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1 How three companies merged HR and payroll - Small, Medium, Large - human resources, Ceridian Corp., AnnuityNet Inc., Todhunter International Workforce, Jan, 2002 by Sarah Fister Gale Save a personal copy of this article and quickly find it again with Furl.net. It's free! Save it. The decision to integrate HRMS and payroll into a single system is a no-brainer, says Mike Hanson, general manager of Ceridian, an HR information services company in Minneapolis. To begin with, HRMS and payroll have a lot of duplicate data, such as employment status, compensation rates, benefits, and earnings history. "The two databases are never in sync and are error-prone," he says. "It doesn't take long for things to get out of whack." An integrated system dramatically reduces errors because it streamlines employee information into a single database. That means that once a piece of information is in the system, it flows to all the relevant fields. If, for example, you update an employee's address in his personnel file, it is automatically updated in payroll. Integrating HRMS and payroll also reduces the number of hours spent on administrative tasks. With two systems, there are two people entering the same information, Hanson says. In an integrated system, you can design the workflow process so that a single person manages all the data. Integration isn't, however, a flawless solution. It can create new problems, says George Eckhert, principal of Consulting Dimensions Inc., an HR consulting firm in Ontario, Canada. "Compared to an integrated HRIS, separate payroll and HR systems are simpler, use less computer capacity, and are easier to administer."

2 ADVERTISEMENT Continue article Even though payroll and HR systems have much common data, their business characteristics are quite different, he adds. The primary goal of payroll is to accurately and economically pay employees. The HRMS's purpose is to manage the workforce and increase the return on HR expenditures. "Management's objective should be to make the HR system as effective, powerful, and easy-to-use as is justifiable," he says, "but there's no benefit to investing in a flashy payroll application." He also warns that because payroll is such a critical function, the bulk of the integration resources often gets funneled to the payroll application, leaving HR with meager funding. But even Eckhert admits that if it's done correctly and for the right reasons, integration can be the right solution. If you do decide to physically blend the two systems, first make sure the processes are compatible, he says. "Someone must understand and document how payroll and HR applications interact conceptually in order for them to be implemented as one information system." That means that data elements such as job codes and employee numbers have to be the same in both systems. You also have to determine the accuracy of your existing history, Hanson adds. If your data is error ridden, you may want to leave the legacy system and build a new database from scratch. And don't just replicate the old processes, he says. Build new ones that are tailored to your needs, "This is a perfect chance to build a better system." When Rhonda Delph started working at AnnuityNet in 1997, it was just her and founder Shane Chalke. They outsourced payroll, and Delph

3 handled all of the HR issues on paper herself. "It worked fine in the beginning," she says, "but as the company grew, we needed an HR system." In 2001 they planned to buy an HR software application and continue to outsource payroll, but their relationship with the payroll company wasn't going well. There were frequent errors, some of which resulted in tax penalties, she says. The payroll company also had originally promised to provide AnnuityNet with Web access to payroll reports, but it never launched its Internet platform. "It was a very manual process. We weren't getting the service that we were paying for." She realized that it made more sense to bring HR and payroll together into one system. So in June of 2001, AnnuityNet installed an integrated HRMS and payroll software package from Ceridian, which immediately started saving them money. By bringing payroll in-house, Delph eliminated a $30,000 expense from the annual budget, which amounted to 1 percent of payroll. AnnuityNet pays a monthly fee to Ceridian for each of its 60 employees plus processing fees, but the cost is insignificant compared to the savings of bringing payroll in-house, she says. And the cost of bringing in the new system was minimal. "The savings was so significant it paid for itself in days." Now Delph manages all of the employee files online. She can process and submit payroll reports in hours instead of days. While she opted to keep open enrollment off-line to create "a paper trail," employees can access their data online and make updates, such as address changes, reducing her administrative tasks. "It's the kind of system the employees had been promised with the old company but never given" she says. Even though it's added some responsibilities to Delph's role, because she handles payroll herself now, in many ways it's made her job easier. Once data has been

4 entered, it flows through the whole system, so she doesn't have to make multiple updates of the same information. She can also print reports instantly and verify that bills are accurate against her own data. The result is a virtually error-free process, she says. "It's very userfriendly, and it's a great service for our employees." In 1998, Todhunter International realized it had to update its highly customized payroll software because it wasn't Y2K compliant. "At that point, we were faced with a decision," says Terry Carr, vice president of administration. "We could convert the old software application or go with an entirely new system." Because the legacy payroll system wasn't giving Todhunter all that it wanted, Carr's team decided it was time for a change. At that time, Todhunter had no formal HR software in place. The company used Excel spreadsheets and Microsoft Word documents to manage employee information. "There were a lot of islands of data," he says. They decided it made sense to invest in a fully integrated HR and payroll system. "We needed a complete overhaul." In January 1999, the firm implemented Best Software's Abra HR. Payroll, Training, and Attendance programs. The initial installation focused on the payroll application. It was critical that it be up and running before the end of the year in case there were Y2K problems, Carr says. Within seven months, payroll was running and they had a half year of payroll history in the database. "The implementation went very smoothly and people absorbed it quickly." One of the highlight features of the new payroll system is Unitime, an automated time attendance program tied to the distillery's time clocks. Previously, payroll administrators had gathered the time cards once a week and entered the hours manually, calculating the total time for each of the 300 hourly workers in order to process their weekly

5 paychecks. Now, Unitime electronically transmits that data twice daily to the payroll system. No input is required. "The data is a lot cleaner and it's more meaningful," Carr says. Checks are produced and signed within the system, and payroll is processed in a couple of hours. As a result, Todhunter was able to reduce its payroll department from two people to a half-time person. The new system saved additional money by eliminating time-card errors and rounding. "When the data was entered manually, we rounded up to the nearest hour," Carr says. "The new system pays actual time. That saved a ton of money." Toward the end of 1999, they started to build the HR databases, using only one HR person and two temps. "It took a while. The burden on them was extensive," he says. They re-created all the HR data related to payroll, such as 401(k) and benefits information, then built specialized fields, for information such as job titles and skill levels, and began developing the training elements. Although the HR system is still a work in progress, it is already causing a stir at Todhunter. "We have information that we never had before right at our fingertips," Carr says. Data on absenteeism, labor turnover rates, and vacation time is helping the company plan for the future and create a more positive work atmosphere for employees. In the mid-1990s, GKN Automotive decided it wanted to become the employer of choice in the automotive industry. "To do that, we needed the technology to empower employees," says Ted Bishop, project manager for HR applications. "Being a state-of-the-art company is a valuable tool in the recruiting process." At the time, GKN's payroll process was "a flat file system" that relied on basic data entry to process paychecks every week, and there were no HR applications. GKN's three dozen HR employees were

6 decentralized, all of them creating distinct HR processes for their own regions. "We needed to change HR from an administrative collection of data to a proactive business-development process that would give employees the tools to manage their careers," Bishop says. In late 1994, he gathered representatives from all departments to create a document outlining the functions that every department wanted the new system to perform. They created an extensive questionnaire and then began evaluating vendors. After a lengthy review process, which took years to complete, GKN signed with PeopleSoft in March on the condition that the system be up and running by January of "Five months was an aggressive target," Bishop says. "A lot of people didn't think we could do it." But they needed the system in place in order to be sure they had a year's worth of data before Y2K. A small in-house team of only five people, working with a third-party company, accomplished the task just in time, even though two upgrades were made during the implementation to accommodate new versions of the software. "There were a lot of long nights, seven days a week," he says. "We all missed Christmas that year? Once the system was up and running, GKN was able to dramatically reduce manpower. The payroll department was streamlined from three sites to one, reducing the staff by half. The HR team was also centralized and reduced by 20 percent. "It changed the role of HR," Bishop says. "It's no longer an administrative job. We've refocused our energy on planning for the future."

7 That was just the beginning. A year and a half after the new integrated system went live, PeopleSoft launched a Web-based version of the tool. Going against its usually cautious nature, GKN agreed to be the first prerelease customer for the new application. "We saw the limitations of the version we had installed. Not all of the functions we wanted were available to empower employees," Bishop says. He had been considering customizing the system in-house when PeopleSoft approached him. "It was a bold decision, but putting the system online would give employees the functionality they needed." After a great deal of debate, GKN decided that because the financial implications were so appealing, working with PeopleSoft as a beta customer was the best choice. "Customizing would have been a huge expense," he says. "And we didn't want to wait two years for PeopleSoft's Web version to be fully tested and available on the general market." To sweeten the deal, PeopleSoft gave GKN reduced rates and topnotch support. Within a similarly aggressive time frame, PeopleSoft got GKN's payroll online and active in 40 days so that it would have a live customer for its October 2000 user conference. The transition was a success. There were no real technical issues, GKN's fall open enrollment went off without a hitch, and the employees liked it. "The Web version put a lot of access and control in their hands," Bishop says. For example, employees can view payroll as soon as it's done, so they don't have to wait to see how much they'll be paid, and managers have employee information at their fingertips. "It's made us all more productive." RELATED ARTICLE: SMALL COMPANY Integrated System Paid for Itself in Days

8 Name: AnnuityNet Location: Leesburg, Virginia Type of organization: Provider of Web-based technology solutions for the annuity industry Number of employees: 60 MEDIUM COMPANY Payroll Department Reduced by 75 Percent Name: Todhunter International Headquarters: West Palm Beach, Florida Type of organization: Alcohol producer and contract bottler Number of employees: 400 LARGE COMPANY Empowering Employees Online Name: GKN Automotive Headquarters (U.S.): Roxboro, North Carolina Type of organization: Supplier of components and systems to auto manufacturers Number of employees: 2,500 COPYRIGHT 2002 ACC Communications Inc. COPYRIGHT 2002 Gale Group