A Step-by-Step Selection Process for Payroll Software
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By Dave Foxall
Payroll Software Selection – One Step at a Time
Mistakes made during the selection of payroll software are fundamental; they have inevitable consequences, the least of which is a lack of return on investment. SNP Consulting’s Payroll Implementation series of white papers bluntly states, “The implementation phase is the ‘getting down to earth’ part; where the organization discovers just how valid the selection process really was.” The core selection issues for any organization may be functions, future needs, integration, deployment, data storage, or security, but attempting to compare wildly different offerings on these issues can be confusing and frustrating without a clear process structure. The following series of logical steps provide that structure and can keep a payroll software buyer on track even when the way forward is unclear.
Payroll Software Selection Step #1: Know the benefits
The first step is to outline the specific business benefits and goals that the payroll software is expected to achieve or contribute towards – reduced payroll headcount, improve payslip accuracy? For example, the Aberdeen Group’s definition of a ‘Best-in-Class’ organization is one with a 0.5% or less error rate in standard payroll processing; software that can achieve that is boosting the organization’s efficiency and business performance. Although this might seem early to be considering measurable objectives, by having some initial goals in place subsequent research can then be directed to what is important to the organization. Undirected research on the other hand can result in the features of the software dictating the objectives of the company; and even more dangerously determining the benefits your new payroll software should be aiming for.
Payroll Software Selection Step #2: Learn the language
In order to be a ‘savvy’ customer and deal with vendors on an equal footing, an organization must be able to bring a basic understanding of the payroll software landscape to the table. What are the pros and cons of software-as-a-service (SaaS) and cloud computing? How is employee self-service enhancing the effectiveness of payroll? How widespread is the use of online payslips? Has the trend for increasingly global solutions caught up with the organization’s cross-border requirements? The vendor is the expert, but the buyer needs a degree of awareness of the market to make a good selection decision.
Payroll Software Selection Step #3: Define the needs
With clarity on the business goals of the software acquisition and an understanding of what the market can offer, the next step is to consult within the organization on what different stakeholder groups would expect from the new technology. Obviously this is a point that gets driven home a lot, but there is a reason for that: failure to engage stakeholders is a costly misstep to make (and consequently #2 on our list of the most common payroll selection mistakes that organizations make). Obvious interested parties are employees (primarily for the accuracy of their payslips) and managers (speed, accuracy and reporting capabilities). However, the IT department, Finance, HR and the procurement team will all have specific inputs and the C-suite will be interested in how the payroll data can be leveraged strategically. A useful point on establishing needs comes from a SoftResources’ white paper, 12 Deadly Mistakes of Software Selection which warns the buyer not to make a decision on features alone and cites other factors to consider such as:
Scalability – able to grow with the organizations
Flexibility – able to meet evolving needs
Complexity – excessively complex software is difficult to implement and results in lower usage
Cultural Fit – the software, software vendor, and/or implementation vendor are so incompatible with the organization’s culture that a partnering relationship cannot be built
Payroll Software Selection Step #4: Develop the RFP
Having established the needs that the software must fulfill, that information is best expressed in the form of a request for proposal (RFP); including detailed specifications for all processes and functions. The benefit of the RFP document is twofold: firstly it means that all invited vendors have the same information, and secondly it provides an objective set of criteria against which proposals can later be judged.
Payroll Software Selection Step #5: Cost
The detailed picture of requirements provided by the RFP allows some initial costings to be made, so that a realistic decision can be taken on whether the identified payroll software needs are within budget. A recent 2011 PricewaterhouseCoopers (PwC) report, The Hidden Reality of Payroll & HR Administration Costs outlines seven different types of software cost that must be factored in:
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
Indirect labor costs - labor costs for employees involved in ‘payroll activity’ (e.g., collecting, approving and preparing employee hours for payroll; distributing paychecks, etc.)
The question is: what is a reasonable expenditure in order to achieve the identified business goals.
Payroll Software Selection Step #6: Request proposals from vendors
With the RFP specifications in mind, a reasonable field of vendors should be invited to propose how their systems can meet the organization’s needs. In addition to the features in the brochure or on the website, other issues include vendor stability and maturity. The SoftResources’ white paper recommends, “Consider a vendor’s momentum, litigation issues, profitability, ability to successfully deliver its new product or revisions, employee and senior management turnover rate, employee morale/attitude, business focus, leadership vision, and strategic direction.” In essence, if the hope is that the software will serve for five years or more, then so should the vendor support.
Payroll Software Selection Step #7: Demos and presentations
The key point with software demos is for the buyer to retain some control over the content, ensuring that the features of interest to the organization are the ones demonstrated. By having the right people attend (including key stakeholder representatives such as HR, IT, users and if appropriate, the C-suite) and using a standard script for all vendors, comparisons and evaluations are more easily made.
Payroll Software Selection Step #8: Detailed costings and implementation
Although a ‘best prospect’ has by now been identified, discussions of the implementation strategy and detailed costings and support agreements still form part of the selection process. After all, insufficient implementation support or excessive previously hidden charges (e.g. training costs can often spiral) may still break the deal.
Payroll Software Selection Step #9: Decision
However, should the results of the more detailed discussions be satisfactory, then a final selection decision can be made and the project moves on to the implementation phase.
Payroll Software Selection Process – the Bottom Line
This use of a linear step-by-step process keeps the payroll software selection exercise ordered when other factors – including vendor hype – may conspire to derail it. The above nine steps protect the buyer against being ‘wowed’ by the fanciest demo and helps direct decision-making towards being based on features, functions, lifespan, and an ongoing vendor relationship; but above all, these steps keep focus on what the business needs of the organization are.