Deprecation of Payroll in D365FO Human Resources and Finance: Challenges and the OneConnect Solution

Introduction

Microsoft’s decision to deprecate the D365FO payroll functionality in Dynamics 365 Human Resources and Finance has left many organizations at a crossroads. In an announcement, Microsoft explained that as they refine their Dynamics 365 portfolio and rely more on ISV (independent software vendor) solutions, tax updates for the built-in U.S. Payroll feature would no longer be supported (Deprecation of US payroll tax updates FAQ - Human Resources | Dynamics 365 | Microsoft Learn). Essentially, the payroll module is no longer in active development by Microsoft, aside from basic support for existing features. Mid-to-large enterprises—often with complex, multi-country payroll needs—are especially affected by this change. Payroll is a mission-critical process; it ensures employees are paid accurately and on time, and it underpins compliance with labor and tax laws. Deprecating a core payroll engine in D365FO means these businesses must rethink how to manage payroll going forward, without disrupting their operations or risking compliance issues.

Technical Challenges Due to Deprecation

The removal of out-of-the-box payroll capabilities in Dynamics 365 Finance and Operations (D365FO) Human Resources introduces several technical and operational challenges for organizations:

• Compliance & Regulatory Risks: Keeping up with payroll tax regulations and labor laws is difficult without an integrated solution. Companies must now manage complex rules (varying by country, state, etc.) on their own or via external systems. This increases the risk of errors or non-compliance. In fact, a recent global payroll survey found 63% of payroll professionals cite compliance as their biggest challenge ( GPW Survey Finds Compliance Remains Biggest Global Payroll Challenge ). Without Microsoft’s updates, organizations face greater responsibility to ensure every tax change or statutory requirement is correctly applied to payroll, or risk penalties and legal issues.

• Integration Complexities: Deprecation forces organizations to use third-party payroll systems or services, which then need to be integrated with D365FO. Setting up data flows between Dynamics 365 and external payroll solutions can be complex and costly. Ensuring that employee data, pay rates, benefits, and time records seamlessly transfer to the payroll provider—and that the resulting pay details come back into D365FO for financial posting—requires robust integration. Any missteps in this integration could lead to data mismatches or payroll delays. (Even Microsoft’s guidance suggests customers turn to AppSource for third-party payroll solutions (Removed or deprecated features in Dynamics 365 Human resources - Human Resources | Dynamics 365 | Microsoft Learn), highlighting that integration is now a necessary part of the architecture.)

• Data Security & Access: Payroll data is highly sensitive (containing personal information, salaries, bank details). Moving payroll processing outside the secure D365 environment means data will travel between systems. This raises concerns about data security and access control. Companies must ensure that any external payroll provider or integration adheres to strict security standards to protect data in transit and at rest. There’s also the challenge of maintaining proper access controls—only authorized HR/Finance personnel should view payroll details, even if those details now reside in a different system. Robust encryption and compliance with data privacy regulations (GDPR, etc.) become paramount when using external payroll processing.

• Operational Disruptions: For HR and finance teams, the loss of a built-in payroll module can disrupt established workflows. Instead of a unified process within D365FO, teams might have to export data, run payroll in another system, and re-import results. This extra manual workload increases the chance of errors and slows down the payroll cycle. It also means additional training and coordination with new vendors or systems. In short, what was once a streamlined process within Dynamics 365 could become a multi-step operation, stretching payroll staff thin and potentially impacting employees if payroll cycles lengthen or mistakes occur.

Why Mid-to-Large Enterprises Need an Alternative Solution

Given the challenges above, mid-to-large enterprises running D365FO must find an alternative payroll solution that fills the void left by Microsoft’s deprecation. Relying on spreadsheets or disconnected systems is not feasible at scale. These businesses typically operate across multiple regions and have diverse workforces, which demands a seamless, integrated payroll approach to handle complex calculations and compliance requirements.

Microsoft’s own recommendation is telling: customers should leverage third-party solutions (many available on Microsoft AppSource) to meet their payroll needs (Removed or deprecated features in Dynamics 365 Human resources - Human Resources | Dynamics 365 | Microsoft Learn). In other words, the onus is now on companies to implement a payroll system that integrates with Dynamics 365 rather than expecting one built into it. For mid-to-large enterprises, the ideal solution is one that works within the D365FO environment, preserving a single source of truth for HR and financial data. This way, employee information, benefits, and pay details remain synchronized with the core Dynamics 365 HR and Finance modules.

Without a tightly integrated solution, organizations may end up juggling multiple payroll vendors in different countries, which is a known pain point (the second-biggest global payroll challenge reported by 30% of organizations is managing multiple vendors ( GPW Survey Finds Compliance Remains Biggest Global Payroll Challenge )). A unified approach can eliminate that headache. In summary, to continue using D365FO effectively for HR and finance, enterprises need a payroll integration that offers the same level of cohesion and reliability that the native module once did.

Introducing OneConnect by Pharos Solutions

One promising answer to this challenge is OneConnect by Pharos Solutions – a platform designed to bring back seamless payroll integration within the Microsoft Dynamics 365 ecosystem. OneConnect is a fully managed integration solution (available on Microsoft AppSource) that connects D365FO Human Resources and Finance with robust payroll processing capabilities. In essence, OneConnect acts as a bridge between your Dynamics 365 system and the payroll computations, so that end-users experience payroll as if it were still a native part of D365FO.

OneConnect Payroll specifically addresses the gaps left by Microsoft’s payroll deprecation. For example, after the 10.0.40 update when D365FO’s payroll lost its automated tax update engine, companies had to manually handle certain payroll calculations and benefit deductions. OneConnect steps in to automate those tasks. It integrates employee data (including benefits and deductions) from the D365 HR module directly into payroll pay statements, automatically recalculating net pay amounts, and then allows you to continue with the standard payroll process of posting statements and generating payment journals (Microsoft Azure Marketplace). This means businesses can maintain their usual payroll workflow without missing functionality – OneConnect ensures the calculations and data transfers happen behind the scenes, accurately and in real time.

Key benefits of OneConnect for D365FO payroll integration include:

• Real-Time Data Synchronization: OneConnect enables real-time data flow between Dynamics 365 and the payroll engine. Employee records, salary changes, hours worked, and benefit enrollments in D365FO are immediately reflected in payroll calculations. Likewise, finalized payroll results (like processed pay statements or journal entries) are pushed back into D365 Finance. This synchronization eliminates duplicate data entry and timing mismatches, ensuring that HR, payroll, and finance are always working off the same up-to-date information.

• Compliance Support: Keeping payroll compliant with ever-changing tax laws and regulations is a top priority. OneConnect helps support compliance by automatically incorporating the necessary data for tax and benefit calculations. Since Pharos Solutions maintains OneConnect as a managed service, the integration can be updated to align with regulatory changes or to connect with certified payroll engines/providers that handle local tax rules. Companies can thus stay current with payroll legislation without relying on Microsoft’s discontinued updates. All sensitive payroll data passing through OneConnect is encrypted and handled securely (meeting enterprise security and privacy standards), so compliance extends to data protection as well.

• Operational Efficiency: By restoring integrated payroll functionality within the D365FO environment, OneConnect dramatically reduces manual work and process fragmentation. HR and finance teams can run payroll within their familiar Dynamics 365 interface – entering data once and letting the system do the rest. This streamlines the payroll cycle, reduces the chance of human error, and frees up staff time to focus on analysis and strategic tasks rather than shuffling data between systems. The organization experiences minimal disruption; OneConnect’s payroll integration feels like a natural extension of D365FO, which means lower training effort and faster user adoption. Overall, it simplifies payroll processing while preserving the end-to-end workflow from employee data management to financial posting.

By leveraging OneConnect, mid-to-large enterprises can effectively reclaim the integrated payroll experience they need, despite Microsoft’s deprecation of the built-in module. The solution plugs into Dynamics 365 Finance and Human Resources, so businesses don’t have to abandon their D365FO platform or resort to partially integrated workarounds. Instead, they get a modern, supported payroll integration that handles the heavy lifting of compliance and data synchronization, allowing them to continue paying their workforce accurately and on time without missing a beat.

Payroll Integration

For organizations looking to mitigate the impact of the D365FO payroll deprecation, exploring Pharos Solutions’ OneConnect is an excellent next step. To learn more about how OneConnect can seamlessly integrate payroll with Microsoft Dynamics 365 and to see it in action, visit the OneConnect Payroll page on Microsoft AppSource (Microsoft Azure Marketplace). There, you can find additional details, customer reviews, and information on how to get started. Don’t let the Dynamics 365 payroll deprecation disrupt your operations—equip your enterprise with a solution like OneConnect to keep your payroll running smoothly within your D365FO environment.