Avoiding the Obvious Payroll Software Selection Pitfalls
Effectively selecting payroll software can set an organization up for years of smooth salary running. However the opposite can also be true and mistakes at the selection stage can be costly not only in terms of the up-front expense of purchase and implementation, but also the loss of the future efficiencies that might have been. The following list highlights the selection errors that any organization looking for payroll software would do well to avoid.
Payroll Software Selection Mistake #1: Not enough options
If an organization were hiring new employees, within reason a recruiter would want the widest range of qualified applicants to choose from—a principle that applies equally to selecting payroll software. As Clay Scroggin of CompareHRIS recommends, “Consider starting out by looking at six to nine vendors”. By doing so, the maximum number of qualified vendors can be gathered and evaluated, rather than having to make a forced decision from a smaller vendor pool. Aside from the fact that this larger payroll solution population will help educate your organization about potential capabilities, Scroggin suggests to “consider what’s at stake” when you are able to evaluate this many prospective payroll applications. “As you prequalify these vendors and review the systems, you’ll eventually narrow your list down to two or three products that meet your needs”.
Payroll Software Selection Mistake #2: Lack of broad stakeholder engagement
Once an acceptable short list of payroll software solutions has been gathered, it’s important to remember to engage with key stakeholders to get buy-in not only for the final decision, but also for strategic milestones down the road. This payroll stakeholder engagement strategy should cover all levels of the organization; include specialist functions (e.g. HR, Accounting, IT, Procurement, etc.); and have solid C-suite sponsorship. Indeed, a SoftResources white paper on software selection points out the dangers of allowing one group’s input to take precedence, citing, “If inside politics shape the deal, if outside interests prevail, or if a biased attitude is used the implementation will usually be problematic. It will be another one of those corporate HQ initiatives that does not go anywhere because the appropriate feedback and buy-in were never secured upfront.”
Payroll Software Selection Mistake #3: Software as a substitute for poor processes
Unfortunately, one of the prevailing themes in HR and payroll software implementation is the automation of poorly constructed processes. Simply put, if an organization’s payroll procedures are inefficient then not only will it be introducing or upgrading software, it will also be dealing with the need to fix and/or improve workflows and processes. Discussing HR and payroll software in general, the Society for Human Resource Management’s 2011 report (Transforming HR Through Technology) suggests that organizations “Redesign and streamline HR processes when implementing e-HR tools” As SHRM points out, it is critical that organizations understand that “e-HR is a powerful way to implement an HR strategy, but in and of itself, e-HR is not an HR strategy”. Nor is it necessarily a process. Even if an organization decides to adopt the ways of working designed into the new system, that strategy still leaves a substantial change management and training program to ensure employees’ ability to use them.
The future is never now, and although any new payroll solution must meet an organization’s requirements today, prospective buyers cannot neglect to consider the needs of tomorrow. An initial entry into full payroll automation may simply need the basic features (e.g. earnings, deductions, checks and direct deposit, tax management, etc.); but once those basics are adopted, accepted and normalized into the organizational culture, it may be time to offer self-service transactions such as access to pay stubs and W-2 forms.
Industry experts see the current lifespan of payroll software as approximately five years; a fact that, given the state of the global economy (and the rate of business change), could mean that payroll requirements change enormously during that time span. The right payroll system is scalable and flexible enough to cope with the expansion and changing needs of an organization; including the increasing use and integration of mobile devices in the workplace and any applicable social media tools that might need to be leveraged.
Recent studies from Sage (The Complete Buyer’s Guide for Payroll Software) identify data security as a core feature of any payroll software worth having. Within the research, it was found that the system should be flexible, user-friendly, and include password protection, restricted user access rights to specific fields or employee records, and an encrypted database to prevent unauthorized access to payroll data using third-party products. To achieve these end-goals, Sage recommends the following minimum security features be present in any payroll software solution:
Security groups with flexible security access – control access to sensitive information
Comprehensive audit trails
Password-protected user access
Payroll Software Selection Mistake #6: Failure to consider the true TCO
In addition to license fees and implementation costs, the TCO (total cost of ownership) of payroll software includes a number of hidden costs that are often overlooked by prospective purchasers. Indeed, the indirect labor costs of employees interacting with payroll processes; the non-labor costs of facilities and consultants; as well as system maintenance all need to be factored in for an accurate TCO calculation to be made. In fact, a PricewaterhouseCoopers 2011 survey (The Hidden Reality of Payroll & HR Administration Costs) found these hidden costs can add up to 65% of the TCO and are the primary reason for the $1 per paycheck rise in payroll costs since 2003.
Payroll Software Selection Mistake #7: Going it alone
While not hiring a professional implementation consultant is not necessarily a mistake per se, the right payroll consultant can bring a great deal of expertise to the project—including an understanding of the payroll market, past experience of implementation, product knowledge and objectivity and credibility with senior stakeholders. As Phenix Management International suggests, “The cost of the expert guidance provided by a consultant may well be offset by minimizing the risk of project failure and by realizing the savings to be derived from the system at an earlier date.”
The Payroll Software Selection Bottom Line
Selecting the right payroll software for an organization can involve juggling competing priorities and factors while simultaneously sifting through vendor hyperbole. The situation is summarized neatly by InformationManagment.com: “Selecting the right software cannot guarantee the success of a project, but picking the wrong system can ensure failure.” Avoiding the seven mistakes outlined above will help ensure the best possible fit between an organization’s needs and its payroll solution.
The right payroll system is scalable and flexible enough to cope with the expansion and changing needs of an organization; including the increasing use and integration of mobile devices in the workplace and any applicable social media tools that might be leveraged”.