The Hackett Group - U.S. Payroll Sourcing Optimization Study Results

2014 Payroll Sourcing Optimization Study Results | 1© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

U.S. PAYROLL SOURCING OPTIMIZATION STUDY RESULTSPresented to:

The Hackett Group ─ Global Time to Pay Advisory Program

Felicia Cheek, Sr. Director

April 10, 2023

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Today’s Hackett Presenter

Felicia Cheek, Sr. Director/Sr. Advisor

Global Time to Pay Advisory Program

For more than 20 years, Felicia Cheek has worked as a payroll advisor, consultant, both internal and external, or account manager with companies like ADP, Time Warner (TBS, Inc), Xerox (ACS) and now The Hackett Group. During this time she's used her excitement and experience to enhance the payroll profession. In her position at The Hackett Group she is responsible for advising and leading hundreds of companies on their journey to top performance in payroll. In addition, she has fostered strategic relationships with the American Payroll Association, Purely Payroll in the UK and both of the Australian Payroll Associations. Ms. Cheek is a frequent speaker at payroll and human resources events around the globe and writes articles for various professional organizations and industry publications. She's a member of the American Payroll Association and was inducted into their Hall of Fame and received their prestigious Meritorious Award in 2009.

Today's AgendaOverview

Strategic Outsourcing

Sourcing & System Capabilities

Productivity

Costs & FTEs

Challenges

Future

Summary

Demographics

Overview

This section describes the study purpose

and objectives as well as details high

level observations.


STUDY PURPOSE & ANALYSIS

Payroll Sourcing Optimization Study Purpose

Identify benefits and challenges of different payroll solutions

Illuminate critical practices while showing how effectively these are being applied today

Highlight key delivery practices across current and trending payroll processing platforms

Empower payroll professionals with insight necessary to maximize current and/or future system capabilities


1 2 3 4 5

Regrdless of the solution, payroll leaders still spend more than 50% of their time on day to day payroll activities

Payroll leaders recognize strategic outsourcing as a tool that allows them to increase their focus on analytical and process improvement type activities

69% of time tax filing and payments is outsourced

High Level Observations

There is a lot of excitement and high high expectations for cloud solutions in the payroll environment.

56% believe cloud technology will bring needed flexibility, insight & control

Customizations in payroll have not gone away and are common across all technology platforms—but is it for the right reason?

66% of customizations are to accommodate unique business requirements

Integration & Flexibility are the biggest challenges for all payroll systems, regardless of their platform (i.e. cloud, ERP, Service Bureau)

46% list integration & flexibility as the biggest challenge of their payroll system

ProductivitySourcing FutureChallengesFunctionality

25% spend >50% of their time on day to day payroll activities

Sourcing

Sourcing in payroll can be broken into two categories—

•Gross to net

•Other activities and sub processes

In general, regardless of whether the gross to net calculation occurs in house or is outsourced, decisions need to be made around certain other activities like tax filing and payments, verification of employment, payment distribution, etc. etc.

This section will highlight sourcing decisions in general and by payroll platform.


Process Sourcing Profile

In-House•>=5,000 employees•53% in a Corporate Environment•50% outsource Tax Filing & Payments•46% use an ERP solution•69% customizations

Outsource•<=5,000 employees

•71% in a Corporate Environment

•52% under Finance

•67% use a Best of Breed Solution

•47% customizations


Tax Filing & Payment

W-2/T-4

Check Printing

Verification of Employment

Garnishment Payments

Pay Statement Distribution

Garnishment Administration

Gross to Net

Payroll Inquiries

Employee Data Maintenance

31%

43%

46%

47%

50%

52%

59%

64%

91%

93%

69%

57%

54%

53%

50%

48%

41%

36%

9%

7%

In-House Outsource

Selective outsourcing is a common practice allowing payroll resources to focus on activities that create the most value…

System Characteristics

Technology should be designed to automate the payroll administration process and increase productivity.

Effective payroll solutions have features and functionality that increase productivity throughout the payroll administration process.


In almost every category, participants indicate an average level of expectations and satisfaction – basically they understand the significance of technology in payroll, but, they’re current experience leaves a lot to be desired

As it relates to performance and satisfaction, there is not a lot of difference in results for current payroll platforms

The different payroll platforms are:

Most are not overly excited about the current payroll platforms, however, most providers are developing new solutions…


Almost 40% believe the level of agility in their current payroll platform is good, while more than 60% want more agility…

36%

46%

18%

Good Average Poor

Status Payroll Platform

Service Bureau ERPCloud

*small peer group

Good 20% 39% 50%

Average 53% 46% 40%

Poor 26% 16% 10%

While neither Service Bureau or ERP users are overly excited about the level of agility in their solution, almost 40% of ERP users are comfortable with the level of agility offered

High Expectations For Cloud Solutions—At first glance, cloud solutions indicate a significantly higher level of system agility than is currently available.


Most are split down the middle when it comes to the user experience, ½ indicate it’s good, while 9% would like it to be better


Service Bureau ERP Cloud*small peer group

Good 47% 43% 80%

Average 40% 46% 20%

Poor 13% 12% 0%

Only 43% of participants that process payroll using an ERP solution believe the user experience is good, compared to 46% that indicate the user experience is average.

High Expectations For Cloud Solutions - At first glance, cloud solutions indicate real promise when it comes to the overall user experience

50%

41%

9%

Good Average Poor


Improved features & functionality is necessary to streamline and automate the payroll process…



Good 27% 43% 80%

Average 60% 46% 20%

Poor 14% 12% 0%

Regardless of the solution, no one is overly excited about the features and functionality currently available

High Expectations For Cloud Solutions – Everyone is expecting increased features and functionality with the implementation of cloud solutions. With the focus on decreasing the level of customizations, the expectation is some of those features that are available only through customizations currently, will be included in regular features and functionality of cloud solutions

45%

46%

9%

Good Average Poor


Only 38% of participants believe technology costs are good in their current environment, 16% have poor technology costs…



Good 33% 27% 50%

Average 47% 54% 40%

Poor 20% 20% 10%

For most ERP systems, there is little excitement around technology costs as there are lots of things that impact their overall technology costs

High Expectations For Cloud Solutions - Again, while cloud solutions are growing in usage, for those that are using them, 1/2 believe their technology costs are good, which is clearly a big expectation of cloud technology.

38%

46%

16%

Good Average Poor


43% believe dependency on IT resources is as expected, while 14% are not comfortable with their dependency on IT resources…



Good 60% 19% 70%

Average 20% 65% 20%

Poor 20% 16% 10%

Most ERP users are not overly excited about their overall dependency on IT resources, with only 19% believing their level of dependency is good.

High Expectation For Cloud Solutions - Once again, cloud solutions, although still growing in usage is meeting expectations around lowering dependency on IT resources, ultimately reducing the number of in-house IT resources required to maintain the payroll system.

43%

43%

14%

Good Average Poor

ProductivityProductivity in payroll is achieved through simplification, standardization and automation throughout the process


Automation of business processes is important, yet only 23% of participants indicate it is easy with their current solution…

Regardless of the solution, most are looking for an easier process when it comes to automation of business processes. 50% or more believe the experience on their current solution is just average.

High Expectations For Cloud Solutions – When comes to ease of automation of business processes, early indications from those using cloud solutions do not show this as an area with an advantage.

23%

48%

29%

Easy Average Difficult



Easy 7% 23% 40%

Average 53% 50% 50%

Difficult 40% 27% 10%


The ability to create ad-hoc reports with ease is difficult for 25%, regardless of the solution, while 37% indicate it’s easy…

Those using Service Bureau’s have the most difficult time with reporting as 40% indicate it’s difficult, while 38% of those using an ERP solution indicate it’s easy to create ad-hoc reports.

High Expectations For Cloud Solutions – Still in it’s early stages, of those using a cloud solution, 40% indicate it’s easy to create ad hoc reports while 60% indicate there is experience is average

37%

38%

25%




Easy 33% 38% 40%

Average 27% 35% 60%



Security will continue to be an important feature of any solution, still 23% indicate it’s difficult to configure…



Easy 30% 31% 40%

Average 33% 42% 40%


38%

39%

23%


Configuring security is fairly evenly divided regardless of the payroll platform.

High Expectations For Cloud Solutions – Looking at early user results, 40% indicate it’s easy to configure security, while 20% believe it is difficult. Even though they believe it’s difficult, it does appear to be easier than capabilities with Service Bureau’s and/or ERPs.

Costs & FTEs


Technology costs represent 45% of total payroll processing cost for in house processing but only 9% when outsourced

Outsourcing costs vary depending on the type of agreement, scope of processes and activities outsourcedTechnology costs vary depending on the system, level of customizations, whether there is an upgrade or implementation; level of integrationIt takes .43 technical resources/1,000 employees to support and maintain the payroll system, regardless of the payroll platform

In-House Outsource $-

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

Total Cost Technology Cost

Challenges

This section details some of the common

challenges experienced across all payroll

solution platforms


Flexibility and integration have long been the top challenges with payroll technology…

Flexibility and integration are the two biggest challenges in the payroll administration process, regardless of the sourcing solution

Agility; 17%

Application Support; 15%

Compliance; 2%

Cost; 8%

Data Control; 12%

Flexibility; 23%

Integration; 23%



Agility 14% 20% 0%

Application Support 7% 16% 22%

Compliance 7% 0% 0%

Cost 14% 8% 0%

Data Control 14% 12% 11%

Flexibility 14% 28% 22%

Integration 29% 16% 44%

46%


The HRIS, Time Reporting and Accounting system are integrated with payroll 73% of the time…

Sometimes these systems are not integrated, requiring manual processes be put in place. In addition, system integration affects other systems like variable compensation, employee expense reimbursement and equity administration systems.

While ERP systems have more integration, most of the time it is just data movement, and rarely includes workflow across systems.

Expectations For Cloud Solutions – center around unifiedsolutions, decreasing the concerns around integration

73%

27%

Yes No



Yes 47% 85% 78%

No 53% 15% 22%


More than 50% would like more flexibility in their payroll system



Good 33% 39% 60%

Average 13% 34% 10%

Poor 54% 27% 30%

One of the biggest concerns we have always heard about Service Bureau solutions centers around flexibility as indicated by 54% of our respondents

ERPs are more flexible, but the level of flexibility must be balanced with the cost of customizations and maintenance

High Expectations For Cloud Solutions - As indicated earlier, more than 50% are looking to cloud solutions for more flexibility without the additional technology costs that usually accompanies Service Bureau and ERP solutions

42%

25%

33%

Good Average Poor

58%

FutureWhat does the future look like for the

payroll administration process?


14%

44%

42%

High Average Low

Just a year ago, the percent of payroll professionals that have knowledge of cloud solutions in payroll was much lower than it is today. The landscape is rapidly changing, primarily because Human Resources is aggressively adapting cloud solutions, forcing payroll to increase their overall knowledge of cloud capabilities in payroll.

Most payroll solution providers offer cloud solutions, and those that don’t are rapidly developing them.



High 20% 4% 60%

Average 40% 42% 40%

Low 40% 54% 0%

Payroll professionals are becoming more knowledgeable of cloud technology…

58%


For those that understand cloud technology, the expectations are high, believing it will allow additional flexibility, insight and control not available in current systems.

From a platform perspective, those currently on ERP solutions that understand cloud technology have the highest expectations

56%

44%

Yes No



Yes 33% 67% 38%

No 67% 33% 62%

And they have high expectations!— with 56% believing cloud solutions will offer more flexibility, insight and control…


Payroll processing in the cloud will continue to increase over the next 2-5 years….many factors are leading to more companies becoming comfortable with cloud solutions…



Yes 56% 42% 89%

No 44% 58% 11%

Movement to cloud technology is increasing with 45% of companies planning to move to the cloud in the next 2-3 years!

45%

55%

Yes No

FutureWhat does the future look like for the

payroll administration process?


Mobile Functionality is clearly an area where there is lots of room for improvement, regardless of sourcing or processing platform…



Good 29% 24% 50%

Average 43% 32% 50%

Poor 28% 44% 0%

Mobile functionality is an area that every solution has opportunities to improve in. ERP platforms have the largest opportunity in this area

Mobile devices are computers for most Millennia's

Companies that do not have ESS available outside the company firewalls are missing the point of ESS

As with most things, cloud solutions promise good capabilities in this area

29%

37%

34%

Good Average Poor

71%

Summary


Summary

Payroll leaders are anxiously awaiting enhanced technology capabilities that can move the payroll administration process to the next level

Strategic outsourcing should always be a part of the payroll sourcing solution, freeing payroll resources to work on more value added activities

Tax filing and payments is the most commonly outsourced sub process in payroll

In general, payroll systems lack agility, limiting their ability to quickly respond to internal business needs

Payroll technology costs represent approximately 45% of total cost, leaving many looking to cloud solutions to reduce technology costs in payroll

56% of those that have an understanding of cloud technology believe it will provide additional insight, flexibility and control in payroll

45% of companies are planning to move to cloud technology over the next 2-3 years


Questions or Comments?

Demographics

The study included almost 80 companies across the United States and Canada. There was broad representation from companies:

•Paying employees in both the United States and Canada

•Aligned under Human Resources and Finance or Global Business Services

•Calculating gross to net in house and outsourcing

•Operating in a leveraged, corporate or decentralized environment

•Paying employees in almost all industries

•Using all technology platforms for payroll processing


The payroll administration process continues to be fairly equally split between Human Resources and Finance…

51%47%

2%

Human Resources Finance Global Business Services

12% of companies aligned under Financeoperate in a shared servicesenvironment

25% of companies aligned under Human Resources operate in a shared servicesenvironment


64% of our participants process payroll in-house, which is fairly common of large multinational’s based in the U S…

64%

36%

Inhouse Outsource


With 60% operating in a corporate environment….

60%

32%

8%

Corporate Shared Services Decentralized


14%

7%

19%

20%

22%

10%

2%7%

Less than 500m Between 500 and 999m Between 1Bn and 4.99 Bn Between 5Bn and 9.99BnBetween 10Bn and 19.99Bn Between 20Bn and 49.99Bn Between 50Bn and 99.99Bn More than 100Bn

Companies represent different revenue levels…


7%

8%

5%

7%

3%

7%

5%2%2%1%7%

10%

10%

5%

2%2%

3%

5%

2%2% 3% 2%

Accommodation & Food Services

Agriculture, Forestry, Fishing & Hunting

Apparel, Household & Personal Products Manufacturing

Automobiles & Component Manufacturing

Banking

Commercial & Industrial Materials Manufacturing

Communication equipment, computer, electronics and Semicondu

Construction

Diversified Financial Services

Educational Services

Energy

Food, Beverage & Tobacco Manufacturing

Healthcare Services

Insurance

IT Services

Media, Recreation & Entertainment

Non-Energy Utilities

Pharmaceuticals, Biotechnology & Life sciences

Professional, Scientific and Technical Services (non-IT or c

Public Administration

Retail Trade

Software

Most industries are represented


39%

27%

18%

16%

ERP Service Bureau Cloud Other

All payroll solutions are represented in the study, but the largest participation was from ERP’s and Service Bureau’s…


Felicia Cheek

Senior Director – Global Time to Pay Advisory Program

Phone: + 1.770.703.7470

Mobile: +1.404.218.8666

[email protected]

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http://www.thehackettgroup.com/

The Hackett Group - U.S. Payroll Sourcing Optimization Study Results

Technology

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