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Cutting Payroll Costs

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					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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Description: Cutting Payroll Costs