payroll in Canada.

Trend One: Changing demographics

Forty per cent of employees in Canada will be over 55 years of age by 2017. Seven million Canadians will be retiring in the next 20 years. Or will they? Retirement has become a process: it’s no longer a point in time when work stops and leisure begins.

There are now four and will soon be five generations in one workplace. Born before 1946, traditionalists will be 75 years old by 2020. Baby Boomers were born between 1946 and 1964. These two generations are now or will soon be eligible for retirement, but they either enjoy working or are in no financial position to leave work. Some are returning to work post-retirement in part-time, flexible, or self-employed capacities. Because of their age, they have increasing incidents and duration of disabilities and/or illnesses.

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Generation X are in their 30s and early 40s. These “latchkey kids” are independent thinkers and entrepreneurial spirits who generally prefer working alone to teamwork. Millennial generation workers are in their 20s and 30s and they have been living online since they were young. They crave instant information. Generation 2020 will be new to the workforce in 2020. Many won’t go an hour without updating their Twitter or social network status.

Payroll must take into account the different expectations of these five generations. Younger generations grew up with personalized, on-demand, mobile services—and they expect payroll staff to react quickly to inquiries. All employees require greater flexibility in order to cope with care for children, aging parents or illness. In Canada there are now more statutory leaves than ever before. Payroll systems and staff must increasingly track more requests for flexible schedules and pay requirements that were rare or unheard of in decades past.

Employees look for innovative forms of compensation that match their personal lifestyles, requirements and priorities.  One-size-fits-all employee benefits programs no longer serve the needs of people in a competitive economy.

Trend Two: Pension Changes

Increased longevity, more pensioners, fewer workers and taxpayers, low interest rates and investment returns mean underfunded pensions and lower personal savings. Costs continue to rise for housing, energy and medical care.

In the 1980’s pension plans in Canada reported large surpluses.  In the ‘90’s this changed to large deficits, and some plans became insolvent. Most employers switched to Defined Contribution pension plans to reduce and share cost and risk with employees.

The legislation that created the Canada Pension Plan (CPP) will turn 50 years old this year. In 1996 CPP received $6 billion less in contributions than it paid out in benefits. Its asset base was about $35 billion. The plan’s collapse was imminent.

Today, the CPP ranks as one of only a handful of successful public pension plans worldwide. Its administration is competent and cost-effective. It has a proven track record and generates world-class rates of return. Actuaries have judged the CPP to be sound and secure for another 75 years. It posted its best annual return in its history last year and is worth more than $260 billion. Almost $5 billion came from contributions — workers and employers putting more money into the fund than benefits paid out. This is expected to continue till 2022, when a demographic bubble of retirees may reverse the trend.

However, the typical 35-year-old today is saving less than half of what their parents did at that age. Three-quarters of those working in the private sector don’t have access to an employer-sponsored pension plan. And most of those who are within 10 years of retirement have insufficient set aside to sustain themselves.

Provincial governments are getting into the business of finding solutions to deal with current and future retirement income insecurity. The federal government has announced voluntary expansion of the CPP. Canadians who choose to pay higher CPP premiums will receive higher payments in retirement.

What does this mean for payroll systems and staff? It means that statutory as well as company pension and retirement savings programs will become more complicated and personalized. Thankfully, technology solutions are becoming more agile and sophisticated to assist with this complexity.

Trend Three: Technology Changes

Thirty years ago fax machines heralded an age of instant receipt of information previously at the mercy of mail services. Now faxing has been phased out of most workplaces. Just 30 years ago, the Internet as we know it did not exist. The iPhone has been around for less than 10 years. More recently cloud computing has become standard for data storage.

Communication is now instantaneous, simple and cheap. We transmit documents, videos and images anywhere in the world, instantly and at no cost. You need never be out of reach, unless you choose to be. Things we now depend on will soon become obsolete – desktop computers, keyboards, business cards, paper letters and pay statements, fossil-fuel dependent and person-driven vehicles, cash and cash cards, wired networks and local data storage.

Mobile workers will soon answer instant messages and send documents from their smart watch or other wearable device, pushing connectedness and hyper-tasking to a new level. Technology will enable increased collaboration in a globalized work place. Science fiction is becoming science fact. Augmented reality will become more significant as network bandwidth increases, allowing us to send replicas of ourselves into virtual business meetings.

Technological innovation will continue transform the way payroll staff work by reducing administrative tasks, automating workflow, and streamlining processes for increased efficiency.

How should payroll departments cope with this tidal wave of change?

• ✓ Integrate payroll with other business systems.
• ✓ Customize electronic pay delivery for various employee segments.
• ✓ Consolidate payroll processing and minimize pay cycles.
• ✓ Adopt new technology as it emerges.
• ✓ Become more agile and flexible.
• ✓ Accommodate employee differences, choices, schedules and preferences.