While technological enhancements have cut the burden of payroll administration and freed up HR and other staff to perform higher-value functions, increased dependency on payroll software presents its own challenges. Angus Kidman reports
While technological enhancements have cut the burden of payroll administration and freed up HR and other staff to perform higher-value functions, increased dependency on payroll software presents its own challenges. Angus Kidman reports
A common approach to handling payroll within an organisation is to outsource it. While this is not a new phenomenon, improvements in technology have made it more compelling for many businesses, and have also made payroll a rare and prominent example of the benefits of outsourcing. A recent study by Forrester Research suggests that payroll often serves as a test platform for wider business process outsourcing, since it is frequently handled outside the organisation without detriment to the general business or loss of any confidential data.
Other data reinforces that view. Research by the Economist Intelligence Unit across 500 global companies found that 37 per cent had outsourced payroll, and another 16 per cent planned to. However, that still means that nearly half of all businesses intend to continue running payroll internally. And whichever path is chosen, selecting an appropriate platform and keeping it up-to-date remains a challenge that must be jointly met with HR, finance and IT professionals.
Crossing the border
Payroll can present particular challenges when it has to operate across national borders. Cisco, the world’s largest manufacturer of computer networking equipment, faced that dilemma when it decided to upgrade the payroll systems across a dozen countries, including Australia, in the Asia-Pacific region.
Cisco had previously used external payroll providers in each country, but wanted to move to a centralised system. As well as simplifying the payroll process and increasing staff mobility, this would also make it easier for the company to ensure that it met regulatory needs both for the global operation and in each country.
“Traditionally, we had been outsourcing to companies that could handle both payroll and tax filing in individual countries, but we wanted to move to a complete, end-to-end solution, including all local compliance needs,” said Wendy Lee, payroll manager for Cisco Asia Pacific.
Given the complexity of the project, Cisco decided to use an external project management team, and turned to Australian specialist Infinity Outsourcing Group. Beth Madgwick, director and accounting services implementation specialist for Infinity, managed the project from its inception in July 2003 until the last country was added to the system 15 months later.
“With payroll, you are looking at a system that is used by very few users in the organisation, but its success or failure impacts the whole employee base,” Madgwick said. “You can’t let payroll fail – you have to have a contingency plan.”
A critical element in the success of the upgrade was making sure that HR, finance and IT teams could all agree on the relevant dimensions.
“It all comes from buy-in right at the beginning,”Madgwick said. “If everyone is involved up-front, they have buy-in into the final decision and it makes it a lot easier. It’s a question of getting the right people in the room.”
“Where the payroll function sits is also critical,”she added. Companies where payroll resides in finance tend to have a highly analytical bent, while companies which make payroll part of HR will take more interest in wider issues.
In Cisco’s case, the human resources manager reported to the senior manager in charge of finance, so both issues got equal consideration. Cisco also incorporated a dedicated HR IT support team, so gaining access to IT resources did not become dependent on other company projects.
In Madgwick’s wider experience, getting IT agreement is not usually too challenging or beset by politics. “IT doesn’t seem to get into an ‘us and them’scenario so often; prioritisation of projects is normally the biggest issue on the technology side.”
Having a single project manager from outside the company helped to ensure that all three elements worked in harmony. “Because there is such a diverse team, having a central project manager was key to holding the group together,”Madgwick said.
An early task was to decide on the order in which countries would be rolled out. Key elements in this decision included when their financial year ended, the number of staff involved and the complexity of the legal system in each country.
Some difficulties were purely technical. “Cisco interface all the payroll data through PeopleSoft, so our biggest challenge has been for HR to ensure that all the data in PeopleSoft is 100 per cent correct,”said Lee. Another key issue on the technical level was identifying bugs in the chosen payroll platform, ADP, and working with its developers to eliminate them.
A particular challenge in the Cisco environment was identifying the different legal processes and terminology for hiring and departing staff. In practice, Madgwick said, many of the same concepts are found in different countries, but sometimes with widely varying labels.
“You tend to find normal payroll is not the problem. It’s the exception that can be tricky,” she said.
Flexibility was a key requirement. In some countries, Cisco continues to use manual lodgement processes. Changes to legal systems and compliance requirements must also be able to be quickly implemented within the software.
Some of the processes have become more standardised. “Putting in a new system is always a good opportunity to align things,” Madgwick said. However, legal and cultural differences mean there is always likely to be some variation.
So far, Cisco has been very pleased with the implementation. “Transferring from 12 systems in 12 different countries to one system across the whole of the Asia Pacific region means that we now have one format for payslips,” said Lee. “Also Cisco can now run standardised reports on a timely basis and can work with one payroll vendor instead of 12, which in turn drives down costs.”
Growing and switching
Some payroll upgrades become inevitable because of business growth. That was the case at Working Systems Solutions, an Australian software development and integration company with a particular focus on healthcare.
WSS had been utilising Quicken to manage its payroll requirements. However, continued expansion made that difficult. “Quicken was great for small businesses, but as our company was growing we had outlived its use,” said Simon Alden, WSS’ payroll manager. “We needed a system that was able to accommodate our growth and free up my time. As a publicly listed organisation, we are audited every six months, so we need our payroll data to be as visible as all other accounts-related data.”
“We don’t have an HR department, and our payroll is salary-based with no overtime or shift allowances so it’s not particularly difficult, but I never trusted Quicken for accuracy, especially in leave calculations and taxation queries. As we grew, it became increasingly difficult to extract – let alone analyse – the data we needed from the previous system. We could get a historical report on what we had paid people, but not why, which undermined future business planning.”
Processing payroll was also a time consuming task, frequently accounting for more than 50 per cent of Alden’s time.
One choice WSS had to face early on was whether to install a replacement package or to outsource the entire payroll operation. Both options were investigated, but in the end WSS favoured keeping payroll on site. “We found the costs associated with outsourcing weren’t beneficial,” Alden said.
WSS ended up selecting MicrOpay’s Meridian package, which was specifically targeted at medium-sized Australian organisations. Switching to a new package eliminated migration concerns. “Because we used a new system, no importing was needed,”Alden said. “All I had to do was re-enter personal information from the existing system.”
An advantage for Meridian was that it was not wedded to the processes found in earlier MicrOpay releases. “We were probably in a unique position in that we weren’t cornered into a particular mind set.”
As one of the first customers for the Meridian package, Alden anticipated some teething troubles. “Being a new system, there were a lot of challenges early on, such as bugs, patches and fixes. There were lots of phone calls in the first few months, but this was to be expected,” he said.
“We were told we were virtually the guinea pigs for the system, but the support staff were always very helpful and very friendly. Since that initial few months, there have been virtually no problems using the system at all, and it has saved me time to concentrate on other tasks.” Alden estimates payroll now consumes just 20 per cent of his time.
Because MicrOpay handled the main system installation, impact on WSS’ IT staff was minimal, requiring only interaction on the basic network setup and connection to the existing Harmony system used for time and attendance reporting. “The bulk of installation was done on my PC, which suited everyone,”Alden said.
