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Payments

The Future Is Now: The Power and Benefits of Payroll Forecasting

Table of contents

Key Takeaways

  1. Payroll forecasting is crucial for effective financial planning and resource allocation, as payroll often accounts for a significant portion of a company's expenses.
  2. Analyzing payroll data provides insights into workforce costs, allowing businesses to identify patterns, make informed financial decisions, and anticipate expenses related to taxes, benefits, and overtime pay.
  3. Inaccurate payroll forecasting can hinder treasury management, leading to increased vulnerability to currency fluctuations and lower earnings.
  4. Papaya's advanced payroll forecasting capabilities and optimized payment solutions provide businesses with greater control over their finances, accurate projections of payroll expenses, and a more stable future.

Predicting the future is the stuff of science fiction. We can’t bring you prophecy, exactly, but Papapa OS can help you protect your assets against future scenarios with our payroll dry-runs and forecasting.

Futures Studies is an academic discipline that emerged after World War II. Contrary to popular belief, futurists are not in the business of predicting the future. Instead, they apply scientific principles to examine possible, plausible, probable, and preferable futures.

As the field develops, it’s becoming more business-oriented, and more emphasis is placed on preferable futures. In other words, we are actively trying to move futures from the realm of the merely possible into the realm of the highly probable.The best way to do that is to create the knowledge needed to shape reality.

In a world where payroll is the biggest expense an enterprise has – accounting for as much as 60% of total business costs in a typical Fortune 500 company – that means improving your payroll forecasting capabilities. Moving the needle here would naturally have a significant impact.

Essential for effective financial planning, budgeting, and resource allocation, payroll forecasting is the process of estimating and projecting an organization’s future payroll expenses. And it starts with payroll data & insights.

A deep dive into your workforce

At its most basic level, payroll data provides businesses with critical information about their workforce, such as the number of employees worldwide, total labor costs for all types of workers and locations, and the differences between gross and net costs per worker.

An in-depth analysis of payroll data goes much deeper than that. It allows you to see expenses per country, team, or project, compare them on a month-by-month or quarter-by-quarter basis to identify changes, determine whether the changes relate to new hires, higher taxes, commissions, or other payroll items, and monitor which location is providing the highest ROI.

When global payroll data is subjected to in-depth analysis, patterns emerge. These patterns can strategically inform your company’s financial roadmap, for example, where and how much to expand; how to anticipate employer-related expenses such as taxes, benefits, and overtime pay;

Also recognizing and addressing timeframes in which higher numbers of employees take paid time off (e.g., Ramadan, Carnival, etc.); and forecasting future costs of any employee based on their monthly salary updates, bonus payments, annual raises, and more.

Unfortunately, many global companies still lag behind when it comes to payroll forecasting, which directly impacts their global treasury management. PwC’s latest Global Treasury Survey found that inaccurate forecasting and visibility is the biggest challenge facing treasury teams.

When a company can’t accurately forecast, it “hinders its ability to effectively hedge FX risk over the medium to long term,” Eric Huttman, CEO of MillTechFX, told The Treasurer magazine. “The knock-on impact is that corporates are more vulnerable to currency fluctuations potentially eroding margins.”

In a corporate treasury risk management survey conducted by HSBC in 2021, 57% of CFOs (rising to 77% in EMEA) said they suffered lower earnings in the past two years due to significant unhedged FX risk. The past couple of years, characterized by geopolitical tension and rising inflation, added volatility to the global FX markets.

It should come as no surprise, then, that according to Deloitte’s 2022 Global Corporate Treasury Survey, FX volatility remains a top 5 challenge for organizations.

Payroll payments at full speed

The key to overcoming FX volatility lies in the other part of the payroll forecasting equation: payroll payments. Most payroll providers outsource the payments part to all-purpose payment companies, which deliver payroll payments via the same rails they use for other payments.

These rails were not designed specifically for payroll payments, leading to slower processing times. That kind of non-optimized solution causes payment companies to require that payroll funds be locked up well in advance of payday, even up to 10 days, resulting in increased exposure to currency fluctuations.

Papaya Global, the first global payroll platform with embedded payments, addressed this challenge by building payroll-dedicated rails. Our rails rely on partnerships with tier-1 banks such as J.P. Morgan Chase and Citibank, ensuring payment delivery within 72 hours.

Papaya’s speedy payroll payments allow clients to fund their payment accounts much later in the pay cycle, decreasing exposure to FX volatility. In addition, our transfer processing algorithm accounts for exchange rate fluctuations as late as possible in the payment process, reducing currency conversion costs to a minimum.

Additionally, by not having to fund payroll accounts early, finance leaders gain working capital and cash management flexibility – and the interest earned from keeping that capital for longer can be significant. These benefits can help finance leaders optimize their financial operations and make better decisions for their businesses.

With Papaya’s advanced payroll forecasting capabilities and optimized payment solutions, you can have greater control over your finances and move toward a stronger, more stable future.

On top of that, on Papaya’s payroll-dedicated rails, all fees are known in advance. This means Papaya clients can not only put down much smaller deposits, but also get a pinpoint accurate projection of their payroll expenses. Sounds like a preferable future to us. Schedule a demo to learn more.