Changing payroll systems – not just for the brave?

Is changing payroll systems just for the brave?

By Kevin Murphy

How scared should you be? High profile payroll implementation failures in the education and health sectors make changing payroll systems seem like high risk projects. It’s therefore often not until a critical incident occurs or significant pressure builds on the people, processes or technology involved that the need for change overcomes the appetite for risk.

Why change?

We would love to believe that people change to Datacom’s payroll software because it is so much better than what they had. Our software is assuredly better, however it seems that nobody changes their payroll software just because they have found something better. They typically change for any or all of the following reasons:

  • Their existing software or software supplier has let them down in a major way or they believe the risk exists for this to happen.
  • They are being forced to undertake a major upgrade of their payroll software.
  • The person that has been running the payroll for seemingly forever has decided it’s time to retire.
  • They are unable to get important business information from their existing system.
  • They recognise that they are doing an unreasonable amount of manual administration that can be automated or eliminated.

Moving to a modern payroll system that is cloud-based and date effective, that does all calculations in real time, that includes mobile and web applications for staff, that automates manual award interpretation, that can be integrated with other systems, and so on… only seems to happen when one of the above conditions exist.

It is unfortunate that many are missing out on the benefits that a modern payroll system can provide, and it is not until an organisation is forced to research alternatives that these benefits are uncovered.

What to look for

Your payroll should be one of those things that runs silently in the background. If you are thinking about payroll at all, this is likely not to be the case. Silent running should be one of your primary objectives.

The number one thing to look for in your new payroll software is a solution to your current dilemma.

If your existing software or supplier has let you down, look for a track record and references. Look for disaster recovery systems and regular DR testing. Nothing drops staff morale faster than failing to pay them on time and correctly so having confidence that the payroll is going to be available when you need it is critical.

If you are being forced to undertake a major upgrade, look for a cloud service that will always be up to date when you connect to it. There really is no need anymore for dedicated infrastructure that you need to maintain, update and renew prior to accepting the latest version of your payroll software. Look for continuous development behind the scenes and a steady stream of new releases. Look for one with the capacity to manage your payroll whatever size you grow to without upgrades.

If you are unable to get the information that you need from your payroll system, look for a comprehensive set of standard reports. You’ll want a custom report writer that does not require specialist report writing skills, and the ability to get data out in .csv format and/or through an API for further manipulation.

If you find your payroll staff are dealing with paper timesheets, paper leave requests, or manual payroll calculations, seek time-saving alternatives in the form of employee mobile and web applications, back pay calculators, and an award interpreter.

But also look for something that is as “future proof” as possible. Look for a cloud application that is supported by a development team of some size who are continually maintaining compliance and adding new features.

How to run the project

Payroll projects can be risky. The newspapers frequently carry stories of disastrous payroll projects and we believe this is the main reason that people are so reluctant to upgrade their software until they really have to. The truth though is that payroll projects do not need to be risky. Datacom currently completes an average of seven significant payroll migration projects every month.

Dealing with an experienced and expert payroll company with a mature project methodology should be your first risk mitigation when planning a payroll project. Secondly, you could consider breaking the project into bite sized chunks. While not always possible, consider making changes in your existing platform first before migrating payroll platforms, so that change happens incrementally.

It is generally a good idea to simplify your payroll as much as possible before migrating (or even choosing) payroll systems. For example, renegotiating remuneration to simplify rate calculations, or cashing up allowances, etc. Adopting common standards for such payments will mean you have a greater choice of systems and will require minimal customisation.

Every payroll project (even the annual upgrade required on legacy client-server systems) should include parallel runs. That is, running both the old and new system in parallel, providing the same data inputs into both and reconciling the outputs. This can be quite a lot of work, but your payroll software supplier should be able to help with this work, and have tools available to simplify the work and reconciliation.

While the payroll supplier will have primary responsibility for the work to be undertaken during the project, there are a number of parts of the project that cannot be done by a supplier. Your payroll supplier should be able to clearly explain what they expect of you as a part of the project. This is likely to include dealing with the legacy system supplier, perhaps providing information from the legacy system in specific formats, participation in various configuration workshops, approving configurations, reviewing findings from parallel run reconciliations, managing communications with staff, and so on.

In general, you should not need to provide a specialist project manager (the supplier should provide one), but you will need to make available the people who have the best understanding of your current payroll system to provide information to the project team. The project team will need to have a clear understanding of how things work today, and how you want them to work.

What next

Modern software these days is generally provided on a Software as a Service (SaaS) basis. That is, you simply connect to it via the Internet and use it, without having to own and manage a lot of IT infrastructure. A benefit of this is that your payroll need no longer be an island on which only a privileged few have access to.

Obviously security and privacy controls need to be strictly maintained, but connectivity in the cloud world means that you can easily connect to your staff via web portals for timesheet input, leave requests, leave approvals, and for payroll data output, like payslips or other notices. The “new world” equivalent of this is mobile apps for smartphones. Smartphones are becoming ubiquitous and connecting employees to your payroll via their smartphone provides convenience that cannot be matched for many non-desk bound employees.

Connectivity in the cloud world also makes it easier to connect applications. For example you might connect your payroll system to specialist HR applications that particularly suit your business, rather than the old world where you had to purchase a single system that did many things but none of them well. APIs (Application Programming Interfaces) are included in most cloud applications and allow you to exchange or synchronise data between applications.

Once you are using modern software, keep in touch with your supplier, be familiar with their roadmap, provide them with your feedback, and take advantage of new features as they become available.

So, how scared should you be?

As long as you are working with a partner who has a dedicated team of experts, using a proven project methodology, not scared at all. In fact you should be excited, and looking forward to positive feedback from staff who are happily using smartphone apps to input and receive data from your new payroll system.

Kevin Murphy is Director of Datacom Payroll for New Zealand. 

The Rise of Managed Payroll in Australia: A Q&A with Datacom Director Mark McWilliams Part II

Here’s Part II in our Q&A with Datacom Director Mark McWilliams on the managed payroll market in Australia and how SaaS and cloud are becoming game-changers in the industry.

Q: Cloud seems to be an increasingly viable option for running payroll —what benefits does a cloud model provide?

A: Cloud is really about the commercial model. Running a system like payroll in the cloud commercial model is very powerful— as long as the provider embodies cloud principles in its contract. These characteristics and benefits include:

  • On-demand self-service: The client can unilaterally provision new capabilities as needed without human intervention.
  • Broad network access: Capabilities are available over the network and accessed through standard mechanisms that promote use by heterogeneous thin- or thick-client platforms (e.g., mobile phones, laptops, and PDAs).
  • Resource pooling: The provider’s system resources are pooled to serve multiple clients using a multi-tenant model, with different physical and virtual resources dynamically assigned and reassigned according to client demand.
  • Rapid elasticity: Capabilities can be rapidly and elastically provisioned, in some cases automatically, to quickly scale out and rapidly released to quickly scale in. To the consumer, the capabilities available for provisioning often appear to be unlimited and can be purchased in any quantity at any time.
  • Measured service: Cloud systems automatically control and optimise resource use by leveraging a metering capability at some level of abstraction appropriate to the type of service (e.g., number of employees, reports generated, pay slips produced). Resource usage can be monitored, controlled and reported, providing transparency for both the provider and client of the utilised service.

Q: What factors should organisations consider when deciding whether to enter into a fully-managed or partially-managed (SaaS) BPO agreement?

A: There are essentially four key factors to consider when it comes to outsourcing payroll. The first is the organisation’s size and complexity. Does your organisation do the same type of pays, or is it varied? If the answer is the latter, it might reduce your risk and overall costs to fully outsource due to the multiple award configurations, employee types, shifts and so on.

The second factor centres on the knowledge of your internal payroll team. If you have a strong internal team with ingrained knowledge, it may be better to retain that team in-house and opt for a partially-managed, SaaS solution. The third factor, which is also related to your payroll staff, is whether or not you are legally able to migrate your payroll to a service provider at all.

The fourth, and likely most important factor, is which outsourcing option will truly accelerate optimisation of human capital management in your organisation. For instance, if you have an internal team that’s highly motivated and they want to run with it, let them run your payroll through the SaaS option.

Q: What are some of the key traits organisations should look for in a managed payroll provider?

A: Stability is No. 1. Don’t choose a fly-by-night organisation. Clients need to know that the organisation is robust and will continue to pay your people without risk of downtime. The provider needs to be a specialist in the area with sufficient local critical mass to understand what’s happening in the market, both nationally and locally. For instance, in the Victorian public health system, which Datacom Business Services has served for the last 40 years, an understanding of federal and local laws and what’s going on reduces the risk that people will get paid late or incorrectly.

The other key consideration is whether the provider has a robust system with a solid future development roadmap. Basically, is the platform going to reach a point in the near future where support ends? SAP, the technology DBS will use to run payroll and human capital management, has a roadmap out to 2020, for instance.

Q: In terms of a forecast for the industry, where do you see payroll heading in the next five years? Will organisations continue to keep payroll in-house or move to a business process outsourcing model or an as-a-service model?

A: Between 2010 and 2015, the human resource outsourcing market (fully-managed) will grow in Australia and New Zealand from $1.3 billion to $1.9 billion in revenue, according to IDC figures. Human Resources Outsourcing (HRO) is one of the fastest-growing outsourcing segments, due to grow around 13 to 14 per cent for the next three to five years. So, it’s fair to say that the industry is going in the direction of outsourcing, in both the fully- and partially-managed capacity.

Learn more about managed payroll and human capital management.

The Rise of Managed Payroll in Australia: A Q&A with Datacom Director Mark McWilliams

In April 2012, Datacom acquired Enterprise Support Asia Pacific (ESAP), a provider of SAP and Software-as-a-Service payroll, human capital management implementation and support services. A year later, these services are being delivered throughDatacom Business Services, an independent entity within Datacom, so organisations no longer have to manage payroll. Director Mark McWilliams spoke with us about how payroll and human capital management are changing in the Australian market and which factors organisations should consider when deciding to outsource these business functions.

Q: Historically, businesses in Australia manage payroll in-house. What have been the reasons for this approach?

A: People don’t tend to change systems like payroll unless they have to due to things like software risk or there is some other compelling commercial reason such as a merger or need for cost reduction. And because back-office systems like payroll don’t get much attention — they don’t generate for the top-line result —, they are very much a case of, “If it isn’t broke, don’t fix it”. So there they are, systems that were implemented over a decade ago, still running quietly in the background.

However, today organisations have come to realise that managing their human capital more effectively can yield massive results for their business, both top line and cost, which then flows to a significant improvement in Net Profit Before Tax (NPBT).

Q: What are some of the areas or functions organisations struggle with when they manage payroll internally?

A: There are several big issues when you manage payroll internally, including:

  • Cost: Systems, depreciation, running costs, compliance costs, software costs, people costs all add up when you manage payroll in-house.
  • Integration: Often, payroll systems are islands of information in the corporate IT landscape, when, in actual fact, they should be a key tool used for critical business decision-making.
  • Business continuity: Often, in-house payroll systems have several single points of failure, especially in businesses with fewer than 1,000 people. Businesses might only have one person to manage payroll because they can’t justify more because of their size, which means that if that person is unavailable for some reason, there is a risk to payroll. All SMEs pretty much have this issue when they manage payroll in-house.

Q: When an organisation chooses to manage payroll internally, research shows it can actually cost more than outsourcing it — why is this the case?

A: Having to shoulder the burden of 100 per cent of all costs to manage payroll internally is the main driver. For example, if you have a 400-person organisation, you probably need at least one payroll person and somebody in reserve to manage payroll. If it is outsourced, you will likely pay for one third of a person; for the same number of staff, this represents significant savings. Keeping up with legislative compliance is also a significant cost for most businesses that manage payroll in-house. As a single organisation buying a payroll system, there is no scale leverage when negotiating the price for the system. There are no scale benefits when you manage your own payroll system.

Q: For organisations that do decide to outsource payroll, either in a fully-managed or partially-managed capacity, what usually sparks the decision to move ahead?

A: There are a number of drivers that spark the decision to move toward managed payroll:

  • Cost: In our experience, it’s usually 30-per cent cheaper to have a provider manage your payroll due to savings on internal staff, software maintenance and licensing. For every 1,000 employees, that’s likely to be a savings of $5,000 to $7,000 per month.
  • The drive to value human capital management differently: Organisations are being spurred to review systems relating to their people, considering areas such as cost of attrition, training shortages, people development and how best people contribute to corporate performance.
  • Joining a “club”: Many organisations have similar requirements with regard to contract types and complexities in payroll. For example, in healthcare, the unions negotiate very similar arrangements across the country, and often these arrangements are complex to implement when you manage payroll in-house. If a hospital can join with others, it can help reduce risk and cost and improve learnings from like-minded organisations.
  • Risk/compliance: Often, systems will be out-dated or unsupported or unable to implement required legislative requirements. This will necessitate a change.

Stay tuned for Part II of our Q&A with Mark on the shift in how Australian organisations plan to manage payroll. In the meantime, learn more about how DBS can help manage payroll and human capital management for your organisation.