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Dave Foxall Payroll Software Selection: A Best/Worst Practices Guide

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 By Dave Foxall

Selecting Payroll Software: The Do’s and Don’ts

For every best practice there is a worst, for every safe path there is a pitfall, and sometimes this is exactly the reason for overly-complicated (and ineffective) payroll software selection projects. Indeed, often the project team will spend so much time, money, and effort on the best practices that they fail to notice the pitfalls; or alternatively, they diligently avoid all the potential mistakes but in so doing never look up to see that a mediocre project and a mediocre system are a result.

Given the fact that the technology itself is often the single largest payroll expense (other than the labor costs), failure to select the best fit payroll software can cost an organization thousands of dollars in wasted time, resources, and system expenses that cannot be recovered. The key then is to take a balanced approach to choosing payroll software—remaining cognizant of not only best practices but worst practices as well. Here are our some our top suggestions to help you keep one eye on the horizon and the other on the sometimes rocky road ahead.

Payroll Software Selection Best Practice #1: A Rigorous Process

A simple and straightforward process provides a project path; allowing clarity on goals, resources, and required personnel at each stage—encouraging light but timely monitoring of progress. As such, a sample step-by-step payroll software selection process would be:

  • Identify the expected business benefits (preferably measurable targets or indicators);
  • Develop a basic understanding of the landscape in question (such as the Cloud or mobile markets and related terminologies);
  • Establish the needs of your different stakeholder groups;
  • Create a clear request for proposals (RFP);
  • Have in mind a broad initial cost structure and budget;
  • Shortlist vendors and providers (based on an initial assessment of capability and stability);
  • View demos and presentations from identified vendors;
  • Judge detailed cost and implementation issues; and finally
  • Make a decision.

Payroll Software Selection Worst Practice #1: An Overly-Detailed Process

Just as a rigorous selection process can be beneficial, organizations should be wary of creating layers of excess complexity within the various steps. For example, in a 2012 blog post, global HR technology consultant, Ahmed Limam warns against the dangers of overly-lengthy requests for proposals (RFP); stating “…now that the package-software market has reached functional maturity, …spending an inordinate amount of time on listing every single requirement one can think of does not make sense any more”. In fact, as Limam goes on to elaborate, “it is far more efficient to have fewer requirements, but well-chosen ones, which would allow you to differentiate between vendors”.

Payroll Software Selection Best Practice #2: Focus on the Future

Rather than look for software that can handle your payroll function as it is now, focus on the future requirements of your workforce. How do you intend to grow your business? How will your workforce change? Do you foresee more part-time, contingent, or remote workers for your company’s future? CedarCrestone’s 2011-12 HR Systems Survey predicts a 50% increase in mobile adoption over the next 12 months. How might this affect your payroll software strategy? This forward looking aspect of the selection process, as a recent white paper from SNP Consulting (Future-proof and Time-efficient ways to choose a New Payroll/HR System) suggests, “…should cover a five year decision horizon.”

Payroll Software Selection Worst Practice #2: Ignoring the Journey

Clarity on the future is the goal, but your best fit payroll software solution should also be fully able to handle the transition from the present. Business change can be a gradual process and your ideal application will perform for today, be ready for the future, and be flexible and scalable enough to ensure accurate and timely payroll in between. On the issue of scalability, the increasing popularity of SaaS payroll solutions (CedarCrestone forecast in 2011-12 that the SaaS model will grow 60% in adoption over the next year) is due to the subscription fee model usually being based on a per capita formula and can adjust with changing size of the client company. While the cloud model might not necessarily be a direction that your company is eager to jump into right now, the fact of the matter is that ignoring that software deployment type as a possibility for the future is not only unwise, but one of the most common payroll software selection mistakes that can happen.

Payroll Software Selection Best Practice #3: TCO Knowledge

Total cost of ownership (TCO) of any software is more than simply the license fee and implementation costs. In fact, a 2011 PricewaterhouseCoopers (PwC) survey report, The Hidden Reality of Payroll & HR Administration Costs, identified the following cost elements for payroll software:

  • System installation (one-off acquisition and implementation);
  • System upgrade (periodic costs related to upgrading to a more current version);
  • Direct labor costs (labor costs for the staff necessary to support the system);
  • Outsourcing costs (costs deriving from any outsourced payroll services);
  • Direct non-labor costs (including consultants, vendor fees and facilities, G&A, and related corporate overheads);
  • System maintenance costs (IT costs specifically related to maintaining the system); and
  • Indirect labor costs (labor costs for employees such as collecting; approving and preparing employee hours for payroll; distributing paychecks, etc.)

Payroll Software Selection Worst Practice #3: Inordinate Focus on Price

While the figure on the “price tag” is undoubtedly a fundamental selection criterion, it can quickly become the bottom line deciding factor. And more often than not this happens because money is one of the most easily measurable elements of any software purchase. As such, an agreement on a broader list of criteria (with an arrangement on how those factors should be weighted) can significantly assist in achieving that coveted “balanced” decision.

Payroll Software Selection Best Practice #4: Senior Stakeholder Involvement

While the project’s stakeholder engagement strategy should cover all levels and representative roles within the organization, the C-suite executives are particularly important because of their influence over high-profile projects on this scale. The selection of payroll software requires top level input on determining system specification, assessing providers, software demos, and (of course) the final decision. And the risk of failing to fully involve senior decision-makers can have seriously detrimental issues for the selection process. In fact, as a consultant quoted in a Global Business and Technology Association publication states, “We worked together well, did all the right things, but we were sabotaged by the senior executives. They did not follow through on their promises and did not do what they said they would do”.

Payroll Software Selection Worst Practice #4: Shutting the C-Suite Out

As mentioned above, senior management’s role in driving and supporting the change in payroll software selection is crucial, but it’s even more important during the implementation phase. As a recent interactive online tool from Software Think Tank (which aims to guide organizations through the basics of primarily ERP software system selection) puts it, “Unfortunately, many senior executives believe their role in a project is complete after the software has been selected and the negotiations are finished. Nothing could be further from the truth”.

Payroll Software Selection Practices – Final Thoughts

Focusing on the best practices, avoiding the worst ones, and remaining cognizant of each is a sure to find the best fit payroll software for your organization. It should be noted though, that once the selection process is complete more important work is still ahead; including implementation, maintenance, and improvement issues. That said, when it comes to selecting the right payroll application, neatly summarizes its importance by stating, “Selecting the right software cannot guarantee the success of a project, but picking the wrong system can ensure failure”. End

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Rather than look for software that can handle your payroll function as it is now, focus on the future requirements of your workforce. How do you intend to grow your business? How will your workforce change? Do you foresee more part-time, contingent, or remote workers for your company’s future?"



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