A GUIDE TO PAYROLL SMARTSOURCING A definitive roadmap to successful payroll outsourcing
FOREWARD There s a growing trend for companies of all sizes to call on the expertise of payroll professionals to manage their payroll. Naturally the complex, legislative/ statutory driven and rather repetitive nature of payroll lends itself to outsourcing. It still remains one of the most critical and intimate processes in running a business. The impact, if done wrong, can bring the business to a halt. Any decision to partner with an external provider needs to be strategic. This roadmap acknowledges the significance of choice and offers a roadmap for a better understanding of the process. It also gives you the criteria for a bulletproof business case. You will learn the cost benefits of payroll outsourcing, the criteria used to define the project and the considerations to help you understand the degree of responsibility you would like to retain. All in all, you will be in a better position to assess your payroll professional and manage the transition into a successful payroll operation. The process is about brutal honesty. Get this right and you will quickly know whether outsourcing is for you. If it is for you, your expectations will be met with significant cost reduction and the ability to free up resources. You can have more time spent focused on the most profitable elements of your business. For companies looking for a sophisticated solution, learn to embrace the benefits of consolidated reporting and integrated workflow processes. Discover how to build an agile culture that makes strategic HR decisions faster. Employment Innovations is a unique player in this field. We distil over 25 years of employment law, HR and payroll experience into our payroll solutions. Our depth of knowledge and experience in successful payroll outsourcing extends well beyond transactions. We would like to share the opportunities and challenges that you might face. This paper examines best practices and highlights the process towards a successful payroll outsourcing project. It s written as a how-to guide, giving you all the key steps and insight to effectively define, scope and execute your payroll outsourcing project. Enjoy your reading! Ari Kopoulos GM Sales and Marketing Employment Innovations [2]
INTRODUCTION Payroll Outsourcing is something that companies were doing long before the dawn of the IT era. During post-wwii, startup companies and businesses recovering from the ravages of war experienced significant growth. Many of these companies were established at a time when the foundations of business were freshly shaken. It became a top priority among businesses all around the country to quickly shift towards efficient business processes without delay. [3]
INTRODUCTION The business world was even more uncompromising before now. Any unplanned changes risked causing major problems in a company s operations. Something as simple as the absence of a payroll manager could cause disruption. The concept of an external company handling the payroll systems of a business became both viable and practical. Needless to say, it was a revolutionary system during that time. In the years that have followed, it has helped countless companies thrive. who had shunned it decades ago have now embraced the system. This is because of both the convenience and advantages that it gives to the general operations of the business. Beginning in the 1950 s, remote management services experienced expanded use. Eventually experiencing a huge rise in use during the 1980 s. Major consulting firms, like Arthur Andersen, taking the lead. With the advent of Information Technology, payroll outsourcing naturally became even more efficient. Through the years, payroll outsourcing has grown in both its scope and influence. Companies As technology ushered in a new age for business, the advantages of payroll outsourcing have never been so clear. Including its low-risk nature, increased return on investment (ROI), speed, accuracy and implementation. This paper describes the nature of payroll outsourcing and the outsourcing culture. It will also outline the key points that each business must go through before making the decision to outsource or not. It will introduce the concept of SmartSourcing, the next step in the evolution of business and how to work together to deliver a successful result. [4]
IS OUTSOURCING FOR YOU? If there is one thing that has become clear in the years since the advent of outsourcing, it s that it is not a system for everyone. While it does revolutionise areas and offer significant opportunities and benefits, it will depend on the company. To explore this idea, one must start with the reasons why a company outsources in the first place. The reasons behind traditional outsourcing vary. [5]
THE REASONS BEHIND OUTSOURCING 1. COMPLIANCE No matter how efficient a company is, it is still by nature obligated to follow statutory and legislative requirements. This is particularly important in payroll processing, where a company has taxation, superannuation, Modern Award and Enterprise Agreement rules to follow. Simply put - payroll outsourcing improves compliance in both legal and financial fronts. 4. EXPENSE OF IN-HOUSE SYSTEMS Developing and maintaining an integrated in-house payroll, rostering and award interpretation system requires a lot of manpower and investment. This is why previously. only companies of significant size had been 5able to effectively develop a payroll system to suit their company s needs. 2. ACCESS EXPERTISE Large companies have the advantage of experience under their belts and can often feel little need to get help in managing their payroll systems. This is not the case with small, startup companies. For businesses who have 50 or fewer employees, finding HR professionals with the expertise to handle payroll systems is rare. This makes partnering with companies well-versed in payroll management a viable option. 5. FOCUS ON CORE ACTIVITIES In a traditional company setting, the HR department concerns itself with a multitude of activities. This includes functions like learning, recruitment, performance management. Sensitive processes such as payroll management are procedures that add significant weight to a department that already has its hands full. Again, this makes the partnership with a company specialising in payroll services a logical decision. 3. ECONOMIES OF SCALE Companies can take advantage of the opportunities provided by outsourcing, including the added advantage of being able to reduce its Total Cost of Ownership (TCO). This works hand in hand with the standardisation of a company s payroll systems through outsourcing. 6. SAVE MONEY Of course, when a business utilises the opportunities presented by a partnership with payroll outsourcing company it is able to save significant resources and finances. This is one of the primary reasons why outsourcing became such a viable option for businesses, even in the small-scale range. [6]
CRITERIA FOR OUTSOURCING The above reasons became key in the widespread utilisation of outsourcing payroll systems. There are several criteria involved when outsourcing a business payroll system. Each of these criteria is characterised by several important indicators. The following is a brief discussion on each. [7]
CRITERIA FOR OUTSOURCING RULE BASED Systems, in a business that are primarily rulebased, are preferably outsourced. This is due to the nature of the tasks involved. Some tasks do not require as much real-time management as the business core processes. And so, processes like these can be handled by an experienced vendor. REPETITIVE, PREDICTABLE AND FREQUENT TRANSACTIONS Transactions that are routine by nature are great candidates for outsourcing. This is since the tasks involved are time consuming and repetitive. OPEN TO AUTOMATION Of course, each of these processes must be open to automation. The payroll workflow process is particularly compatible to automation. This is witnessed by the many options for employeecentric front end systems supporting an effective and efficient system. REMOTELY DELIVERABLE Since outsourcing involves utilising external resources, outsourcing companies need to deliver outputs remotely. Vendors are more often than not located away from the business. Hence, the delivery embraces the internet. NON-CORE PROCESS Companies have always avoided outsourcing the core processes of their operations. The reason behind this is quite simple, as the inner workings of a company are often mission critical. Non- core processes like payroll processing and accounts receivable yet can easily be outsourced. [8]
OUTSOURCING MODELS With these criteria in mind, businesses must then decide on a specific outsourcing model. This needs to keep in mind the vendor they will be partnering with. Deciding on an outsourcing model is critical in making sure that the company s processes can be handled in the most effective and value driven way possible. Here are the common outsourcing models. [9]
OUTSOURCING MODELS SYSTEM ONLY: This outsourcing model stands as the most basic one among the different outsourcing structures. This particular model gives most of the control to the business itself. An example of this would be businesses who outsource their IT processes like data storage to another company and others who provide Software as a Service (SaaS). Overall, this model offers improved legislative compliance and maintenance at the system level. BUREAU PAYROLL: This model, though basic at its core, involves a focus on outsourcing the transactional elements of payroll processing. Clients who utilise Business Process Outsourcing companies employ this model. Since the business internal policies and procedures apply, this model is characterised as low touch on the vendor s part. Instead, it offers the business maximum control and responsibility. FULLY MANAGED PAYROLL: This outsourcing model denotes a full range outsourced services. Since the vendor provides full-service payroll, it becomes a central point of contact for all payroll activities, employees and enquiries. Vendors are tasked to perform full deduction disbursement and management and offer strategic advice. Overall, a Fully Managed Payroll model stands as a seamless extension of the business. Even its policy and procedures are documented and controlled by the vendor. FULL HR OUTSOURCING: Also known as Professional Employer Organisation (PEO) in the United States and Outsourced Employment (OE) in Australia. The model is the ultimate outsourcing model, as a business entire workforce in managed and handled by an outsourced company. Only the most stable and qualified vendors in the outsourcing business are able to apply such a model effectively. Though this outsourcing model requires significant investment, it is one that some businesses will prefer since it enables them to focus more on the core tasks of the business. [10]
ARE YOU READY FOR OUTSOURCING? As mentioned above, outsourcing is no small matter. Endorsing the key components of a business is not something that can be taken lightly. This is highly important in the field of payroll management. Outsourcing is extremely effective and it streamlines business processes. However, it carries with it a number of requirements for the business as well. There are several important things that a business must think of before committing to an outsourcing model. [11]
Here are some questions that each business must ask before pursuing a working relationship with a payroll outsourcing vendor. DO YOU HAVE AN OUTSOURCING CULTURE? Having an outsourcing culture is important when a company decides to start utilising a vendor for its payroll services. The advantages of applying outsourcing are many, but it does require several adjustments on the part of the business as well. A company that is not ready to outsource will not be able to take full advantage of the opportunity it presents. HAVE YOU SUCCESSFULLY OUTSOURCED BEFORE? Having experience in the outsourcing business is not a need. However, it does give a company an advantage when it comes to finding a partnership with the right vendor. There are many vendors offering outsourcing services all over the country. And, it can take a lot of research and thought when deciding which vendor is the right one for the business. DOES THE BUSINESS SUPPORT OUTSOURCING AS A GROWTH STRATEGY? Different businesses have different growth strategies. There are businesses that support outsourcing and there are those that don t. It is essential to do an analysis of the business s core components before deciding on whether to outsource its systems or not. Growth is among the most important things that a business must consider. Outsourcing must foster this, not stunt it. [12]
IS IT THE RIGHT OPTION FOR YOU? Here are some questions that can help in analysing the business, and in deciding whether outsourcing is the right option for you. 1. How does outsourcing fit with your company s overall strategy and its HR strategy? How will this integrate moving forward? 2. Are you prepared to support the payroll system in-house? 3. Are you prepared to champion the implementation of the system? 4. Have you mapped the process and know what can be outsourced? 5. Have you mapped internal costs and know drivers savings ROI to make this partnership viable? 6. Do you know the competency, experience, reputation, geography of the providers involved? As well as the cultural fit of the vendor that the business will utilise? 7. Have you standardised and simplified your payroll processes and procedures prior to considering outsourcing? [13]
ARE YOU READY FOR OUTSOURCING? If the answer to all these questions is yes, then your business is ready for payroll outsourcing. The things to think about before outsourcing however, do not end here. Once a business determines whether outsourcing is a right fit for its processes, then answering the question of what the right solution looks like becomes extremely important. [14]
WHAT DOES A SMART PAYROLL OUTSOURCING PARTNER LOOK LIKE? Looking for the right outsourcing solution involves a lot of important decisions. There are several key indicators to find a vendor that provides the right solution. Below is a brief discussion on each and some specific questions that help determine if a vendor provides the right solution to a business needs. A vendor providing the right solution to a business must be able to deliver several key services in vital areas of the business operations. These include legal advice, optimisation of the HR system and filling in statutory and legislative requirements. If a vendor is able to provide these in an effective way, then it can well be the outsourcing partner that your business needs. Identifying the right payroll partner for your business becomes an important subject to look into. There are many vendors that can offer outsourcing services to your business. However, not all vendors available will be able to provide your company with the system optimisation that the outsourcing process usually brings. This is because not all outsourcing vendors are created equal. [15]
SELECTING YOUR OUTSOURCING PARTNER So how do you distinguish which vendors are the best for your company? Here s a roadmap to help you select the right payroll outsourcing partner. [16]
1. LOCAL EXPERTISE The partner you select for your business must be stable and knowledgeable with your industry vertical. It also has to have significant experience in your geography in order to fully utilise its potentials. 2. PAYROLL PROFESSIONALS The vendor you choose must use certified and experienced payroll professionals. That is, it is a company that knows exactly what it is doing, in the most efficient way your payroll can be processed. Payroll system trained people are not payroll professionals. 3. PROVEN TRACK RECORD The partner you choose must have a successful track record of on time transitions, implementations and processing. They must also handle the ad hoc requests for customised reporting. This gives the vendor the necessary credibility to assure peace of mind for your company. 4. CULTURAL ALIGNMENT It is no secret that in the business world, culture matters. Having necessary cultural alignment enables a vendor to optimise a business engagement to its workforce while fostering loyalty to the company. Meeting the professional who will process your payroll could save a future headache if there is no alignment. 5. TECHNOLOGY ROADMAP Having a technology plan is crucial when looking at possible partners in your business payroll process. Since having a technology roadmap enables a business to have a clear view of both its long-term and short-term goals, it is something that a vendor must offer. 6. SCOPE OF SERVICE Vendors must be able to cater to the business in a vast demographic across the entire HR process. It must not be limited, especially since businesses by their nature are ever expanding. 7. FINANCIAL STABILITY The financial stability of a payroll system outsourcing partner must be tried and tested. The payroll processes of your business are delicate and you would want only the most experienced handling it. 8. AUDIT AND GOVERNANCE An important consideration when choosing a vendor is whether they have the ability to audit and govern the processes required in the business payroll. It is vital that you make sure that your payroll outsourcing partner is able to conduct these important processes. 9. IMPLEMENTATION PROCESS Another aspect to consider is the details and depth of implementation tasks in the payroll process handover. Think carefully about this before committing to a vendor. Request a sample implementation plan to give you a good understanding of their expertise. 10. CHANGE MANAGEMENT Businesses can sometimes forgo the typical process that should be followed during a period of change. Thus, it is imperative that vendors be key players when ushering and implementing change within the company structure. [17]
WHAT IS SMARTSOURCING? Recently, the term SmartSourcing has emerged to signify a focused yet holistic approach to the field of outsourcing. This is true among vendors that have chosen to develop their outsourcing systems in such a way that they develop into more than just an external company, hired streamline its operations. With the key concepts of SmartSourcing in mind, the business and the vendor exist as partners, ushering in the evolution of the business side by side. [18]
WHAT IS SMARTSOURCING? CHANGE MANAGEMENT IS EMPHASISED GREATLY IN THE FIELD OF SMARTSOURCING. In the roadmap above, Change Management was included due to the business world evolving at fast pace. With vendors who practice SmartSourcing, a smooth payroll process has never been more certain. This is due to many factors, including the presence of executive support and the emphasis on inter and intra-business communications. TAKE INTO CONSIDERATION... Outsourcing on its own carries with it some significant risks, many of discussed above. This could range from a business or a vendor having limited experience to a business culture that is resistant to Change Management. Instances of data being of poor quality have also been observed in some cases. Further, the chance of lack of preparation and contingencies when crises and uncertainties arise. [19]
CRITICAL STEPS TO SMARTSOURCING With all these in mind, several important lessons can be inferred. For payroll outsourcing, businesses have learned these top lessons. Taking all the contents of this paper in mind, here are the top ten lessons of payroll outsourcing: 1 A clear Requirements Definition must be ensured. 2. Early engagement must be employed. 3. Vendor experience must be verified. 4. People who will be engaging in the process must be qualified. 5. Culture fit is vital. 6. Contract process is important. 7. Expectations that are set must be realistic and attainable. 8. SLA & Reports must be well defined. 9. Continuous improvement must be pursued. 10. Relationships are worth investing in. [20]
SMARTSOURCING With these lessons in mind, your business can be well positioned to utilise the opportunities presented by SmartSourcing the payroll process. This will enable you to focus on the core tasks that drive your business to grow and thrive without stretching you thin. With the correct partner, your business reaching its peak will simply be a matter of time. [21]
SMARTSOURCING It is no secret that Payroll Outsourcing was a trailblazing concept that paved the way for a new and more effective way to manage a company s payroll systems. As business evolves, Payroll Outsourcing continues to stand at the point of change. SmartSourcing has recently emerged as a field that offers a more in-depth and holistic approach in outsourcing. Tom Koulopoulos, founder and CEO of the Delphi Group and author of the book Smartsourcing, spoke to Forbes.com in an exclusive interview. He said that SmartSourcing is not synonymous with simple, textbook outsourcing. He continued that when one looks at the two fields side by side, one would note that conventional outsourcing forms only one component of SmartSourcing. Their main differences lie in the heart of the two processes. Traditional outsourcing emerged as a way for companies to reduce costs and transfer the risks of payroll processing to a qualified third party. In contrast, SmartSourcing utilises qualified third parties to help a company focus its resources. Further, on developing its core processes, balancing its risks and opportunities, lowering its operational costs, and generally putting in place a working attitude that optimises a business s strengths socially and politically. In a nutshell, SmartSourcing approaches a business as a whole, while focusing on its intricacies at the same time, making the working relationship between a business and a provider more of a partnership. This is very true of course when it comes to SmartSourcing a business payroll system. [22]
CONCLUSION Overall, SmartSourcing is not simply outsourcing. Outsourcing is delegating tasks in order to foster optimum company growth. SmartSourcing goes a step further. With SmartSourcing, fostering relationships between your business and the vendor becomes the key in letting your company achieve its full potential. [23]
About us: For over two decades Employment Innovations has been passionately helping Australian employers navigate the complexities of the employment landscape. Offering full service HR, payroll, legal, as well as a fully integrated HR platform, Employment Innovations is the premier partner for the entire employee life cycle. From hire to retire, we offer outsourced payroll services with rostering and award interpretation, HR consulting and live HR support. Underpinned by our deeply knowledgeable professionals, our service offering is indicative of our commitment to innovation and sole focus on making employment easier for Australian businesses. Employment Innovation is listed as one of BRW s Most Innovative Companies in Austalia in 2015 as well as Aon Hewitt Best Employers in 2013. SYDNEY OFFICE Level 8, 11-17 York Street, Sydney NSW 2000 Phone: 1300 144 120 MELBOURNE OFFICE Suite 16, Level 8, 100 Collins Street, Melbourne VIC 3000 Phone: 1300 731 931 BRISBANE OFFICE Tower 1, Level 3, Suite 1305 56 Scarborough Street, Southport QLD 4215 Phone: 1300 731 931 PERTH OFFICE Suite 6, 204 Hampden Road, Nedlands WA 6009 Phone: 1300 884 909 ADELAIDE OFFICE PO Box 10039 Adelaide BC SA 5000 Phone: +61 2 8030 8888 SINGAPORE OFFICE Level 25, North Tower, One Raffles Quay, Singapore 048583 Phone: +65 6622 5490 [24]