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Micah Fairchild Building the Business Case for Payroll Software – Part Two

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 By Micah Fairchild

Compelling Benefits to Include in a Payroll Software Business Case

According to recent KPA research, the fundamental question that any payroll software business case must answer is: “How will a Payroll/HR system assist the organization with doing a better job of reaching critical business objectives?” The first part of this article covered the key steps in building a payroll software business case (i.e. stakeholder analysis, evaluating the current system, alternative proposals, project plan and presentation), and also included two templates for a business case structure. This second covers the major benefits of payroll automation that can be included in a business case and also the calculation of return on investment.

Payroll Software Benefit #1: Cost reduction

A primary bottom line benefit of any system that seeks to introduce efficiency of process is cost reduction. When it comes to payroll automation (and the associated functionality of compensation management), an Aberdeen Group survey is clear that by including automation software in their strategy, ‘Best-in-Class’ organizations measurably reduce their costs in four key areas:

  • The rate of payroll errors goes down and the time and cost of corrections is correspondingly lessened.
  • Timesheets are more accurate and the cost saving is twofold – first, the time and cost of corrections is reduced, and second, opportunities for time theft and buddy punching are restricted.
  • Less errors in paid time off accrual calculation reduces the instances of employees taking unearned time off.
  • Up to date compliance with relevant national and local labor laws avoids fines and legal action.

A good business case will include existing rates for each of these four metrics and predict the likely improvements with adoption of the new software.

Payroll Software Benefit #2: Integration

Cost reduction is an important benefit of payroll software, but a 2010 white paper from AccountancyAge (Payroll Outsourcing) points out, “As end-users become more skilled at sourcing many are looking beyond simple overhead-reduction towards business enhancement.” Those business enhancements are often enabled through the integration of payroll with other HR and business systems, including time tracking, attendance, and leave management. The payroll software may be an add-on or module of a broader HR management system, creating seamless interfacing within a single system database, or the payroll vendor may offer interfaces for data exchange with other systems. KPA’s 2010 article, Selecting HR Software, suggests that the business case for payroll software answer the following questions:

  • “Do you have any special payroll requirements?”
  • “Do you need to import time records from a current time collection system or do you want to select a time system that integrates to the new payroll application?”
  • “Will you need to export payroll data to a general ledger (GL) application?”
  • “How will you want to handle tax filing requirements?”
  • “Do you have any difficult to handle garnishment or levy issues and does that vendor handle these items?”

Payroll Software Benefit #3: Employee satisfaction

A less tangible but still measurable (via engagement surveys) benefit to be had from payroll software is employee satisfaction. The 2011 American Payroll Association (APA) Getting Paid in America survey found that almost 75% of employees are either happy to be receiving e-payslips or would like to. With the rise of online banking and shopping, modern electronic money systems carry a high degree of trust and employees have more confidence in automated payroll systems. The CedarCrestone 2011-12 HR Systems Survey noted that user satisfaction for payroll systems is already high (on a scale of 1 to 3 where 1 = poor, 2 = acceptable and 3 = excellent, payroll administration software has the highest satisfaction ratings, receiving 2.2 or 2.3 depending on deployment option). Furthermore, higher satisfaction tends to equal better retention in general and with integrated pay and compensation data, managers can access a clear performance/reward picture for an organization’s talent.

Payroll Software Business Case Step #4: Provide a plan

The fourth step is to develop a convincing plan for change. As Personnel Today states, "This is where you should explain how the company will go about achieving the benefits you've outlined already." Although elements will certainly change once payroll software implementation has been approved, this plan should be as detailed as the current information will allow; including project milestones, timelines, and estimated times to value. In order to be a realistic forecast however, the development of the plan will undoubtedly require the participation of key stakeholders (e.g. Payroll staff, HR, IT, and potentially even a representative sample of affected employees). Ideally this preliminary project plan should contain some alternatives or 'what-if' scenarios, acknowledging and proposing strategies to counter any likely risks.

Payroll Software Benefit #4: Corporate reputation

Changes in internal business procedure have an impact on external service delivery which, in turn can be to the benefit or detriment of an organization’s reputation with customers and within its industry. The AccountancyAge white paper notes, “The business case for payroll as opposed to other functions is also strong in terms of reputational risk… the fact that it is a back-office function rather than a customer-facing one makes payroll an area that people are comfortable handing over to a third party.”

Payroll Software Benefit #5: Reporting

Compared to manual or spreadsheet systems, payroll software can offer managers access to reports within minutes rather than days. The usual levels of reporting include:

  • standard, ‘off-the-shelf’ reports common to most payroll software - costs, payments and deductions, pension schemes
  • more ‘ad hoc’ reports, e.g. which employees are on a particular benefits package scheme, or how many are earning above a certain threshold.
  • a business intelligence dashboard, which provides a broader view of workforce, integrating payroll data with other information such as skills, learning, performance, etc.

With a wider integration and dedicated HR analytics software, the possibilities for predictive, scenario-based reporting factoring in payroll data can expand exponentially and lift and organization’s strategic decision-making to the next level.

Payroll Software Benefit #6: Regulatory compliance

Federal, state, local, and international labor laws regarding tax and payroll reporting can all be handled automatically by the right software solution, and service agreements can result in the vendor taking responsibility for keeping the system updated according to evolving requirements.

Calculating the ROI on Payroll Software

Being able to include a return on investment (ROI) calculation enhances the business case and offers a firm base from which to later measure the success of the software implementation. ROI gains can be expressed in terms of finance, staff gains and management information. To calculate the ROI, first the appropriate metrics must be established and then a comparison figure can be arrived at; usually expressed as a percentage over a given period of time. Bearing in mind industry and technological changes, a life span of five years would be reasonable for payroll software. As for the metrics, in addition to the four accuracy measures mentioned earlier, Purely Payroll magazine’s November 2011 issue suggests the following:

  • Net Benefits - These are the gross benefits over the life of the application minus on-going costs such as interest.
  • Time Period - The defined life of the application.
  • Initial Costs - The total cost of the application; for calculation purposes, the initial consultancy is capitalized, along with the software and any additional hardware required.
  • FTEs gained - Analysis will show just how much time can be saved by the use of better technology in terms of reduced administration, fewer manual processes, the elimination of work-arounds and faster processing of outputs such as report writing and organization charts.

The Payroll Software Business Case Bottom Line

The business case is the starting line for any payroll software project and the more accurate the detail contained in it, the easier it will be to determine the impact of the software on the business. By following the steps and addressing the potential benefits outlined in this pair of articles, an organization can simplify the decision-making on payroll automation. As Alan O’Neill, founder of Totalamber (software consultants) has been quoted as saying, “Decision is easy when value is clear.” End

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The business case is the starting line for any payroll software project and the more accurate the detail contained in it, the easier it will be to determine the impact of the software on the business.



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