Payroll in the age of cognitive AI: Beyond payslips
In an era of rapid digital transformation, payroll—a back-office function—is evolving. In the past, payroll systems focused on timely, error-free salary disbursements, offering various modes and frequencies of payment.
Today, companies need payroll systems to connect with adjacent systems like Banking and Merchants for convenience and use AI to solve business problems. Payroll and other enterprise systems handle complex financial, tax, and compliance data with precision. With AI, they’re now expected to reason, offer suggestions, and sometimes make decisions. This AI is Cognitive AI, not Generative AI (Gen AI creates text, images, videos, etc.).
Leaders demand more (bang) for less (buck)
It depends on who you ask. Younger, professionally run companies are thriving, evident from 250+ IPOS in 2024. IT services firms have resumed hiring post-2023, though cautiously. Still, there’s a strong “wait and watch” mood in talent and HR, shaped by geopolitics, regulation, consumption shifts, and sector-specific pressures.
The talent market is tight for critical skills, driving up costs. Meanwhile, 60 Mn affluent Indians are fueling a 'Premiumization' trend, raising expectations from employee touchpoints. Add to that the compliance risks from digitization and Gen AI, administrative costs will keep rising.
In a volatile climate, these forces drive up costs, and leaders expect more bang for less buck. This pressure extends to Payroll and HRMS systems.
The shift toward digitalisation in payments and the India stack has undoubtedly made life easier for consumers. While there is little doubt about this, there are two critical consequences in the context of payroll systems:
Connected payments, disconnected payroll- a recipe for risk
- Digitisation has brought convenience but also increased scrutiny—tools like Form 26AS and TCS on travel help the government curb tax leakages, leading to more IT notices and pushing companies to rethink policies amid rising admin burden.
- DigiYatra has made life easy, but stamped boarding passes have become extinct. What is the company's policy on validating travel to reduce leakages and fraud?
- During a hackathon in our office, our team generated invoices across 238 merchants, totalling an amount of ₹ 48 Lakh using AI tools, which cleared manual checks run by three independent auditors.
Online banking frauds have surged by 708% (RBI), and expense reimbursement frauds make up 14.5% of occupational frauds—ranging from inflated trip bills to personal expenses disguised as business ones, posing serious risks.
On the payroll side, one company revised its HRA process after multiple IT notices, now requiring employees to submit bank statements showing rent transfers to landlords as proof.
The Generational shift: Why consumer-grade payroll is no longer optional
Enterprise tools often lag behind consumer apps in UX, leading to outdated workflows—employees still upload PDFs for reimbursements, miss entering company GST details, and email sensitive payroll documents, causing lost input credits, data risks, and inefficiencies.
This isn’t just an ops issue—it directly affects employee experience, adding friction every pay cycle. In a world of real-time food orders and intuitive banking, payroll shouldn’t feel like a legacy process.
In talent-driven markets like India, where 60 million+ professionals are embracing premium digital services, outdated systems signal low employee value, fuelling disengagement and attrition.
Consumer-grade enterprise experiences are now essential, not optional. Payroll systems must connect in real time, offer intuitive UX, and deliver predictive insights to stay relevant.
The hierarchy of payroll technology
Over time, humans seek to progress up Maslow’s hierarchy. Driven by employees' evolving needs, organisations must progress up OneBanc’s hierarchy of Payroll Technology.
AI Payroll Banking
“Why is your hotel room allowance ₹5,000 per night, say? When was the last time it was revised? Is there data to suggest a big cost difference in flights being booked 7 days ahead of travel date or 10 days?”
A publicly listed company's CFO asked us - Our flight costs have increased. However, I don’t know if we’re purchasing more flight tickets or if the per-flight cost has increased. I would like to know how many meetings my sales team is purchasing a flight for and if they can negotiate with airlines for specific sectors!”
A CHRO once asked, “Why should employees wait until Dec-Jan to submit tax proofs when expenses occur year-round?” Ideally, systems should auto-adjust in real time based on rent, EMI, insurance, or NPS transactions seen in bank accounts (via Account Aggregator). Similarly, T&E expenses shouldn’t pile up after repeated reminders—this last-minute rush burdens operations teams, raises opex, hurts employee experience, and leads to leakages.
AI Payroll Banking connects Payroll, HRMS, Banks, and Merchants to enable a secure, seamless data flow, offering real-time, actionable insights.
It auto-updates GST details, tracks T&E input credits, and matches payments like rent, EMI, and NPS—even filing them when needed.
Using Cognitive AI, the system interprets this data in line with tax laws to offer smart recommendations. Companies can use these insights to optimise internal policies and even renegotiate vendor contracts by analysing travel bookings, dates, and invoice details.
The ACE Test
When evaluating a payroll system, see if it passes the ACE test—Actionable Insights, Compliance, and Experience.
A smart system should go beyond processing to offer insights, like identifying frequent travel sectors and using Cognitive AI to optimise expense policies. It should ensure Compliance by automatically flagging risks and adjusting payroll in real time, for example, when rent or EMI amounts change. Finally, a good system enhances Experience by personalising compensation and suggesting humane, employee-friendly policies that create lasting value for both employees and employers.
Security & Privacy
Security and privacy are core to AI-driven payroll systems built on APIs. While AI improves efficiency, it must be supported by encryption, access controls, and regular security checks. Password-less authentication (MFA) balances protection and user experience. When systems communicate in the background, they should use secure methods like temporary digital certificates (short-lived certificates) and fixed, approved IP addresses (IP pinning) to ensure only trusted connections.
Using too many digital keys (O-Auth or JWT tokens) can slow systems down (latency) and sometimes create new security risks (attack surface expansion) instead of improving safety.
An HR leader shared their HRMS couldn’t process a gender change request—highlighting a gap post Article 377’s removal, as gender identity updates are now legal and socially recognized. When systems or financial institutions flag gender mismatches due to outdated records, it creates exclusion and frustration.
To fix this, companies must adopt inclusive systems and apply privacy-enhancing technologies (PETs) like differential privacy or federated learning when training AI on sensitive payroll data. These aren’t barriers to innovation—security and privacy are essential to building responsible, future-ready payroll systems.
The key is adopting a "security by design" philosophy—embedding these principles across every stage, from initial design to ongoing maintenance. This ensures AI’s potential in payroll is realised while safeguarding sensitive employee data and upholding ethical standards.