Business Processing Outsourcing may be the latest buzzword, but there is one company that made the sale more than half a century ago.
Automatic Data Processing, Inc. (ADP) delivered its first pay checks in 1949 and now collects $8.5 billion annually, managing payroll and benefits for nearly 600,000 customers. Even when someone else cuts the checks, however, it still requires a lot of behind the scenes work linking all the necessary IT systems to automate the process.
”The hardest part is determining the gross pay, rather than the net pay after all the deductions and taxes,” says James Holincheck, research vice president for Gartner, Inc., an industry analyst firm. ”In addition to automating the front-end data capture, they need to automate the back end in terms of moving as many people as possible to direct deposit or pay cards instead of cutting paper checks.”
Automating payroll is not a single action. Instead, it requires integrating a number of different elements including time and attendance software, the employee self-service portal, benefits enrollment, HR systems, payroll software, and financial systems, as well as any links to outside entities, such as HMOs, tax authorities and banks. But once this is done, the benefits go beyond just cutting the cost of print and distributing checks.
”You need to look at the end-to-end payroll process, starting with labor scheduling, going into time management and ultimately payroll,” Holincheck adds. ”You want to reduce the errors and costs of processing payroll, but some of the bigger benefits come from better labor management and being able to work more efficiently.”
Companies have many options to choose from in cutting down the payroll workload.
One place to start is with Employee Self Service (ESS), giving employees access through a corporate portal to change their personal information, like home address, marital status, number of dependents or types of payroll deductions. ESS saves paperwork and data entry time and also improves data accuracy, a particularly important point with payroll.
”With payroll there are three fundamental and challenging minimum standards that must be met: accuracy, security of data and compliance,” says H. Joe Foist, manager in PricewaterhouseCoopers’ Human Resource Effectiveness Practice in Dallas. ”Typically the payroll department itself hears very little from the customer unless something is wrong with their pay.”
To meet those needs, organizations can chose to go with the payroll module that comes with their existing Enterprise Resource Planning (ERP) or Human Resources Management System (HRMS), purchase specialized payroll software, lease a hosted service, or outsource the entire payroll process. Features that Foist recommends looking at in selecting a payroll system include: tax engine capability, pay and deduction type flexibility and depth, commission, overtime and shift differential capabilities, ability to calculate and dispense retroactive pay, and compliance functionality.
Holincheck says location and type of industry also are key aspects of determining which software or service to use. The payroll software needs to accommodate the labor and tax regulations of all the locations where the company has employees, plus it must incorporate any terms of collective bargaining agreements. This is particularly a problem for multi-national enterprises. In such a case, going with a major HRMS or ERP vendor may be the best choice.
”Some of the larger ERP vendors have broader support in terms of the number of countries for which they provide regulatory compliance,” says Holincheck.
This also can apply within a single country, such as the United States, where tax and labor laws vary by state, and sometimes by city.
Blue Cross Blue Shield of South Carolina uses the payroll features in its HRMS from Genesys Software Systems Inc. of Methuen, Mass., to pay 13,000 employees in 28 states. But Holincheck says it is not always possible to use a single payroll system. With large multi-nationals, it is typical to have a centralized payroll system for the majority of employees, but to outsource payroll in countries where it has few.
”If you have only 15 or 20 people in a sales office in a country,” he says, ”it doesn’t make sense to implement software to meet local compliance issues.”
The end result of implementing payroll software should be a fully automated, paperless system.
Barbara Kelly, Blue Cross’ Vice President of Human Resources, says that Genesys pulls data from the organization’s proprietary electronic timekeeper system for most of the employees, and employees can apply for benefits through their workstation. But that doesn’t work for all employees.
”Employees in the cafeteria or mail services don’t have access to a PC, so they have to work with their managers during open enrollment,” she says, ”Also, some are using scannable time sheets.”
About 96 percent of Blue Cross employees now are on direct deposit, but they still receive paper notice of deposits. Kelly says they are working on eliminating this, as well.
”We feel comfortable enough with our security that we can now put the information out on our electronic systems,” she says. ”This will be a huge cost savings for payroll since they won’t have to stuff and send out all these notices biweekly. I don’t think we will ever have a totally paperless system, but we will get as close as we can.”
The State of Georgia’s Department of Human Resources (DHR), however, completely eliminated payroll checks in mid-2004. For those without checking accounts, the DHR issues debit cards rather than checks. On payday, the funds get transferred to the debit cards, which employees can then use to get cash from ATMs or use them for store purchases.
”There is a security with having the cards that they didn’t have when they cashed a check,” says DHR project manager Nora Akins.
Like Blue Cross, the DHR’s next step is to eliminate pay stubs. According to John Sartain, director of the Office of Financial Services, the state government is rolling out a new version of PeopleSoft which will allow them to do it electronically.
”Not having to mail the check stubs will save us a little money in postage costs,” he says. ”But it will also give our staff more time to do their regular job functions more efficiently and effectively.”