The public sector is faced with a fundamental decision: stick to established on-premises structures or step into a cloud-based HR future? With the release of SAP SuccessFactors Employee Central Payroll for the public sector in Germany in January 2026, SAP has removed a key hurdle for the cloud transition. Hermann-Josef Haag (DSAG) and Michael Brass (SAP) explain what opportunities this opens up for the public sector, where improvements still need to be made and what HR and IT decision-makers should do now.

What does the opening of Employee Central Payroll mean for the public sector in Germany? SAP expert Michael Brass (Senior Solution & Value Advisor Expert Human Experience Management / HXM) and Hermann-Josef Haag (DSAG Head of Human Resources & Public Sector) answer relevant questions:

Until now, the public sector was effectively excluded from SAP’s cloud payroll world due to a lack of industry-specific functions. The opening of SAP SuccessFactors Employee Central Payroll changes that. What does this step mean from DSAG’s perspective?

Hague: It is an extremely important signal and shows that SAP is aware of the demands of its customer base and takes them seriously. As DSAG, we have been pointing out for years that modern payroll solutions will only be accepted if they actually meet local and industry-specific requirements. Unfortunately, this has not yet been the case with SAP SuccessFactors Employee Central Payroll in the public sector. That’s why offices, authorities and other public service institutions were dependent on HCM payroll in SAP S/4HANA.

The fact that SAP includes industry-specific requirements of the German public sector in Employee Central Payroll shows that our persuasive work is bearing fruit. It is the realization that “one fits all” in human resources does not work – especially not in an industry that is highly specialized due to local laws, social security regulations and collective bargaining structures. This means that part of the public sector now has a real choice to move the HR area to a cloud solution.

What specific operational and strategic benefits does the cloud payroll option offer HR departments in the public sector?

Hague: Operating an on-premises payroll is much more complex than you would think. Especially at the turn of the year, but also beyond, there are always extensive innovations in legislation and politics: reporting, social security, tax law – all of this has to be constantly adapted and expanded in the HR system. SAP takes on this task in a cloud solution and also ensures the protection of sensitive personnel data. This relieves IT considerably.

Brass: Another added value: Cloud Payroll is not an isolated solution, but rather seamlessly integrated with Employee Central. Personnel administration and billing run in an integrated system and the Payroll Control Center is also there from the start. This means that HR departments in the public sector not only benefit from lower operational costs, but also receive powerful tools to truly automate billing processes instead of just managing them digitally. In addition, SAP SuccessFactors Employee Central Payroll is firmly integrated into the SAP Business Suite as a central component of the HCM Suite in the public cloud. SAP is planning a number of groundbreaking innovations for the coming versions. The focus is on the targeted use of artificial intelligence (AI) to make payroll processes noticeably more efficient for everyone involved.

Hague: From our point of view, this is exactly where the significant added value of the opening lies: SAP’s innovation and investment focus in the HR area is clearly on the cloud. To date, customers from the public sector have only been able to participate to a limited extent in this development. This looks different now.

Which user groups particularly benefit, and what are the main improvements compared to the previous on-premises payroll?

Brass: The billing process is intelligently relieved on both sides. IT and HR staff already benefit from our AI delivered with SAP SuccessFactors. We are using more and more AI to take over repetitive tasks in the billing process and reduce manual control effort. At the same time, AI integration also affects employees: Joule, the AI ​​assistant from SAP, can already explain payroll and answer specific questions about it. What previously required a trip to the human resources department can now be easily resolved in self-service.

Hague: This creates freedom at all levels. And that’s exactly what it’s about. Because human resources work is people work. But if HR teams primarily have to devote themselves to routine administrative tasks, they lack the time for actual personnel development.

What significance does the cloud payroll option have for modernizing HR processes in authorities and public institutions as a whole?

Hague: An immense one: Cloud solutions enable access to modern technologies and innovations. This is particularly important for smaller authorities. When operating classic HCM payroll based on SAP S/4HANA, they quickly reach their limits in terms of personnel and infrastructure. With a cloud payroll, however, you can use the advantages of a modern payroll solution without having to have your own IT systems and IT specialists. The shortage of skilled workers in the public sector will continue to worsen. This makes it all the more important to use limited resources in a targeted manner. An infrastructure that automates administrative burdens creates important prerequisites for this.

Despite the opening, there are still functional gaps – for example in pension or post-insurance administration and job management. Why are these issues particularly critical for the public sector?

Hague: Because they are part of the core business of human resources management in the public sector: retirement, pension entitlements, additional insurance when leaving civil service status or changing employers – all of these are topics that fundamentally differ from “classic” human resources management. The same applies to the job management: positions in cities, states and municipalities must be shown in the budget and taken into account in the budgets. In order to meet the resulting requirements, cloud payroll in the public sector must not only map HR processes, but also serve the budgetary perspective – including interfaces to treasury and financial accounting. Until this is possible, federal, state, or local government agencies with civil servants have limited use of SAP SuccessFactors Employee Central Payroll.

Brass: We are aware of that. That’s why we’re working hard to provide the missing functionalities. Our goal is to make appropriate solutions available this year so that administration of civil servants in the cloud becomes a reality. In addition, we will offer operation of the solution in a sovereign cloud over the course of the year – this should make it even easier for the public sector to move into the cloud.

The seamless integration of Payroll, SAP SuccessFactors Employee Central and SAP S/4HANA was a central concern of DSAG. To what extent is this claim fulfilled today?

Brass: SAP S/4HANA and SAP SuccessFactors have been deeply integrated for some time. This means that proven functionalities from the business suite world – such as SAP Cross Application Time Sheet (CATS) – can be used without any problems.

Hague: We also see that integration has improved significantly – not least through the Integration Suite. There are clear best practices as to which system is leading and where which data is maintained. But: In hybrid scenarios – and these are the rule rather than the exception in the public sector – the interface remains a sensitive point. The goal must be for SAP SuccessFactors Employee Central, Cloud Payroll and SAP S/4HANA to work together as a homogeneous solution without manual integration work. This is not a trivial undertaking, and the quality of this integration plays a key role in determining whether entry into the cloud actually works as smoothly as it looks on paper. We’re working on it. I would say: We are close, but not quite there yet.

In addition to integration aspects, the public sector also focuses on questions regarding pricing policy and migration paths – and not just in the HR area. What does DSAG expect from SAP in this regard?

Hague: The world of licensing has changed fundamentally with cloud offerings – and this is still not a transparent process for many customers. Simplifications have been made, which is positive. But there is still a significant need for clarification.

The central problem: Today it is hardly possible for user companies to create a valid cost calculation before the start of the project. But that is exactly what is a huge problem for the public sector with its budgetary framework. Here, calculability is not an option, but a core obligation. Migration that leads to financial surprises during the ongoing process is politically unfeasible.

Specifically, we are therefore demanding: investment protection for existing licenses, a clear and comprehensible migration path without surprises during renewal, and a license structure that enables planning security. AI services in particular need to be accessible at a lower threshold – token-based billing creates uncertainty in budget planning.

How does SAP position itself regarding the DSAG demands for more investment protection and planning?

Brass: The demand for investment protection is understandable. After all, every customer has their own individual license history and has invested in SAP over the years. With the launch of SAP HCM for SAP S/4HANA, SAP has introduced a uniform assessment basis for all HCM solutions – regardless of whether they are operated on-premises or in the cloud. The basis is consistently the number of people managed in the system. This enables a transparent, direct comparison of ongoing costs and creates planning. Migration costs, on the other hand, are customer-specific and therefore cannot be generalized. A structured entry point is the SAP Readiness Check for SAP SuccessFactors Solutions – it provides a reliable starting point for the individual assessment.