Preparing for the Right Choice of Payroll Software
Before selecting new payroll software, a certain amount of preparation is required. In fact, doing some serious preparatory research and consultation before entering the stage of vendor meetings and software demos, will greatly increase the likelihood of an organization choosing the right payroll solution. Regardless of whether these efforts take the form of an RFP (request for proposal), a SOUR (statement of user requirements), or just a concise statement of “what we want”, clarity on issues such as features, functionality, deployment, integration, and security are necessary to lay the foundation for a successful payroll software selection process.
Payroll Software Pre-Selection Issue #1: Current Requirements
To begin with, one of the most basic questions that organizations must answer is: what features are needed? For instance, is the new payroll software solution expected to be a simple replacement for a spreadsheet; or will there be a need to deliver more sophisticated payroll services? How about employees’ expectations for self-service functionality (i.e. online pay-slips, year-end W-2 tax statements, etc.)? Further, will automatic federal and state tax updates be required? Whatever your organization’s answers to these questions, detailed requirements lie somewhere on a sliding scale of functionality between simple and complex—making it essential that, prior to selection, the company have clarity on what the payroll software will need to provide. Of course, answering these questions of needs may not be easy and will likely involve wider consultation with stakeholder groups. While it is fair to say that most employees will be mainly concerned with accurate pay-slips, the different departments of a large organization may have differing priorities—all of which must be addressed and ideally met. IT will be concerned with possible networking and hardware issues, and deployment platforms. Finance on the other hand may be most interested in system outputs, reporting capabilities, and the export of data. Even further, HR will look for opportunities afforded by integration with other systems, such as performance, learning and talent management.
Furthermore, the clarity on current requirements should underpin the measurable metrics and objectives that will be used to determine the return on investment from the new payroll software. As such, organizations should seriously consider how success will be measured (e.g. time freed up, costs cut, headcount reduced, etc.).
Over time, processes and priorities change; and the ideal payroll software choice should have enough flexibility and scalability to keep pace. SNP Consulting’s report, Future-proof and Time-efficient ways to choose a New Payroll/HR System, suggests the general rule is that this forward look “should cover a five year decision horizon”. As such, organizations should take a hard look at how the workforce (and consequent payroll needs) might change in that time. Is the company looking at a move to pay-for-performance? What about a greater use of contingent labor? Perhaps the organization is even considering more home offices and remote working? Whatever the case may be for future objectives, strategic directions, or upcoming requirements, the fact is that the business needs for a payroll software system will undoubtedly change over time. For example, some organizations are already providing access to employee self-service functions (e.g. viewing paychecks, making changes to exemptions, etc.) via mobile devices. If you think that this is a passing trend that few companies are actually pursuing; consider this: CedarCrestone’s 2011-12 HR Systems Survey predicts a 50% increase in HR mobile adoption over the next 12 months.
Payroll Software Pre-Selection Issue #3: Breadth of integration
The preceding two requirement-based issues will largely determine the extent to which the software must integrate with existing systems—a key element that must not be ignored. In fact, with an ever-increasing number of companies seeking to leverage deeper analytics and wider reporting options, integration is a trend that isn’t likely to dissipate anytime soon. Hence, organizations should consider what (if any) integration points will be needed prior to any selection decisions being made about a particular payroll software solution. To help stimulate that discussion, a common tactic is to benchmark against other similarly-situated companies. For instance, while certainly generalized, the abovementioned CedarCrestone report found that 21% of respondents indicated switching vendors due to administrative and workforce management systems integration. Furthermore, currently a 52% adoption rate exists for systems with integrated payroll, time and attendance, and absence management. Though not specific enough to indicate which integration points might be necessary for a given company, these statistics do shed light on the importance of payroll software integration to the market.
Speaking of the market, when it comes to deployment options for HR/Payroll software solutions, the trending split is one between traditional vendors (offering licensed, on-premises installations) and SaaS providers (offering a variant of the many cloud-hosted options). Interestingly though, CedarCrestone’s annual survey forecasts that the SaaS model will, “grow 60% in adoption over the next year”—a clear sign that this deployment option is winning over the hearts and minds of an increasing number of organizations. That said, Grant Thornton’s 2011 SaaS Risk Survey offers a word of caution; noting that, “The lack of a clear set of criteria to define SaaS has opened the door to a formidable number of players offering a wide array of hosted software services that vary greatly in their functional capabilities and measurable benefits”. Indeed, aside from the competition that has been opened up in the cloud computing field, confusion for customers has also flooded the market. In particular, one area of confusion is the need to establish the location of the data held by the vendor. As Grant Thornton points out, “Cloud computing is often ‘borderless’, but compliance is not. For cloud users it is often not clear where data resides, which creates challenges for legal compliance or privacy”. As such, when payroll data is going to be off-premises, the potential buyer should be asking a number of direct questions about the implications of the deployment method. Likewise, for the more traditional on-premise option, companies would do well to find out exactly what potential efficiencies are being sacrificed in comparison to the cloud alternative.
Payroll Software Pre-Selection Issue #5: Data storage and security
Ernst & Young’s 2011 Global Information Security Survey found that, “Only 52% of respondents stated that they have a documented information security strategy”. While that statistic is troubling on its own (and one of the most common payroll software selection mistakes around), organizations should take note that each of the previously mentioned trends (i.e. borderless, IT services in the cloud, the digitization of business) come with challenges that require a well thought-out strategy and carefully considered response. In fact, organizations without an information security strategy will find it exponentially more difficult to assess a prospective payroll software vendor’s ability to meet its needs. At the very least, the vendor's systems should be compliant with security standards such as ISO 27001 (and where applicable Safe Harbor Compliance for US-EU interfacing) and SSAE 16 (formerly SAS 70).
Pre-Selection of Payroll Software – The Bottom Line
In selecting the right payroll software solution, a framework of relevant issues such as those above can be helpful in enabling an organization to, a) be clear on its own requirements; b) communicate those requirements to potential providers; and c) make balanced comparisons between the candidate offerings. Furthermore, focused preparation allows the development of a degree of expertise on key issues (including compliance and deployment); prior to being faced with a sales pitch. As with all business decisions that carry as much weight as payroll though, educating yourself beforehand is critical to achieving success—in both software selection and beyond.
Regardless of whether efforts take the form of an RFP (request for proposal), a SOUR (statement of user requirements), or just a concise statement of “what we want”, clarity on issues such as features, functionality, deployment, integration, and security are necessary to lay the foundation for a successful payroll software selection process.”