Document J13 RESEARCH NOTE WHY TIME AND ATTENDANCE MAKES SENSE IN A DOWN ECONOMY THE BOTTOM LINE Companies should consider investments in time and attendance applications as a low-risk, low-cost way to reduce payroll costs and improve productivity. Companies that already have time and attendance applications should consider maximizing the breadth of their deployment or extending it to other workforce-related functions. Time and attendance applications provide companies with an automated way to find out how many hours each employee worked, apply applicable pay rules, and accurately pay payroll checks. Because these applications both improve accuracy and automate processes that would otherwise be manual or semi-automated with workarounds companies typically achieve significant cost reductions following a deployment. Many companies that have time and attendance applications also have applications for payroll-related activities such as scheduling and the tracking of paid time off. Payroll is typically an organization s largest expense. When automation and improved accuracy reduce this cost by even a small percentage, there is a significant impact on the bottom line. The current recession is making life difficult for CFOs and CIOs. Although they have to cut costs, their workforces may already be lean and the money available for productivity-improving IT investments may be shrinking. However, Nucleus finds that by focusing on labor costs typically an organization s largest expense by deploying time and attendance solutions, significant cost reductions can be achieved. Nucleus finds that properly deployed, these applications, as well as complementary applications for other workforce-related functions, can substantially reduce various types of overcompensation and improve productivity at relatively low costs with minimal operational risk. The worst times are the best times for time and attendance Because time and attendance applications enable significant cost reductions, have relatively low costs, and have little operational risk, companies should rank them favorably when deciding how to spend their shrinking IT budgets. Companies should always consider potential investments on a project-by-project basis, but here are some considerations that make investments in time and attendance more attractive than most other IT investments: Corporate Headquarters Nucleus Research Inc. 100 State Street Boston, MA 02109 Phone: +1 617.720.2000 Fax: +1 617.720.2111 Nucleus Research Inc.
TOPICS Employee management applications Benefits. The average company s payroll error rate is 1.2 percent. Properly deployed, time and attendance can rapidly eliminate up to 95 percent of this cost. Costs. Relative to the benefits, the costs of time clocks, servers, software, personnel, and training tend to be low. Combined with the magnitude of benefits, this means that time and attendance deployments typically have high ROIs and rapid paybacks. Risk. Time and attendance deployments do not pose a risk to operationally critical workflows, relationships with employees, or third parties. Although these deployments pose a small amount of risk to the first pay periods after the go-live date, this can be fully mitigated as the result of help from consultants and parallel testing. In addition to typically having a rapid paybacks, time and attendance deployments are also more effective over the long run than the most common cost reduction strategies. Companies typically reduce costs during a recession by laying employees off. Unfortunately, this is a risky cost-reduction strategy; as the American workforce ages, companies that have given up too many employees may find it hard to compete for their replacements when the economy improves. It is also risky to squeeze savings from vendors, partners, or distributers, who may switch to rivals if they think these cost reduction measures will harm their own business models. Time and attendance In the absence of automation, companies cut payroll checks to their hourly employees based on workflows that are lengthy, paper based, and error prone. Employees record their hourly attendance on paper timesheets, which are periodically approved by managers, who may then process that information for the payroll department. Once time sheet data arrives in a payroll department, it is manually rekeyed into a payroll system so that pay rules can be applied and payroll checks can be cut. Unfortunately, these manual systems tend to be inaccurate because they rely on honest data input from the employee, as well as accurate manual data transfer among supervisors and payroll clerks. Time and attendance systems eliminate the inaccuracies of a manual system by automatically gathering attendance information with time clocks or biometric devices, applying preconfigured pay rules, and automating the calculation of pay for the payroll system. These systems also relieve managers and payroll administrators of distracting and costly workflows, including the review, authorization, and inputting of data from paper timesheets. Companies with time and attendance systems typically augment them with other functionality, including: Leave tracking, which enables managers to more accurately track the number of days off their employees have accrued and how many are remaining. Scheduling functionality enables managers to more rapidly create and distribute schedules. It also gives managers the visibility they need to assign time to employees who are unlikely to be paid at overtime rates. Activities tracking enables managers to keep track of exactly what tasks employees spend their time on, in order to improve cost accounting and labor cost analysis. 2
BENEFITS Whether a company deploys time and attendance for the first time, or augments an existing deployment by extending it or adding complements to it, companies can expect to lower payroll costs and improve productivity. Lower payroll costs By replacing error-prone human workflows with automation, time and attendance applications can lower payroll costs by eliminating sources of overpayment. The primary sources of payroll overpayment are payroll error and payroll inflation. Payroll error occurs as the result of human error when information is manually transmitted through the payroll process. Payroll inflation happens when employees or managers overstate the amount of time that an employee has worked either intentionally or unintentionally typically by clocking in early or late. In fact, Nucleus finds that payroll error causes companies to overpay their employees by an average of 1.2 percent. Nucleus also finds that the average rate of payroll inflation is 0.72 percent. Because time and attendance applications automate the collection of attendance data, its transfer to payroll, and the application of complex pay-rule calculations, companies deploying these systems can significantly reduce these costs. Nucleus finds that because these cost reductions are so large, most companies that deploy Kronos Workforce Timekeeper pay for the solution with the savings from payroll error elimination alone. Nucleus finds the average payroll error rate is 1.2 percent of total payroll. When time and attendance applications are properly deployed, companies can eliminate up to 95 percent of this cost. Companies typically achieve significant cost reductions by automating time and attendance workflows. Broward County Schools reduced the payroll cost of its 5,000 substitute teachers by 4 percent by replacing paper time sheets with Kronos Workforce Timekeeper, which reduced payroll inflation by making attendance recording more uniform and accurate across its 270 schools. Similarly, Aker Philadelphia Shipyard reduced payroll error by 90 percent by automating a manual and paper based payroll process with Kronos Workforce Timekeeper. Nucleus finds the average payback on a Kronos deployment is five months. Improved productivity Companies that deploy a time and attendance application for the first time can also expect to improve productivity. Many companies use highly complex and manual processes in order to compile and certify their time and attendance information. When these workflows and processes are replaced by systems from best-of-breed time and labor management vendors, a variety of workers become more productive: Employees, who are able to more rapidly provide their time and attendance data over the Web, at their PC, or at time clocks. Additionally, Nucleus finds that virtually all deployments of scheduling applications, especially those with self-service functionality, reduce the amount of time employees spend on nonproductive tasks. Managers, who become more productive because they are able to more rapidly view, approve, and submit attendance information from employees. The 3
Kronos deployment at Shooting Star Casinos made managers more productive by eliminating one hour per day of time and attendance administration and one hour per day of scheduling administration. Payroll administrators, who no longer have to manually collect, check, and transmit data from time sheets. When Broward County Schools automated its time and attendance workflows, it eliminated an average of 60 minutes of administrative work per day for each of its 270 schools. Breadth maximizes the benefits Companies that already have time and attendance applications should make sure that their deployment touches as much of its workforce as possible. Companies typically adopt time and attendance or related applications with a rolling deployment across their enterprise. Unfortunately, these deployments too often slow down or stall once a large portion of the workforce is tracked. In fact, Nucleus finds that companies sometimes fail to fully deploy because the initial returns on even a partial deployment can be so high, leading champions to think that all the business requirements have been met. Other causes of partial adoption include cultural resistance, geographically remote sites, or diversion of IT budget to other projects. Cost reductions are readily achieved when deployments are extended to new employee populations. Dolphin Stadium increased the annual benefits from its existing time and attendance deployment by $300,000 after it added several departments that had not been included in the first stages of the deployment. Breadth doesn t just apply to time and attendance. Banner Health used Kronos Advanced Scheduling to automate scheduling, create a set of related best practices and reduce overtime costs by $1 million in its largest facility. The organization then extended the deployment and best practices to its 21 other smaller facilities. Automate more than time and attendance Companies can reduce labor costs by complementing their time and attendance deployments with applications for managing workforce-related tasks such as scheduling, activities tracking, and leave management. For example, managers with automated leave reporting always know how many days off each of their direct reports has both accrued and used. As a result, these managers spend less time in face-to-face meetings regarding time-off requests and grant employees far fewer unearned days off. Similarly, advanced scheduling can complement the basic scheduling functionality in Kronos Workforce Timekeeper by enabling managers to rapidly match open shifts with available, least-cost employees with the required skill set for that shift. Nucleus finds that companies can readily extend the value of their original investment in Workforce Timekeeper with complements: A major Cincinnati-based healthcare provider reduced payroll costs by $8 million because its scheduling system enabled managers to reduce reliance on agency caregivers, who are approximately 40 percent more expensive than onstaff employees. G & T Conveyor, a manufacturer of baggage handling systems, improved its ability to aggressively bid for contracts after using Kronos Workforce Activities to more accurately track labor costs in its systems. 4
Shooting Star Casinos reduced its total payroll costs by 0.9 percent using advanced scheduling functionality to assign hours to their least-cost employees. A major biotechnology company eliminated three days of unearned leave per employee per year by using Kronos to track and update employees paid time off. CONCLUSION CFOs should reduce costs by investing in time and attendance applications. Whether a company undertakes an initial deployment, broadens one, or extends its functionality with complementary applications, investments in time and attendance applications can reduce payroll by eliminating payroll error, payroll inflation, unearned leave, and overtime. Companies should also invest in these applications because, properly deployed, these applications can improve the productivity of employees, managers, and payroll administers. Nucleus Research is a global provider of investigative technology research and advisory services. Building on its unique ROI case study approach, for nearly a decade Nucleus Research has delivered insight and analysis on the true value of technology and strategies for maximizing current investments and exploiting new technology opportunities. For more information or a list of services, visit, call +617-720-2000, or e-mail info@. 5