Most small NZ businesses still run HR and payroll manually. Smartly says it’s time to go digital or risk errors and lost time.
Despite years of conversations around digital transformation, many small businesses and professional services firms in New Zealand remain slow to digitise their HR and payroll systems. While larger companies have steadily embraced cloud-based tools to manage everything from onboarding to leave balances, their smaller counterparts are still relying on manual processes. In doing so, they may be exposing themselves to unnecessary risk, inefficiency, and growing employee dissatisfaction.
According to The State of HR in New Zealand report, published by payroll and HR software provider Smartly in partnership with The Research Agency (TRA), small businesses – particularly those with between one and five full-time employees – are the least likely to use digital HR tools and are lagging behind other sectors when it comes to adopting technology for HR and payroll functions.
The reasons behind this digital gap are not entirely surprising. Many small firms still view HR software as something built for large organisations – expensive, complex, and time-consuming to implement. With limited staff often wearing multiple hats, including HR duties, these businesses tend to favour manual systems such as spreadsheets, printed forms, or ad hoc processes. For some, digitisation may simply feel like one more task on a very long to-do list.
But that resistance to change could be costing more than it saves.
The hidden cost of manual HR
Manual systems come with significant drawbacks. They increase the likelihood of human error, make it harder to stay on top of compliance, and consume valuable time that could be spent on core business activities. As employment legislation in New Zealand continues to evolve and as employee expectations around transparency, flexibility, and workplace experience grow, drawbacks are becoming more pronounced.
Sarah Garvin, associate director of sales and marketing at Smartly, works closely with businesses facing these challenges. “In small businesses, people wear a lot of hats. You’ve got someone trying to manage contracts, process payroll, and track leave, often without any dedicated HR support,” she says. “That’s where digital tools can make a meaningful difference. When your payroll and people data are in separate places, it’s easy for mistakes to happen. And when you’re short on time and resources, those errors often go unnoticed until they cause a problem.”
The report found that just 18% of New Zealand businesses are fully digital in their HR operations. Meanwhile, more than one-third are still relying on manual spreadsheets. Perhaps more tellingly, 74% of HR and payroll decision-makers reported that they are juggling multiple roles within their organisation – and for many, HR duties are just one small part of a much broader workload.
A sector under pressure
The findings are particularly relevant for sectors like trades and construction, where the administrative burden often falls on small business owners themselves. For builders, contractors, small fleet operators and tradies, paperwork is often an after-hours task, squeezed in between client visits, quoting, and time on site. According to the report, many are still managing HR and payroll manually, leading to avoidable errors and lost time.
The data also points to a clear correlation between digitisation and satisfaction. Of those using digital HR tools, 8 in 10 HR leaders reported high levels of satisfaction with their systems. That compares with just two-thirds of those still relying on manual processes – a significant gap that reflects the day-to-day frustrations of running HR the hard way.
Skill shortages are compounding the problem. One in three HR leaders surveyed said they were dealing with major staffing gaps. With fewer hands on deck, every inefficiency becomes magnified. Tasks that should be routine, like issuing employment agreements or processing leave – become more complex and time-consuming when handled manually.
The compliance challenge
Compliance is another area where digital tools can offer significant support. As legislation becomes more detailed and prescriptive, from minimum wage updates to leave entitlements and immigration requirements – the risk of falling short grows. Manual systems often lack the checks and balances to catch issues early, while digital systems can provide alerts, automated updates, and standardised workflows that help businesses stay on track.
Digital solutions
The landscape, however, is changing. A growing number of digital HR platforms are being developed specifically for small and medium-sized enterprises (SMEs) in New Zealand. These tools are designed to be simple, scalable, and aligned with local compliance requirements, not the over-engineered systems often associated with multinational corporations.
They can automate repetitive tasks, reduce admin load, provide accurate reporting, and help businesses create better experiences for their staff.
In a climate where employee retention, compliance, and operational efficiency are all under the microscope, the benefits of HR digitisation are becoming harder to ignore, not just in technology, but in attracting and retaining talent, meeting regulatory requirements, and keeping pace with the expectations of a modern workforce.
For more information, contact smartly.co.nz
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