Strategies for Cost Effective Payroll and HR Administration
Organizational design and process improvements in line with technology investments can better address the costs of HR management. Discussing this issue in a white paper, Price water Cooper PwC, sponsored by Automatic Data Processing, ADP -researched the Total cost of Ownership, TCO of key payroll and human resources administration functions and how to mitigate them. Findings of the research are discussed below.
Cost Drivers of Payroll and HR Administration
- System installation costs: The one-time costs related to the initial acquisition and implementation of an organization’s Payroll and HR administration
- System upgrade costs: The periodic acquisition and implementation costs related to upgrading to a more current version.
- Direct labor costs: The cost of labor, salary plus benefits, of the direct staff necessary to support the Payroll and HR administration functions
- Direct non-labor costs: The total costs of consultants, vendor fees and facilities, and corporate overhead related to the Payroll and HR administration function.
- System maintenance costs: The IT costs specifically related to maintaining the current systems
- Indirect labor costs: Cost of labor for employees not directly related to the payroll and HR departments supporting these functions in the field i.e., collecting, approving and preparing employee hours for payroll; distributing paychecks; answering employee questions about benefits, etc. where employees are typically spending only a fraction of their time on these activities
- Outsourcing costs: The total annual costs of any outsourced services related to processing of Payroll and HR administration such as tax filing, paycheck printing, etc.
Strategies for Cost Reduction
- Outsourcing: organizations managing payroll, workforce administration, time and attendance, and health welfare benefits in house using premise-based or hosted software solutions spend on average 18% more administering these functions than organizations that outsource these functions
- Utilizing a common vendor or solution: organizations administering these functions in house using software solutions from multiple vendors spend on average 18% more than those organizations administering them in-house using a common vendor.
- Organizations outsourcing multiple functions to a single vendor see even stronger cost efficiency on average 32% versus organizations using a multiple vendor or “best of breed” in-house approach.
- Providing payroll and HR self-service functionality to employees: this strategy results in a 50% lower TCO of workforce administration for large organizations compared with peers managing the function without these features
- Integrating time and attendance with payroll this leads to a cost efficiency of 14% over a manual approach or an approach that is not integrated
Furthermore, the current study clearly suggests that cost effectiveness stems from comprehensive process transformation, not just technology innovations. The required change isn’t always easy, but significant financial benefits await any organizations ready to really embrace and implement these changes.