Payroll may have long been regarded as a core function of the HR department, but an increasing number of businesses are reaping efficiency and cost benefits by outsourcing their payroll operations. Angus Kidman examines the pros and cons of outsourcing payroll and reveals how to make it a success
Payroll may have long been regarded as a core function of the HR department, but an increasing number of businesses are reaping efficiency and cost benefits by outsourcing their payroll operations. Angus Kidman examines the pros and cons of outsourcing payroll and reveals how to make it a success
Payroll has always been one of the most time-consuming areas for any HR department, if only because of its extreme sensitivity - as soon as there's a problem with payroll, every single staff member from the CEO down will be on the phone. However, payroll bureaus outdate most other forms of HR outsourcing, and continue to hold their popularity even as other HR tasks appear on the outsourcing radar. According to Frost & Sullivan, outsourcing of all aspects of HR has been on a rapid growth curve since 2002, spurred by the desire for cost efficiencies and for access to best practices. Even if the ultimate goal is total process outsourcing, payroll is frequently the first cab off the rank.
The shipping news
For shipping company K Line Australia, the shift to an outsourcing arrangement was as much about overall business efficiency as about direct monetary savings.
"It wasn't a financial decision per se, but more a streamlining of process, which has had a cost savings advantage as well," says Chris Wareham, financial controller for the company, a subsidiary of Japanese shipping giant Kawasaki Kisen Kaisha. The Australian operation employs around 90 people and operates out of five centres.
K Line had previously managed its payroll internally using its own installation of MicrOpay and a single dedicated staff member. While that arrangement had worked well enough for day-to-day payroll tasks, it hadn't enabled K Line to take full advantage of the features available in the software. Upgrades were also difficult, since the payroll worker lacked expertise in detailed IT matters. "In terms of anything out of the ordinary, getting training was hard as well," Wareham says.
When the payroll officer decided to return to university in 2003, Wareham decided to reassess the company's approach to payroll. K Line decided to stick with the MicrOpay software but movedto an outsourced arrangement, enabling more efficient use of the platform and eliminating the need for any in-house IT expertise.
Because the underlying software was unchanged, the transition was relatively smooth. "The cutover was actually quite quick," Wareham says. "It ran pretty smoothly from the get go. I wanted to have as efficient a process as possible where there was minimal involvement all around." Wareham organised some minor customisations to simplify internal report generation, but otherwise stuck with the basic system.
Going forward, Wareham hopes to move towards a web-centred approach to payroll management, and he has signed up to be a beta tester for MicrOpay's next release, which will include such features. The new release may also help reduce a certain amount of rekeying, by allowing direct transmission of payroll information from K Line.
What advice would Wareham offer to other companies contemplating outsourcing payroll? "Obviously, they need to look internally and see if it's a good fit for them. If they decide to make the plunge, make sure they pre-plan it well. Obviously monitor the process and offer regular feedback. Taking a commonsense approach is very important."
The right ingredients
Moving payroll operations online can offer considerable benefits to all types of organisations. For national food ingredient supplier Langdon Ingredients, the switch to an online outsourced payroll service was driven by increasing frustrations with its own in-house payroll system.
"We had an in-house system, but it wasn't working well for us," says Amanda Brennan, corporate services manager for the 154-year-old company, which has around 70 employees and operates across five states.
"It required many updates which had to be tested by us and it didn't give us the reports that we needed for updating our accounting system. It was cumbersome and it was expensive." Some functions [such as calculating tax on termination payments or dealing with payroll tax] simply didn't exist within the system at all, greatly increasing the workload on administrative staff.
At the end of the 2004-2005 financial year, the company decided it was time to upgrade its approach to payroll, and considered several options. "We had looked at another in-house system, but we were a bit wary about that," Brennan says.
Working with an outsourced service was thus an obvious choice. "There was another bureau we had used a number of years ago and found their follow-up on the telephone to be slow," Brennan says.
Eventually, Langdon settled on Aussiepay's ePayroll package, which offers a web-based interface for payroll management and incorporates additional functions such as leave applications and management and automatic calculation of payroll tax in accordance with varying state laws.
Service was also a critical factor in making the selection. "We were impressed with the friendliness of the staff," Brennan says, as well as the company's willingness to travel to Langdon's head office in Melbourne.
Rolling out the system, which took place three months into the 2005-2006 financial year, was extremely straightforward, Brennan says. Key staff data and information was exported to a spreadsheet, and then re-keyed and checked by ePayroll staff before the system went live.
Having an internet-based system has proved a major boon for several reasons, Brennan says. "You hardly needed any training to use it," she says. "The ease of use is great for anyone who's ever used a computer at all."
Staff can directly access current and past pay slips, and can track leave plans for themselves and other employees in their division. "Staff can check their own leave rather than contacting the payroll department," Brennan says. The system has been well received by staff, she says, and provides for much quicker response times.
Administration staff can also easily log onto the service from any location, providing more work flexibility and reducing the total time taken for fortnightly processing. Printing costs and administration are also reduced. "The payslips are all emails - you don't need to walk round the office distributing them," Brennan says. The system also handled end-of-year-functions particularly well, Brennan says, with relevant documentation sent to all employees automatically.
Off and running
For the Sydney Turf Club, making the transition to a new payroll and HR system from Empower offered some clear benefits, but also posed a major challenge: educating its huge casual workforce on how to get access to the revamped employee self-service (ESS) system.
To deal with that challenge, the club, which began its transition to Empower in 2002, used a careful staged rollout and a long education period to ensure that all of its staff would be comfortable with the change.
"Initially, when we started with the new payroll system , our full-time office staff were introduced to the online services," says Selina Presgrave, employee relations and payroll officer for Sydney Turf Club. "In late 2004, we put on our track staff, and just recently, in September 2005, we rolled it out to the rest of the casual staff."
During busy periods, the club has as many as 1,000 employees, the vast majority of them casual workers. Training those staff posed particular challenges, since many of them only work on race days (typically a Saturday) and only have limited contact with the office staff, who work conventional Monday-Friday hours.
"There's a great fear of technology," Presgrave says. "We have a lot of elderly staff who've never ever used a computer. So we gave them more than six months to learn, and we were there with them every step of the way."
"But if you're willing to show them and take the time, they were willing to learn. If you're prepared to take the time, it will pay off."
Staff can access the system through a dedicated touch-screen kiosk at the track, or through any Internet-connected computer. While there were some teething problems with staff learning to use computer mice or struggling to remember passwords, Presgrave says the benefits have been entirely worthwhile.
"For all of the employees, there's no filling out of forms for changing banking details or filling in a leave application or that sort of thing. For me, when things like that happen, it's now just an alert. The work is completely gone in terms of filing and filling in forms." Reducing the manual work associated with payroll processing has also freed up more of Presgrave's time to focus on HR tasks. At this stage, most staff have entirely adjusted to the system, although there are still occasional calls from workers having problems with particular tasks - a trade-off the club has found more than worthwhile, Presgrave says.
What advice would Presgrave offer to other people involved in similar rollouts? "We approached all the unions involved, so I definitely recommend that. They were really good about it."
