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Re-Engineering II AnalysisPayroll Assessment Project

Scope and Objectives

 The Payroll Assessment team focused on the University’s US payrolloperation including Time & Labor as a key input component to payrollprocessing. The review covered all employees, process, and technologycomponents necessary to support the payroll process starting from on-boarding, transaction processing, time collection up to the production of paychecks and the payroll bank file.

 The objective of the assessment is to investigate opportunities for improvingaccuracy, efficiency and effectiveness for NYU’s US payroll operations. Thisincludes:

• utilizing industry standards and benchmarks

• analyzing payroll service delivery alternatives

• assessing current payroll processes and functions

• interviewing key users of payroll operations

Data was gathered using two methods:

•  Transaction and financial data was extracted from the HRIS/Payroll and

Personnel Action Submission System (PASS). The resulting metricswere compared to industry standards to measure how NYU comparesto other organizations.

• A total of 18 interviews were conducted covering 48 personnelrepresenting the various schools, units and administrative areas. Theinterviews were used to identify roles, procedures, issues,opportunities, and challenges to the current payroll process.

Current State/Fact Findings

 The total University (Washington Square; excluding School of Medicine)employee population is approximately 18,000+ and is paid in one of fourpayroll schedules -- monthly, semi-monthly, weekly and bi-weekly. Inaddition, there are two scheduled off-cycle payrolls each week (on Mondayand Thursday), designed to catch late-submissions and special transactions.In total, there are at least 17 payroll cycle runs each month.

1. Time & Labor process is manual

NYU’s Time & Labor process is almost 100% manual. Information is enteredon paper forms and transmitted to Payroll for keying into the HRIS system.

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 There is no standard mechanism for tracking vacation and sick time; somedepartments use “shadow” systems, others do it manually, or thisinformation is not maintained. The potential for overpayment could besignificant.

2. Payroll Operating costs are significantly higher thanindustry average

Current annual cost of operating payroll is $4.7 million. Almost half of thatcost is dedicated to supporting a manual Time and Attendance process --42.9% in field support and 6.6% in T&L labor. An additional 15.5% is in ITLabor. When added together, more than 60% of the cost of Payroll is in ITand the Schools/Units which must dedicate FTE to supporting Time and Labortracking and Payroll.

3. Late transactions impact Payroll operations

A significant number of transactions (73.8%) from the Schools/Units are

submitted late. The University issues 11,000 off-cycle payments annually.Off-cycle payments and retroactive adjustments cause rework for both thePayroll department and the School/Unit Payroll support. Off-cycle payrollfunctionality was custom-built for the HRIS/Payroll system in an effort toavoid financial hardship to employees and eliminate manual production of checks which are costly and inefficient.

4. HRIS/Payroll system is obsolete

Currently, the University’s HRIS/Payroll system is called Integral -- amainframe computer system that is approximately 30 years old. It is nolonger supported by the vendor and NYU is dependent on a relatively smallthird-party support firm. There is substantial business risk of payroll failureas well as the possibility that the University will be unable to implementregulatory changes. In addition, the number of IT professionals with Integralexpertise is small and will continue to shrink.

5. NYU lags behind other Higher Education organizations

In comparison with other higher education institutions and industry bestpractice, NYU lacks:

• An automated system for Time & Labor tracking

• A shared service center model for payroll and employee services

• An Enterprise Resource Planning (ERP) system such as PeopleSoft

6. Benchmarks show NYU has significant opportunities forimprovement and savings

 The estimated cost per paycheck at NYU is $15.20 compared to the externalbenchmark of $3.44. The NYU average payroll cost per Payee is $304.04compared to the external benchmark of $72.93. NYU processes five timesmore retroactive pay adjustments compared to the external benchmark. The

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average Payroll operation services approximately three and a half timesmore employee per Payroll FTE than NYU.

7. Outsourcing Payroll operations will be an expensive proposition

Four options were considered as follows:

• Option 1 – Maintain in-sourced payroll, automate and reengineer keyprocesses

• Option 2 – Outsource payroll (data processing), automate T&L,

reengineer key processes

• Option 3 – Outsource payroll and T&L (data processing mode),

reengineer key processes

• Option 4 – Outsource payroll and T&L (managed service model),

reengineer key processes

 The financial analysis prepared by Accenture presented four options withOption 1 showing the lowest steady state run cost, and the best overallfinancials and rate of return.

Recommendations/Re-Engineering Opportunities

Based on Option 1, the project recommendations are as follows:1. Continue to run Payroll as an insourced function.2. Implement a Time & Labor system immediately. (Accenture estimates

the cost of implementing a Time & Labor module at $7 million.Internal assessment by Human Resources estimates the cost at $2.5-3million).

3. Transition Payroll into a true Service Center model and optimize payroll

operations.4. Reengineer key aspects of HR transaction processing to improve speedand efficiency of transactions affecting payroll.

Cost Savings

Some of the potential impacts of implementing a Time & Labor solutioninclude:

MINIMUM SAVINGS MAXIMUM SAVINGS• Up to 50%

reduction in Payroll

 T&A staff ($250thousand annualsavings

$250,000 $250,000

• Up to 75%

reduction inSchool/Unit payrollsupport staff ($1-2million annual

$1,000,000 $2,000,000

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savings)

• Estimated 1-3%

reduction in totalhourly payroll byreducingoverpayment errorsand inaccuratetracking of sick/vacation time($1.5-3 millionannual savings)

$1,500,000 $3,000,000

• Overall, the

financial impact of 

the recommendedoption includesreduction of steadystate run costs by$1,937,340 million,a 45% reduction

$1,937,340 $1,937,340

TOTAL $4,687,340 $7,187,340

Payback of 2.3 years with an NPV of $18 million (based on $7M Time

& Labor investment and reduced payroll operating costs of $1,937,340).

Timeline

Based on Option 1, a proposed timeline was presented with the following keymilestones.

• Begin implementation of Time & Labor system - Oct. 2009 (Both Payroll

and Human Resources should co-chair and direct the implementationplan).

•

Begin Payroll optimization (creation of Payroll service center) - April2010

• Begin HR re-engineering - Oct. 2010 or before.

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