Posts tagged ‘Professional Payroll Manager’

February 17, 2014

Why an In-house Payroll Service Needs to Differentiate Itself from the Competition


No in-house payroll team is safe anymore.  The ever present reality is that if your organisation hasn’t already looked into the viability of outsourcing payroll production, in an attempt to realise significant cost and efficiency benefits, it is only a matter of time until it does.

Payroll BPO is a Global Competitive Market

At the local level you compete against small business operators claiming to be the most experienced outsourced provider in the market and there are bookkeeping and accounting firms, payroll associations and HRIS software providers all supplying payroll BPO services.  Then there are those businesses whose core business is Payroll Business Process Outsourcing (BPO), who vary in size and capacity enormously.  The global market has added extra dimension to the BPO market, creating massive competition in cost competitiveness.

All BPO’s are Flogging the Same Horse

Find me a Payroll BPO who is not selling the promises of:

  • The realisation of efficiencies and time savings
  • Reduced production costs and overheads
  • Continuity, Risk Management and Total Compliance
  • Superior Speed, Technical Expertise
  • Greater operational control for the business
  • Technological Superiority
  • Reduced Recruitment Costs and Staffing Flexibility
  • The ability for your business to concentrate on it’s your core business

Can BPO’s Really Achieve the Miraculous?

The ability of any BPO in the marketplace to achieve this remarkable list of business improvements relies on many interconnected factors… many of which aren’t fully understood by those in the deciding seat.  It is important to understand what real differences exist between in-house and outsourced payroll functions and whether outsourcing is really the miracle it’s sold as.

Here are just a few areas that require thorough analysis in the decision making process, rather than blind belief:

HRIS System Capabilities

The quality and capabilities of a BPO’s HRIS system will depend on the size of the BPO business.  The corporate payroller who decided to start a payroll outsourcing business will be utilising an off the shelf accounting package or a lower cost cloud based system.  National and global BPO’s will be building robust, client tested systems and will have more experience in implementations, which should guarantee a smoother transition… unless that system needs to be customised heavily to achieve your requirements, which can lead to untested and unparalleled disaster.

A true understanding of the capabilities and the shortcomings of the systems used by BPO’s will enable you to make a real comparison between your in-house system and the BPO offerings.

Business Processes

BPO’s would not survive without solid business processes and strict deadlines.  When working with a BPO you will be afforded windows of time for processing and queries and your own business systems must be advanced enough to succeed in your business relationship and to get your payroll delivered on time, every time.

If your in-house system is in chaos due to data integrity issues, receipt of late inputs and misconfiguration of your current payroll system, you will not realise some magical transformation by simply outsourcing this mess to a BPO.  Garbage in will always equate to garbage out.

Economies of Scale

The whole basis of achieving economies of scale is to define the one process that fits all, allowing for only slight deviations for individual business requirements.  If your business can fit itself into the BPO’s processes, all is well, but if your business requires deviations to the BPO’s standard business processes and has a list of required value added services, the cost of the service rises proportionately.

Cost Savings

I’ve managed two outsourcing services and it has always bewildered me why people buy in to this.  Cost savings are achieved by any payroll service, in-house or outsourced, by minimizing the time it takes to produce a payroll and the ancillary costs associated with payroll production.

If an in-house service wants to ensure their longevity, then my advice would be to get your costs down to bare minimum by implementing automations, reducing paper and payslip costs, maximizing your HRIS system and establishing if the current wages cost of the payroll team can realistically be reduced.  The people in your organisation who will be, or who currently are, looking at outsourced options, will see cost as a major incentive.

All BPO’s have a stock standard service that basically includes accepting an upload file or your business entering the data into their system; performing the payroll calculations and producing the stock standard reports.  If this is all you want from payroll, then by all means jump in and realise those cost savings.  If however, you want a little extra here and there, grab your wallet and watch those cost savings begin to diminish.

Let You Get On With Managing Your Business

This selling point is touted by every BPO provider globally, but I believe it’s a myth as the business only outsources a portion of the total end to end process.  Someone at the business still needs to create and manage the inputs; check and authorise the payroll reports; attend to the employee, management and third party enquiries; reconcile the payroll; perform the management and statutory reporting functions; and above all else ensure the compliance of the data and the process.

Additional Charges for Out of Scope Functions

Want a report that’s not in scope? Want to change the pay rates due to an award change or salary increase?  Want to retrieve historical data from two years ago? It can be quite alarming, once the contract is signed by a business owner or manager, who may have little to no concept of the requirements of payroll, just how much additional information needs to be retrieved from the HRIS system.  Much of this will be out of scope and will cost the business, either in the charges for the reporting or for the time it takes in-house to devise a workaround.

Superior Technical Expertise

This one always gets me… how can this sweeping statement be made by some BPO’s when your organisation may already employ a perfectly competent payroll person, or even a whole team of them.

Some larger BPO’s may in fact employ specialists in employment law, or IT and so on, but that may not necessarily translate well into the product or service the BPO customer buys.  Before a business buys in to the guru status, it should understand exactly how much specialist knowledge exists in its own business via its payroll team members and establish how the gurus will provide an actual realisable benefit to their payroll production, if they were to outsource the payroll.

Total Compliance

The way the compliance dream is sold to businesses concerns me, as it appears to the buyer that simply by outsourcing your payroll, you are guaranteed that every facet of your payroll all of a sudden becomes compliant, and you needn’t worry your little head about it ever again.  This is the farthest thing from the truth.

When you hand over the control of your organisations greatest expense and probably most organisations greatest compliance nightmare, you don’t cease to be liable… you don’t cease to monitor and examine… and more importantly, you should never cease to control.

The simplest configuration error, or the insufficiently tested customisation can wreak havoc on pay rates, tax, superannuation, salary packaging…everything.  Compliance in every facet and down to the tiniest detail, remains at all times the business’s responsibility, not the BPO’s.  Put simply, don’t buy in to the total compliance sales pitch.

Offering of an End to End Payroll Service

Hmmm… by whose definition?  I’ve always understood end to end payroll to be all of the processes from the receipt of new employee documentation and employee timesheets, through to the completion of all associated company and statutory reporting, and including all employee, management and third party enquiries and requests in between.

I’ve not seen a BPO yet that encompasses what my definition of end to end payroll is.  Nor have I witnessed a BPO yet that doesn’t require a designated person on the ground in the business to compile all of the data and be responsible for employee queries.

Risk Management

There are so many aspects to the risk management and mitigation of payroll that would be hard to fit into a paragraph, but a few of the main concerns to be addressed for those contemplating outsourcing are:

  • Disaster Recovery Plans and IT Risk Management
  • Risks to confidential employee and business data and bank accounts
  • Risk of BPO business failure/collapse
  • Fraud and Corruption Risks
  • Payroll Controls (including authorisations and error prevention and capture)
  • Compliance Risk
  • Quality Control Frameworks
  • Country Specific Risks

One More Reason Stakeholders Seek Alternative Solutions

Noise.  If your payroll service rings so loud in the ears of the stakeholders, consider yourself a branded target for outsourcing.  If you have a high error rate and there are constant complaints making their way to the leaders of the business, get your error rates sorted very quickly and eliminate the noise.

Understand Your Competition

The point has already been made… every in-house payroll service is in competition with the sizeable BPO market.  In any business, you must understand… truly understand… who and what your competition is and what your competitors are offering, in order to continue to compete against them.

In-house Payroll Managers who are blind or oblivious to this, need to wake up.  BPO’s are knocking incessantly on the doors of the decision makers in your business, trying to get their foot in the door.

Now that you understand more about the BPO Market and how the business you work for is on the prospect list of a gazillion BPO providers, you have two choices… start looking for a job in a BPO or start ensuring your in-house payroll service remains a viable business option for your organisation.

Differentiation is One of the Keys to In-House Survival

For any business to outshine its competition, it needs to identify or create differentiation between them and all the other operators in the market.  Their customers must be able to clearly see the points of difference and those points of difference had better be ones that draw customers in, rather than turn them away.  Your in-house payroll service is no different.

Outsourced service providers all over the world are professing how amazingly more cost effective your organisation’s payroll process will be.  They are claiming that their world standard business processes will not only enable outstanding efficiencies, but reap the rewards of economies of scale and all but ensure the organisation’s payroll compliance.

Do yourself and your payroll team a favour and start raising the bar on your service, analysing and minimising your costs, elevating your team’s capabilities and eliminating any “noise”… and start today!

If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.

© 2014 Louise Vidler T/As The Professional Payroll Manager.  All rights reserved.

All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Louise Vidler T/As The Professional Payroll Manager. Louise Vidler T/As The Professional Payroll Manager authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Louise Vidler T/As The Professional Payroll Manager copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

January 20, 2014

The Minimum Essential Payroll KPI’s


As a Payroll Manager, you are responsible for managing what is the greatest cost of most organisations and with that comes the continued attention of Finance, C-Level Management and the Board.  You are being monitored and usually measured on cost and efficiency and you are always at risk of being outsourced to a more viable option.

As a manager of a service offering in your organisation, you need to be a “business” manager who is focused on achieving organisational goals and outcomes, on providing service to your “customers” that could not possibly be matched by competitors and on the cost of payroll production.

If you are not already measuring, monitoring and acting upon Key Performance Indicators (KPI’s) in your payroll service, you need to start NOW.

KPI’s are quantifiable indicators that reflect the organisational goals and are supposed to be drivers of change and measures of progress.

Payroll has long been viewed as a purely transactional processing cost centre, whose only organisational goals are to minimise the cost of processing and keep payroll noise to an absolute minimum.  While these are primary goals for cost reasons, many other complexities come into play as to why payroll costs what it does.

Only by measuring and taking calculated steps to improve the KPI’s, will you be able to truly reduce payroll costs, as many of the reasons for the cost of payroll are completely outside of the Payroll Managers control such as data integrity, industrial complexity and statutory requirements for example.

Personally, I have a few issues with the apparent simplicity of payroll KPI’s and the comparison of organisations against each other, or against best practices.  The measurement of cost, transaction volumes and time to complete tasks alone does not truly measure the performance of a payroll team as there are an abundance of variables coming into play for every number recorded.

No two payroll operations are like for like.  There are different operating systems, differing policies and company practices, differing complexities and differing definitions of end to end payroll.

I also believe that the global standard for compilation of payroll KPI data misses three very important categories: Service Excellence, Best Practice Business Processes and Compliance.

A payroll service’s primary function is to produce on-time, compliant employee payments… but getting the money into employee’s hands is far from the end of the payroll process.  Management and statutory reporting can be a huge portion of a payroll team’s workload, as can be the day to day enquiries of the workforce and other organisations relating to employee payments and financial matters.

Additionally, every payroll service on this earth, no matter their size, should aim to have best practice documented processes, checklists, segregations of duty and audit steps throughout the process, so this should be included in the KPI’s and be a major objective of the payroll team and the organisation.

These are the Minimum KPI’s Payroll Should Be Measuring as per global industry practice:

(HR/P&C KPI’s are excluded as the focus is solely on payroll production)

THE COST OF PAYROLL – intends to measure the cost to business of the end to end payroll process, which usually encompasses the sum total of wage and operating costs of the payroll team and the cost of implementing and maintaining HRIS and related systems.  For a true cost of end to end payroll, all people in the organisation that contribute to any component of the end to end payroll process should be identified and accounted for such as:

  • IT costs involved in implementation and maintenance of HRIS and related systems
  • Payroll Accounting costs
  • The wages cost of staff compiling timesheets for payroll input
  • Supervisors and management wages cost for time spent on payroll processing and enquiries
  • HR/P&C wages cost for time spent on the transactional components of payroll processing

The combined results of these metrics will assist you to determine the cost drivers of payroll production:

  • Cost of Payroll (Total Wage Cost All Employees) as a Percentage of Revenue
  • Number of Payroll Processes Per Annum
  • Cost of Payroll Production Per Employee Serviced  (Total Operating Cost of Payroll Service per employee serviced by the payroll)
  • Cost of Payroll Production per Payroll FTE

PRODUCTIVITY – intends to measure how productive the payroll team as a whole and individually are, by measuring the ratio of payroll people to the number of employees being serviced.  Additional metrics allow identification of issues affecting productivity.  Standard metrics include:

  • Number of Pays Processed Per Payroll Processor FTE
  • Number of Out of Cycle Payments Processed
  • Number of Retrospective Payments
  • Number of payments requiring manual intervention or follow up
  • Input that contains unclean data

EFFECTIVENESS – intends to measure whether the payroll team are achieving the required outcomes (on-time, compliant payroll production) and identify factors that may be inhibiting their effectiveness.  There are a host of metrics utilised to measure effectiveness and include:

  • Error Rate including Overpayments
  • Payroll Staff Turnover
  • Volume of enquiries and the speed at which they are responded to
  • Automations (including metrics on production time on manual forms/transactions, employee self-service, payroll processing automations, reporting, payslip production)
  • Data Integrity
  • HRIS and related Systems Integration

Additional KPI’s That We As an Industry Should Be Advocating:

SERVICE – regular measurement of the perception of service by those we serve, including:

  • A regular rating by employees to establish the current perceived level of service and identify improvement areas (perceived or real)
  • A regular rating by your internal customers and by supervisors and management on their perception of the payroll service
  • Regular ratings against the achievement of Service Level Agreements
  • Compilation of data on queries such as long term unresolved employee queries, union action as a result of payroll actions and other day to day categories of enquiry in order to identify service demands and improvement areas

COMPLIANCE – as a core function of the payroll service, measurement of the continued achievement of organisational and statutory compliance including:

  • Outcomes of audit reports
  • Compliance with company policies and procedures
  • Achievement of management reporting deadlines
  • Correct, on time and compliant statutory reporting and payments
  • Achievement against monthly internal compliance reviews
  • Breaches of employment legislation , award requirements, etc
  • Breaches of service level agreements

BEST PRACTICE BUSINESS PROCESSES – there is enough global evidence, supporting legislation and standards that demand that all payrolls should be produced utilising best practice business processes to ensure corporate governance, financial transaction security and so on.  The measurement of the payroll service’s achievement towards best practice business processes should identify:

  • All processes and sub processes in the production of payroll are documented and reviewed regularly for compliance and best practice
  • Documented checklists are utilised for payroll processes and signed off by relevant overseers at each vital step of the payroll process
  • Payroll balancing is exhaustive and each authoriser throughout the process understands the full extent of what they are authorising
  • Segregation of duties is well documented, authorisations are achieved and a process for monitoring each step of the payroll process exists
  • Error identification and fraud prevention process checkpoints are  included throughout the processes and checklists
  • Business policies are documented for information security, confidentiality, privacy, authorisations, etc and the requirements of each policy are implemented within the processes

If your payroll service is measuring and monitoring the metrics and KPI’s listed, I applaud your efforts!  If you are part way there, then I urge you to build in these additional KPI’s and identify further improvement areas for your service.  If you are not measuring, open up a new excel spreadsheet NOW! and start pumping in the numbers you need to measure your base line data.

The data on its own though is insufficient, as you need to identify targets for each of your KPI’s and monitor these as you implement your improvements, to ensure your efforts are actually achieving the intended outcomes.

Many payroll services benchmark themselves against others, or against industry, country or global best practice KPI’s.  Before deciding how you will utilise benchmarking, it is important to understand the dynamics behind the numbers.  Essential to your understanding though, is that you must drill down into the numbers to understand the measurement method of the benchmarks you apply; the complexities of the organisations you measure yourself against; the HRIS systems and processes in place; and a host of other reasons that another payroll service may be producing twice as many employee payments as your team, with half the staff.

Remembering that KPI’s are quantifiable indicators that reflect the organisational goals and are supposed to be drivers of change and measures of progress, it is imperative that you understand what the goals actually are for the payroll service and include measurements that will provide actionable data that identifies what issues exist and what improvements need to be implemented.

If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.

© 2014 Louise Vidler T/As The Professional Payroll Manager.  All rights reserved.

All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Louise Vidler T/As The Professional Payroll Manager. Louise Vidler T/As The Professional Payroll Manager authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Louise Vidler T/As The Professional Payroll Manager copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

December 16, 2013

6 Simple Automations To Drastically Cut the Cost of Payroll Production


ppm logo - Edited (2)

It is generally taught that there are three way to increase your profits in business:

  1. Increase your customer base
  2. Increase your prices
  3. Sell more to the customers you have

Perhaps because it’s not related to sales & marketing, one very important way to increase your profits is usually missing from the list – reduce the cost of production.

Whether your Payroll Service is a pure cost centre or an income generating shared services centre or  BPO, there are key areas where significant dollars can be saved by implementing automations.  Here are my top few:

1. Automate masterfile changes by implementing employee self service

  • Allow your employees to change their own addresses, voluntary deductions, bank accounts and so on to minimise the volume of work, eliminate late or non-submitted forms and alleviate the need for a close off period days prior to the payroll process date

2. Automate manual timesheet data entry by creating excel upload templates or entry & approval via employee self service

  • If your payroll team is still entering individual timesheets into your payroll/HRIS system, it is time to reconsider your process and/or your payroll/HRIS system and the cost to the business of the practice of manual data entry

3. Automate the payroll report production process by producing batch reports rather than manually creating each report, each step of the way

4. Automate payroll data validation by csv data dumping your payroll reports into an excel balancing sheet filled with delightful cross checks and validations to completely automate the balancing of payroll reports. No red pen or calculator required.

5. Automate payslip delivery by emailing payslips or uploading them to employee self service.  The practice of printing and delivering payslips by hand or post is antiquated and a complete waste of business revenue.  In a world where the average person owns 2.38 mobile phones (not precise science there), the argument that people won’t be able to access their payslips is almost a redundant argument

6. Automate & minimise employee enquiries by providing employees with the information pre-emptively, on their payslips or by implementing employee self service

  • If you analyse your enquiries you will be able to substantiate your calculations and understand exactly what information should be pre-emptively provided to employees
  • If you can, create reports/forms for your employee self-service for each of the requests that are usually a time consuming, manual process in the payroll service, such as employment and earnings verifications for employees, reproduced group certificates or year end payment summaries for tax, forms required for Centrelink/Social Security.  All the data is accessible by the system and just needs to be configured to magically appear in each report/form.
  • For those enquiries that cannot be resolved with employee self service, such as adjustment or termination payment calculations, simply create excel based auto calculators in excel.  If you get a little tricky you can have a multiple sheet workbook that you manually enter the required data into, then it calculates the termination payment in full, populates the termination advice to the employee and populates any associated forms that would be required with a termination payment

Based on a smallish payroll of 1,000 employees, the cost savings can be quite astounding as you will see from the sample calculations below (no amount of manipulation would allow me to insert a spreadsheet):

(Based on a Payroll Officer earning $50k p.a. + 25% Oncosts)

1. Implement Employee Self Service

* Automate Employee Masterfile Amendments (Average of 10% of total employees requiring record changes each pay, therefore 0.05 mins for 10 transactions per week = 26 hours saved per annum

* Automate Leave Form Processing (Based on 4 leave forms per employee per year, therefore 0.05 mins for 76.92 transactions per week = 200 hours saved per year)

* Automate Employee Enquiries (Based on 20% of employees enquiring each pay, therefore 0.17 mins for 200 enquiries per week = 866.67 hours saved per year)

2. Automate Time Sheet Data Entry (Based on 80% timesheet/20% autopaid, therefore 0.05 mins for 800 timesheets per week = 1,872 hours saved per year)

3. Automate Payroll Report Production (Based on 5 payroll reports per pay, reducing the time by 50% = 6.5 hours saved per year)

4. Automate Payroll Report Reconciliation (Based on 5 payroll reports per pay, reducing the time by 50% = 6.5 hours saved per year)

5. Automate Payslip Delivery (Based on 0.03 mins per payslip, 1000 payslips per week = 1733.33 hours saved per year)

6. Automate Manual Processes & Calculations

* Adjustment Payments (Based on 0.2% Error Rate, 1 hour per adjustment handling time from calculation to payment = 52 hours saved per year)

* Termination Payments (Based on 1% Turnover Rate, 1 hour per termination handling time from calculation to payment = 260 hours saved per year)

Original Cost of Manual Activities Listed Above – $203,146 plus payslip purchase price @ $0.10 per payslip = $208,346

Savings Realised – 1399.67 hours, plus payslip purchase price @ $0.10 per payslip (additional cost gains may be made from the printing & distribution costs)

Total Savings per annum = $164,075

As you can see from the massive cost savings available for 1,000 employees, it is well worth investing your time to analyse your payroll production costs and discover a wealth of cost and efficiency opportunities.  Ensure you take into account the potential cost savings against the required investment in employee self-service, but there should still be a pile of change left over.

If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.

© 2013 Louise Vidler T/As The Professional Payroll Manager.  All rights reserved.

All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Louise Vidler T/As The Professional Payroll Manager. Louise Vidler T/As The Professional Payroll Manager authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Louise Vidler T/As The Professional Payroll Manager copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

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