Common HR and Payroll Outsourcing Mistakes #3: Delaying the decision to outsource
Posted by: on 14 March 2016 in Human Capital Management
It is hard to overstate the importance of Payroll and HR effectiveness – from recruitment and talent management, to employee engagement and the day-to-day running of payroll – on an organisation’s bottom line.
The PwC report ‘Exposing the hidden cost of Payroll and HR Administration’ (2011) estimates that the combined cost of Payroll, Time and Attendance, HR data administration and health and benefits administration cost large organisations (more than 700 employees) on average $722.46 per employee per year (PEPY), and mid-size organisations (50-700 employees) $1165.63 PEPY. It also states that “organisations that outsource the management of [those four functions] spend on average 27% less than those that deliver these functions using a manual approach”. Meanwhile organisations that use a single outsourced service provider to integrate Payroll and Time and Attendance “spend on average 43% less”.
WAITING ACCUMULATES RISK
Ultimately the question is can you afford to wait? Not only from a cost perspective, but from an operational point of view too? The Ernst and Young Global Payroll Survey (2013) found that just 15% of respondents believe that the effectiveness of their current payroll policies and practices could be considered excellent and meeting best practices; and 85% of all respondents saw room for improvement in their current payroll processes and practices.
This isn’t to say that the process itself should be rushed. It is the decision that should be quick – the faster that BPO is identified as the right approach, the quicker the benefits can be realised. But choosing the right vendor, and working with them to design the right solution, should be necessarily thorough. By developing clear objectives and targets with the provider from the onset, the goals are more likely to be achieved.
EARLY ADOPTERS BENEFIT THE MOST
According to PwC’s ‘Outsourcing comes of age: The rise of collaborative partnering’ (2008), “Outsourcing is delivering results. A large majority of customers (87%) say that today’s outsourcing delivers the benefits projected in the original business case, whether partly or completely. 31% say they got the benefits ‘completely’ – which is remarkable.”
“Financially successful organisations are early adopters of the new global service delivery models for payroll”
There is also evidence to suggest that fast-moving companies also achieve the best outcomes too. Jeitosa Group International, in collaboration with the ADP Research Institute, finds that “financially successful organisations are early adopters of the new global service delivery models for payroll, while other organisations are more likely to keep their long-standing, localised models in place. A reasonable conclusion to be drawn from this finding is that top-performing organisations are better able to convert plans into action.”
Written by: The ADP@Work Team