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Micah Fairchild Open Source Payroll: Factors for Selection

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 By Micah Fairchild

Open Source Payroll Selection: 4 Factors for Determining Fit

The potential benefits of opting for open source payroll software are fairly well established. And even as far back as 2006, the case for all business applications to go the open source route was fairly summarized through a report by The 451 Group stating “Considering the opportunity for financial benefits along with the flexibility that comes through access to the software’s source code, the freedom from vendor lock-in, and the potential for improved security, reliability and performance, open source is a serious contender in enterprise IT today” Still, even though the benefits are accepted and open source is increasingly becoming a more widely embraced option, that doesn’t necessarily mean that it’s a viable option for your unique business needs.

To be sure, if you’re in search of a new payroll software solution and you’ve decided that the open source route is right for your business, the usual vendor/product selection issues apply (i.e. functionality, user-friendliness, stability, and data security). However, as Ernst & Young (E&Y) point out in their report, Open Source Software In Business-Critical Environments, “On the other hand, open source-specific characteristics such as the open source license, community size, developer heterogeneity, support availability, release management and legal ownership are also highly relevant when determining the quality of an open source solution”. We tend to agree with them, so it seemed only prudent to address those issues E&Y brought up, and use those as an additional set of selection factors to keep in mind when evaluating open source payroll solutions.

Open Source Payroll Selection Factor #1: Open Source License

Fortunately, the myth that open source software is unlicensed is gradually dying out. In fact, it is the license that defines the software as “open source”. The common features of all open source licenses (which must be approved by the Open Source Initiative) are:

  • The software’s source text must be comprehensible for people.
  • The software may be copied, distributed and used as desired.
  • The software may be amended and distributed in its amended form.

In a sense, the goal of the open source license (i.e. wide dissemination of the code) is the opposite of the traditional, proprietary license which seeks to restrict access. This difference can be source of legal open source concerns to the unaware; and, as such any software selection process should include a careful reading of the small print. The Ernst & Young report offers an example as a warning: “If, under a particular license, open source code is integrated into in-house software due to an oversight and then distributed outside the organization, this can result in the mandatory publication of the entire programming code for the in-house software”. Otherwise the organization risks going to court for failure to comply with licensing laws.

Open Source Payroll Selection Factor #2: Community Support

With proprietary payroll software, external support for installation and ongoing usage tends to come in a comparatively self-contained bundle from either the vendor or the value added reseller (VAR). Such support may sometimes be a significant component of the total cost of ownership (TCO) but the benefit is a single point of contact and clearly-delineated responsibilities. With open source payroll, support can also come via these avenues (after all selling support packages is how many open source vendors make their money); but a third (and often vital) support route is the user/developer community. This community, often accessed via social media such as forums, wikis, newsgroups, etc., can be a vital lever for maximizing the benefits of any open source payroll solution—providing a free resource for troubleshooting, enhancements and bespoke development. As such, the size, health and level of activity of the user community can (and should) be a deciding factor in open source selection.

Of course, access to the software’s source code does allow a fourth option which is not to rely on external support at all and attempt to handle everything in-house. While perfectly possible, this requires a level of capability which is probably beyond most organizations. The recommendation from Accenture in their pro-open source paper, Accelerating the Benefits of Open Source Software is, “Instead of taking a self-support approach to OSS [open source software], which too often dilutes its benefits, obtain support from a third party at modest cost.”

Open Source Payroll Selection Factor #3: Vendor Stability

Vendor stability is a critical issue when buying proprietary payroll software. After all, if the vendor’s business goes under, their clients are faced with a choice of purchasing a new solution or operating with unsupported payroll software; which can be a significant business risk. With open source payroll however, should the worst happen and the vendor company folds that risk is mitigated to some extent by the ongoing support that can come from a healthy user community. Long or even medium term, you may still decide to switch to another solution but at least with open source there may be a temporary safety net.

Open Source Payroll Selection Factor #4: Cost

Cost is often the bottom line for any software procurement exercise; and despite its reputation, open source software has never been “free”. In fact, in a 1999 essay entitled The Magic Cauldron, Eric Raymond pointed out that, “The term ‘free’ is misleading...Lowering the cost of a good tends to increase, rather than decrease, total investment in the people and infrastructure that sustain it”. So, even though there might not be a licensing fee, keep in mind that the total cost of ownership in most cases consists of more than that simple payment. As such, when calculating the TCO of your potential open source payroll purchase, try instead to follow PricewaterhouseCoopers advice. Specifically, PwC’s report, The Hidden Reality of Payroll & HR Administration Costs, recommends that the following cost factors be taken into account:

  • System installation
  • Periodic system upgrades
  • Direct labor costs
  • Direct non-labor costs
  • System maintenance costs
  • Indirect labor costs

As can be seen, while open source payroll can create cost reductions, companies shouldn’t be fooled by the simple absence of a license fee.

Selecting the Right Open Source Payroll Solution – Final Thoughts

Choosing the right open source solution for your needs requires some informed decision-making before you can trust it with a business-critical function like payroll. As mentioned above, Ernst & Young are clear that open source potentially offers greater flexibility of function, freedom from vendor lock-in, cost savings, and potentially more rapid distribution than the proprietary alternatives. However, in order to fully leverage these attractive benefits, the unique characteristics of open source software must be addressed as part of a rigorous selection process. End

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In a sense, the goal of the open source license (wide dissemination of the code) is the opposite of the traditional, proprietary license which seeks to restrict access. This difference can be source of legal difficulty to the unaware.

 

 

 

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