Cutting Payroll Costs The American Payroll Association, in partnership with KPMG, released a benchmarking study of large employers (10,000 plus employees) that determined key factors that allow large companies to provide payroll services at lower costs. They discovered that e- payroll technologies-like self service systems, paperless payroll operations, and automated tax filing-can be leveraged to reduce costs within the finance department. Specific findings include: - A burning 10.5% of payroll processing time is consumed in error correction, even though the average error rate is only 3%. - Printing and delivering a pay slip costs approximately R8.50-an annual cost per employee of just R100. But although the cost per pay slip seems surprising low, it doesn't factor hidden costs bubbling beneath the surface, such as processing new hires, customer service, tax filing, and eliminating errors. "We found that companies that want to address gains in payroll productivity should immediately look at automating basic-but ultimately costly-procedures like pay slip inquiries, name and address updates, voluntary deduction requests and package modeling," advises Sybille McCloghrie, "The average large employer has over 250 voluntary deduction codes alone. Clearly, automating this process recaptures enormous time and labor." For large companies, 19% of their annual employee population are new hires. - Centralization of payroll operations makes a big difference in relative costs. For payrolls of 25,000 employees, approximately 24.1 full-time equivalent employees fulfill the payroll-that's one payroll employee per 1,000 workers. In a decentralized environment, paying the same number of employees required 43 full-time payroll staff, a ratio of 1 payroll employee to every 600 employees. - Outsourcing specific processes is a rising trend in the leanest corporations. Although 90% of the study participants perform gross-to-net calculations internally, only 70% produced employee pay slips, and only 60% file their own taxes. A recent study by Gunn Partners ranked Northwest Airlines fourth among 90 large employers with strikingly low payroll department costs. The world's fourth largest air carrier with 49,000 employees in 49 states, Northwest is like many larger employers, running separate payrolls for each pay group. Northwest reduced the number of payroll department employees from four to two. "By removing the manual element from payroll processing, we've realized time savings in reconciling quarterly data from two or three days to only a few hours," says Marcia Aamodt, Payroll Director for Northwest. "The system now consolidates all taxes for each payroll, and automatically imports and exports the tax data via the accounts payable system." Also prominent on the productivity horizon, studies show enhanced Employee Self Service (ESS) and Manager Self Service (MSS) systems are earning back their considerable implementation costs. A seminal 1999 Hunter Group survey of 328 organizations with 10,000 or more employees that have implemented employee self- service systems discovered an overall 25% to 30% reduction in operating costs due to staff reductions and reduced paper printing and distribution. The study calculated a range of ESS start-up costs based on the number of employees in each respondent organization. Costs ranged from $35 per employee in the largest companies surveyed to over $1,600 per employee in the smallest companies. Within just 12 to 18 months of implementation, respondents reported a 100% return on investment of their system start- up costs. A related field, Manager Self-Service (MSS), is not as widespread as ESS but it is catching up quickly. MSS applications include job requisitions, personnel changes, staff development, salary actions, and succession planning. Seventy percent of the Hunter Group survey respondents reported employment change actions and management reporting are either in use or are planned. Sixteen percent currently provide online management reports with another 50% planning to offer this feature. The three most popular MSS applications in use or planned for implementation by respondent companies are the ones most likely to metamorphosis administrative costs into streamlined management efficiency-personnel changes (35%), salary actions (33%), and job requisitions (28%).
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