A recent survey by PricewaterhouseCoopers (2011’s The Hidden Reality of Payroll & HR Administration Costs) suggests that the cost of managing payroll is rising, despite the constant improvement and innovation of payroll software. The cause identified by PwC’s findings is that process review is often missing from the software selection and implementation exercise: “cost effectiveness stems from comprehensive process transformation, not just technology innovations. The required change isn’t always easy, but significant financial benefits may await those organizations ready to really embrace and implement these changes.” Often, the initial driver for the software purchase is the need to improve payroll efficiency and accuracy. Simply changing the means but not changing the method severely limits the possible benefits that can be leveraged, which is why a step-by-step review of payroll processes is best practice when bringing in new technology—especially for those companies looking to maximize payroll software investment.
Payroll Process Review Step #1: Decide what and when to change
All payroll processes can be analyzed, compared to the potential future requirements and redesigned as necessary, with automation in mind. However, a strategic approach works best. While potentially every procedure is ‘up for grabs’, factors such as time of year (e.g. the annual bonus period may not be the best time to switch to e-payslips), organizational resources, and even geographical location may influence the order of review. As CedarCrestone’s 2011-12 HR Systems Survey states, “some processes may be standardized across the organization, but others remain optimized for a country or division.” Ultimately, all processes should be subject to review to ensure the best use is made of the software, but prioritizing order and timing is a wise strategy.
Payroll Process Review Step #2: Process mapping
Each process for review should be mapped in detail, tracking the information flow from point to point and person to person. The opportunity here is threefold. Firstly, bottlenecks can be identified, stages where the information is delayed. Secondly, error points become evident, stages at which the information may be changed inadvertently (e.g. data input). Thirdly, the mapping throws up redundancies such as multiple reviews or checks. Jim Medlock, CPP, Senior Director of Education and Training of the American Payroll Association points out, “Look at how many times each piece of [information] is touched. Does that form really need three approvals? Might one approval be sufficient?”
Payroll Process Review Step #3: Identify future goals
Before designing the new processes, setting goals and objectives for an improved payroll procedure in the future gives a clear direction which can be used to guide design decisions (i.e. ‘which option will better achieve our goals?’) The mapping process will have highlighted specific areas for improvement but other factors to consider include:
Organizational and sector environment – the impact of budgetary situation, other current change programs, pending legislation, business priorities, etc.
Employee demographics – taking into account variations in age, location, culture, etc.
Technological impact – how is the software expected to change payroll management (e.g. SaaS and on-premises deployment create different issues)
This is the detailed, step-by-step redesign of the identified processes in line with the agreed business goals and objectives; easing bottlenecks, reducing error rates and eliminating redundancies. Factors to bear in mind include:
The capabilities of the available software (either the purchased solution or on the market generally)
mobile and social media applications
employee and manager self-service opportunities
the compliance landscape (reporting requirements)
employee engagement (likely degree of change management and/or training necessary)
impact on data security and risk
roles & responsibilities (e.g. approval levels)
Additionally, reviewing and revising payroll processes in light of interdependencies and potential software integrations with other core HR functions – namely workforce administration, time & attendance, and health & welfare benefits administration – will allow an even greater return on investment.
As for the designers, although the detailed work might be carried out by employees or consultants with expertise in business process design and reengineering, establishing a representatives group, consisting of various key stakeholders, for feedback and even a level of approval can improve both the quality and ease of implementation of the new processes.
The Payroll Process Review Bottom Line
The need for cost and workforce reductions and the general expense in both time and money of payroll errors are often the main drivers for adopting or updating payroll software. However, as PwC’s report points out, “Whatever solution an organization chooses, organizational design and process improvements – in conjunction with straight technology investments – will better address the hidden costs of HR management.” It is the combination of both software and process that produces the desired improvements. As the CedarCrestone survey noted, “No organization can fix broken processes with automation.”
Reviewing and revising payroll processes in light of interdependencies and potential software integrations with other core HR functions – namely workforce administration, time & attendance, and health & welfare benefits administration – will allow an even greater return on investment.”