A Guide for Implementing Best-in-Class Time and Attendance Strategies

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1 A Guide for Implementing Best-in-Class Time and Attendance Strategies In July and August, Aberdeen Group surveyed more than 300 organizations in order to determine Best-in-Class practices in managing core HR functions. The study, The Future of Core HR Functions, showed that automating manual processes and workflows - including time and attendance - yielded tremendous gains across key metrics. This Research Brief will examine the 220 organizations from that study that indicated they employed some combination of hourly and non-hourly workers, and will identify Bestin-Class practices pertaining to implementing effective time and attendance processes. The recommendations included herein serve as a roadmap to improve accuracy, streamline payroll, boost productivity of HR personnel, and enable operational managers to focus on core business competencies. Business Context Economic uncertainty compounded by the need to achieve more with fewer or the same amount of resources is driving organizations to examine workforce management efforts at companies with hourly, contingent, or project-based workforces (Figure 1). These findings are somewhat consistent with previous research published in May of 2009 on Workforce Scheduling, in which the economy and an increasingly competitive business landscape driving focus on efficiency and productivity were two of the top three leading pressures to improve these workforce management initiatives. Figure 1: Pressures Driving Workforce Management Efforts Percent of Organizations, n = Economic pressures forcing better labor management and cost control 53% Competitive pressures forcing the organization (including HR) to be more strategic All Organizations 36% Regulatory requirements forcing better compliance w ith data security, labor law s, etc. November, 2010 Research Brief Aberdeen s Research Briefs provide a detailed exploration of a key finding from a primary research study, including key performance indicators, Bestin-Class insight, and vendor insight. Definition and Sample In its 2010 study on core HR, Aberdeen's survey defined core HR as the systems, processes and workflows to manage the following elements: payroll, benefits, health and safety, compliance, taxes, employee records / HR data, self-service portals, and workforce management (time and attendance and scheduling). For this document, analysis focused on 220 organizations that indicated having some combination of hourly, projectbased or contingent workforces and non-hourly employees to determine Bestin-Class practices in time and attendance management.

2 Page 2 Managing labor costs requires a keen ability to track leave and attendance. In order to optimize deployment, managers must recognize how many hours employees work, the shifts that they are most productive, and whether overtime is feasible; all while ensuring fairness in treatment. On the other hand, inside the organization these pressures manifest into a significant set of internal challenges that not only hinder HR's ability to be more strategic, but also prevent decision makers from leveraging key data to drive business performance. When asked to cite the top two internal challenges organizations aim to address with workforce management efforts, too much time spent on tactical tasks and the inability for the lines of business to leverage the Human Resources (HR) function or workforce data to make better business decisions topped the charts (Table 1). These challenges echo two persistent barriers that impede HR's ability to be more strategic (as revealed in Aberdeen's December 2008 study The 2009 HR Executive's Agenda). Table 1: Top Internal Challenges Challenge Percent of Respondents Too much time spent on manual HR transactions 47% Data integrity - Lack of high-quality data or multiple, disparate data sources Inability of business leaders to leverage HR / workforce data to make better operational decisions 4 4 Respondents were asked to indicate top two challenges, n = 220 Defining the Best-in-Class In order to determine how Best-in-Class organizations address the above pressures and challenges, Aberdeen identified three Key Performance Indicators (KPIs) that were most commonly measured by organizations with workforce management processes - as indicated by survey respondents. The metrics to follow highlight the importance of effectively tracking time and attendance, and the need to accurately calculate compliance-related leaves through accruals. This framework is applied to the 220 organizations that currently have workforce management strategies: Accuracy of payroll. This metric is defined in the survey as the average percent of paychecks that require redo every processing period. This is standard payroll that doesn't include commissions or bonuses. A minimal measure is an indication of accurate time reporting and minimum errors incurred during transmitting to the payroll system or third party processor. Actual time worked. This metric is defined as the average percent of erroneous or inaccurate timesheets. If errors are incurred, then often an organization will have to redo payroll, and

3 Page 3 corrective action almost always will involve the operation manager and the employee. The result will be lost productivity on behalf of the employee and the manager. Lastly, this measure is a reflection of minimizing time theft, preferential treatment or buddy punching. Improvement in compliance. This metric is measured as the percent improvement in audit scores. Improvement in certain KPI is a lagging indicator of doing the right things, which means that an organization has implemented effective organizational capabilities, processes and enabling technologies to experience such improvement. Given that compliance is one of the main pressures driving organizations to examine workforce management practices, it makes logical sense to include it in determining Best-in-Class performance. Table 2 highlights the performance gap between Best-in-Class, Industry Average, and Laggard organizations across the three KPIs. Table 2: Top Performers Earn Best-in-Class Status Definition of Maturity Class Best-in-Class: Top 2 of aggregate performance scorers Industry Average: Middle 5 of aggregate performance scorers Laggard: Bottom 3 of aggregate performance scorers Mean Class Performance 0.4% error rate in standard payroll processing 0.2% error rate in tracking actual time worked 1 average improvement in compliance scores 1.2% error rate in standard payroll processing 1.8% error rate in tracking actual time worked 4% average improvement in compliance scores 8.3% error rate in standard payroll processing 12.2% error rate in tracking actual time worked 4% average improvement in compliance scores Leave Management and Time-Off Accrual When talking about tracking time and attendance, it is necessary to examine compliance leave, holiday and other accruals. Best-in-Class organizations reported 0.3% average error rate in tracking holiday accruals or earned time off - compared to 1.6% for the Industry Average, and 11.2% of Laggards. In the next section, we will see that automation and integration of payroll, leave management, and time and attendance systems yield great gains for the Best-in-Class. This is especially true as these capabilities eliminate the need for rounding, overstated hours, and understated breaks; ultimately resulting in real cost savings and improved compliance with employment laws and mandates for the organization.

4 Page 4 Key Differentiators In order to free up HR to become more productive and strategic to the business and improve compliance, Best-in-Class organizations are investing in HR technologies that streamline manual processes, empower employees and their managers, and provide better visibility for stakeholders. Aberdeen found that the top strategic action taken by an overwhelming majority of the Best-in-Class is to continue to automate manual processes followed by partnering with the business and empowering employees (Figure 2). When it comes to time and attendance, the key is to ensure that data is accurate, and the burden on HR and business unit managers is minimal. Reducing manual interaction improves accuracy, increases productivity, and most importantly, ensures compliance with labor laws especially when it comes to accruals, taxes, and calculating overtime. Lastly, when HR and business unit managers have real-time visibility into time and labor data, preferential treatment - in the form of inequitable overtime grants, holiday time taken, or giving individuals certain shifts over others - will be curbed. Figure 2: Best-in-Class Strategies to Address Pressures Percent of Respondents, n = % 5 25% 79% Automate (or further automate) existing HR processes and programs 44% Best-in-Class Make HR a true business partner (aligned w ith the needs of the business) 35% Empow er employees to be more self-sufficient to reduce the burden on HR The next section will examine key differentiating tools and technologies at the disposal of Best-in-Class organizations. Differentiating Technologies In order to execute on these strategies, Best-in-Class organizations are more apt to embrace technologies to streamline time and attendance management (Figure 3). In fact, organizations that automate time and attendance tracking and integrate with a payroll system are two and half times as likely to achieve Best-in-Class performance levels as those that do not have such a system, and twice as likely to attain this status as those that automate it without payroll integration.

5 Page 5 Figure 3: Automation and Payroll Integration Earn Best-in-Class Status 3 27% Percent of respondents in Best-in-Class n = % 11% Automated and Integrated with Payroll Automated but NOT integrated w ith payroll Not automated Best-in-Class organizations are 2 more likely than other companies to have a time and attendance system in place, and are also 56% more likely to integrate time and attendance with payroll. Looking at payroll accuracy, organizations that currently have this capability in place (a time and attendance system that is integrated with payroll), on average, report a 1% error rate in standard payroll processing versus 2% for those that don't. To put things in perspective, assume that the cost to re-process an employee's paycheck is $30 per pay period (bi-weekly), and an organization has 350 employees. When 2% of paychecks require redo (which almost always includes a stop-check fee) due to timesheet errors, an organization will incur $5,460 ($30 x 26 x 7) in additional processing cost per year. Based on these findings, this number will be cut in half when an organization automates and integrates the time and attendance system with payroll. In addition, this automation and integration with payroll enables organizations to reduce manual transactions on HR by twofold those that do not automate (6% versus 3%). Lastly, from a compliance standpoint, organizations that have this capability have, on average, improved compliance scores by 7% versus 3% for those that don't. One measure Aberdeen used to determine the productivity of the HR department was asking respondents to rate the burden of the workload on its personnel. Organizations that currently automate time and labor management and integrate with payroll are 45% more likely to indicate a manageable or a light workload on the HR department than those that don't. This will allow HR to be more strategic to the organization as it becomes better equipped to focus on the needs of the business rather than the administrative tasks of tactical HR management.

6 Page 6 Figure 4: Best-in-Class Enablers Percent of Organizations, n = % 5 25% 85% 71% Automated Time and Attendance 67% 67% 43% TLM is integrated w ith payroll Best-in-Class 56% Time accrual / Leave management system All Others 5 33% Central repository of all time and attendance data Having a time accrual or leave management system is also critical for managing this element of attendance. Often, earned holiday time is a factor of the number of hours worked. Going a step beyond automating time and labor to include leave also eliminates a considerable amount of error and manual workflows. Not surprisingly, Best-in-Class organizations are 2 more likely than their counterparts to have this system in place. Not only did they manage to reduce manual HR transactions, but also they increased satisfaction with their time and attendance system and the burden associated with its tasks (Figure 5). Figure 5: Satisfaction with System Percent of Organizations, n = % 6 45% 3 15% 66% 47% 4 Indicated manageable burden on HR department Best-in-Class Industry Average Laggard 56% 34% 33% Satisfaction w ith w orkforce management solution

7 Page 7 Empowering the Business Manager While automation and integration with payroll improves compliance and enables HR to be more productive, a key stakeholder in time and attendance strategy is the business manager. For this individual, focusing on the daily operations of the business is the ultimate goal. Therefore, streamlining time collection processes, providing visibility into time data, and minimizing employee-related issues - particularly as they relate to payroll, are the key benefits of automation. Figure 6: Differentiating Capabilities Percent of Organizations, n = % 6 45% 3 15% 6 37% Managers selfservice access to TLM data 57% 5 Line of business w ork w ith HR to define data managers need Best-in-Class 52% 51% 26% Business managers are trained to utilize TLM systems and capabilities All Others 34% Regularly review the effectiveness of TLM strategy Freeing up business managers to focus on daily operations and providing them visibility must be complemented by other key capabilities. Aberdeen's research found that Best-in-Class organizations are twice as likely as their counterparts to ensure that line of business managers are trained to utilize time and attendance systems, reporting capabilities and/or corresponding dashboards (Figure 6). Managers must fully understand how to use the hardware and software tools afforded by the technology or platform to eliminate the possibility of incomplete data entries or lost data. Also, as we showed in the case study, a manager can provision and get his/her employee into the system almost immediately after hiring. Another key capability that empowers business managers lies in the organization's ability to ensure HR and line of business collaborate to define data that managers need to run their business. Being able to generate reports on accrued time, overtime hours, payroll data enables managers to reward employees fairly based on their performance, and helps them allocate labor more effectively. Aberdeen's 2009 report on Workforce Scheduling showed the effect of using such tools to empower business managers on reducing overtime costs, improving revenue and overall staff productivity (Figure 7).

8 Page 8 Figure 7: Business Impact of Reporting Tools Average Percent Change, n = % 15% 5% -5% -15% -25% -35% 21% 9% Reporting tools and labor analytics for managers No Reporting tools or labor analytics for managers 14% 5% -27% -12% Staff Productivity Revenue per Employee Overtime Costs Source: Aberdeen Group, May 2009 From an employee perspective, Best-in-Class organizations are 56% more likely than others to allow employees electronic access to time sheets (67% versus 43%). This visibility minimizes payroll-related questions to supervisors as well as HR personnel. Thus, productivity for both groups increases. Figure 7: Definition and Sample The sample of 149 organizations compares those that have automated workforce management (time and attendance and/or scheduling) across three key metrics. Even though, automation alone is beneficial, an advantage clearly lies with those that automate and take advantage of reporting and analytics. Survey questions were aimed to reflect change in each of the three metrics: Staff productivity: Commonly measured as output per fulltime equivalent Revenue per employee: Revenue divided by number of full-time equivalents Overtime costs: Overall reduction in this metric since it was last measured Case in Point Headquartered in Quebec, American Apparel Canada (AAC) owns and operates 41 retail clothing stores nationwide. AAC currently employs more that 1,100 employees, most of whom are managers and associates that are compensated based on an hourly structure. AAC is part of American Apparel, a vertically-integrated manufacturer, distributor, and retailer of branded fashion basic apparel based in Los Angeles, California. In 2004, AAC employed less than 600 workers. Time and attendance management processes were mostly manual. HR personnel aggregated Excel-based timesheets and, on a weekly basis, manually calculated overtime and holiday accruals before submitting payroll to the third party processor. At the same time the company was growing, adding new stores and more associates across Canada. By the end of the year, AAC decided to examine its time and labor management processes and determined that automation was needed to streamline HR processes, accommodate new employees and ensure compliance with labor laws. After exploring a few solutions, AAC opted for a labor management solution from its payroll provider - that included biometric time collection devices. At the store level, managers can correct any missing punches or double punches once HR provides them with a spreadsheet that is downloaded from the system every week. This step provides them with an

9 Page 9 opportunity make corrections or explain why the individual did not punch in or out. Prior to this implementation, if an employee forgot to punch in or punch out, the manual corrective workflow had to go through the manager to the HR department, then back to the manager for approval. Furthermore, AAC was able to transition provisioning employees to the store manager. When a new associate is hired, the manger requests a badge number and an employee can start almost immediately. From the perspective of HR, the process was simplified to a simple exporting of time files for verification, followed by submittal to the integrated payroll platform hosted by their labor management and payroll provider. Jenny Papadakis, Payroll Administrator, added, We eliminated all manual workflows associated with determining who worked overtime, how many hours they worked and what their hourly rate was. The solution also enabled us to automatically track accrued holiday time. Since implementing the system, feedback from AAC store managers has been very positive as automation eliminated some tactical tasks that enabled them to focus on running their retail units. Papadakis concluded, As for the impact of our solution on our HR department, within five years our company nearly doubled its headcount; and now it takes slightly less time and effort to process timesheets and payroll for 1,100 employees than it did when we had less than 600. Recommended Actions From accurately tracking time worked to ensuring compliance with labor laws and legislation, organizations are tasked to ensure payroll is accurate, employees are treated fairly, and business managers aren't overwhelmed by the time collection process. Aberdeen's research found that automation is the key differentiator in achieving these goals. However there are still key elements that must compliment this automation. The following recommendations should spur the necessary performance: Integrate with payroll. Automating time and attendance improves the likeliness of achieving Best-in-Class status. In fact, organizations that currently do so are two and a half times more likely to achieve top performance than those that do not. However, as reflected in the case study of AAC, integrating time management systems with payroll reduces the workload and eliminates the errors associated with manually calculating overtime pay and time off accruals, as well as inputting the data in the payroll system. Not surprisingly, 78% organizations that currently automate and integrate time and attendance with payroll indicated satisfaction with their core HR solutions. In addition, 5 of organizations with this automation and integration also indicated satisfaction with their workforce management solutions, as compared to 46% and 33% respectively for those that only automate these processes without payroll integration.

10 Page 10 Empower the business manager. As mentioned earlier, business unit managers are a key stakeholder in time and attendance processes. Therefore, organizations must ensure that they can generate reports quickly and easily to provide headcounts, overtime reports, absenteeism data, and payroll. This enables managers to determine if employees are deployed optimally and treated fairly. Training managers on how to use the system and how to verify time reports not only improves productivity at the store level, but also relieves HR personnel from the tasks associated with addressing payroll errors and reprocessing checks. Monitor the effectiveness of time and attendance strategy. Best-in-Class organizations are 5 more likely than their counterparts to formally review the effectiveness of these efforts at least annually. However, even the Best-in-Class (at 51%) are still lagging in this key capability. Working with the business to establish key metrics to track the effectiveness of time and attendance efforts and regularly tracking these metrics to determine progress is vital to improve these processes, as well as proactively identify pain points early on in the process. These metrics can include payroll accuracy, time and resources it takes to process payroll every period (as shown in the case study), overtime costs, business manager satisfaction, employee satisfaction, or number of time and labor-related tasks that HR has to handle manually. Regardless of what is measured, the key is to do it consistently and regularly. For more information on this or other research topics, please visit The Future of Core HR Functions; August 2010 Workforce Optimization; March 2010 Benefits Management 2010; February 2010 Related Research Core HR Systems; September 2009 Workforce Scheduling; May 2009 The 2009 HR Executive's Agenda; December 2008 Author: Jayson Saba, Research Analyst, Human Capital Management (jayson.saba@aberdeen.com) Since 1988, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations with the facts that matter the facts that enable companies to get ahead and drive results. That's why our research is relied on by more than 2.2 million readers in over 40 countries, 9 of the Fortune 1,000, and 93% of the Technology 500. As a Harte-Hanks Company, Aberdeen plays a key role of putting content in context for the global direct and targeted marketing company. Aberdeen's analytical and independent view of the "customer optimization" process of Harte- Hanks (Information Opportunity Insight Engagement Interaction) extends the client value and accentuates the strategic role Harte-Hanks brings to the market. For additional information, visit Aberdeen or call (617) , or to learn more about Harte-Hanks, call (800) or go to This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc. (010110)