March, PwC/ADP TCO Study: How much is your organization really spending on Payroll and HR Administration?

Transcription

1 : How much is your organization really spending on Payroll and HR Administration?

2 Michael Kolm Director PwC s Consulting Practice Michael is a Director in the Canadian Consulting practice at PwC and is a leader in the Global Sourcing Advisory practice. Michael has spent his career assisting companies with Outsourcing Transactions, System Selection, Transition, and Business Case Development. He has accumulated over 13 years of outsourcing experience during his career. Michael also leads the Sourcing Effectiveness Assessment team at PwC. This team provides thought leadership and guidance to PwC clients requiring mid-term remediation or end-of-term strategies for outsourcing agreements. Michael has worked extensively with global buyer and supplier clients in a range of industries, including Insurance, Banking, Energy, Health Care, Telecommunications, and in the Public Sector. Michael holds an MBA from the Rotman School of Business and an HBSc from the University of Toronto. Michael is also a Certified Outsourcing Professional (COP) as granted by the International Association of Outsourcing Professionals (IAOP). 2

3 Agenda Order Topic 1 General overview 2 Study focus & methodology 3 Calculating TCO 4 Breakdown of costs associated with TCO 5 Key findings 6 Conclusion cost reduction strategies 7 Questions 8 Contact us 3

4 General overview For nearly a decade, PwC and ADP have explored the Total Cost of Ownership (TCO) of four core business functions Payroll, Time & Attendance, HR Data Administration, and Health & Benefits and how to reduce costs associated with each of them. In previous years, PwC has completed similar studies in the United States marketplace. Their research brought to light compelling statistics that prove it is more costly to operate HR processes internally. Notably, the study also revealed that the current cost of operating these processes far exceeds expectations; in some cases by several hundred percent. Similar to the United States marketplace, Canadian firms use a wide range of platforms and solutions to manage their HR processes. During the study, PwC Canada explored the TCO for large organizations (700+ employees) and mid-sized organizations (<700 employees) in order to shed light on the core business cost drivers and strategies. 125 organizations participated in the study and PwC discovered similar compelling statistics for the Canadian marketplace. Today s webinar will demonstrate the methodology used to conduct the whitepaper called Exposing the hidden cost of Payroll and HR Administration, A total cost of ownership study and outline some key cost reduction strategies that leading organizations can use to enable better business processes while decreasing expenditures. 4

5 Study focus & methodology The study was conducted to measure the Total Cost of Ownership (TCO) of four core business functions and to analyze factors impacting these costs*. Data was collected though web-based questionnaires, phone interviews, and s. PwC conducted over 300 follow-up calls to verify, clean, and complete the data collected. This approach supports the TCO calculation in a consistent fashion that allows for a consistent comparative analysis. Defining the four core business functions in the study: Payroll (PR) The process of collecting and entering data related to employee hours worked, determining taxation, calculating gross and net pay, distributing compensation, and responding to employee questions regarding payroll. Time & Attendance (TA) The process of scheduling, collecting, reviewing, submitting, and approving time reporting data, including employee hours worked, paid time off (vacation, sick, holiday), and leave balances. HR Data Administration (HA) The maintenance and administration of the core HR database and the activities associated with maintaining employee information and various processing activities such as payroll, new hire reporting, back-end reporting, and other HR activities. Health & Benefits Administration (H&B) The administration of employee H&B programs including; managing enrolment, terminations, payment generation and reconciliation, and status change maintenance. *Quality of administration was not addressed. 5

6 Calculating TCO In order to effectively calculate your organizations TCO, the following types of costs should be considered across all four business functions: System installation costs the one-time costs related to the initial acquisition and implementation of an organization s PR, TA, HA, and H&B systems. System upgrade costs the periodic acquisition and implementation costs related to upgrading to a more current version of the PR, TA, HA, and H&B systems. Direct labour costs the cost of labour (salary plus benefits) of the direct staff necessary to support the PR, TA, HA, and H&B functions. In-Direct labour costs the cost of labour (salary plus benefits) of the In-direct staff necessary to support the PR, TA, HA, and H&B functions. Direct non-labour costs the total costs of consultants, vendor fees and facilities, G&A, and corporate overhead related to the PR, TA, HA, and H&B functions. System maintenance costs the IT costs specifically related to maintaining the current systems. TCO for the core functions can be broken down into 3 types of costs: 1. System implementation costs. 2. Processing/Administration costs. 3. System maintenance costs. 6

7 Breakdown of costs associated with TCO 7

8 Key findings The remainder of the presentation will reveal: 5 key findings highlighted in the whitepaper and supporting cost reduction strategies: 1. Reduced per paycheque expenditure. 2. Integrating functions such as Payroll and Time & Attendance can lead to financial benefits. 3. Outsourcing multiple functions delivers cost efficiencies. 4. Employing a single vendor strategy delivers overall TCO advantages through the avoidance of seams costs. 5. In-house technology implementation costs increase TCO. Additional overarching findings : Economies of scale result in a lower TCO. Hidden costs can account for over 50% of TCO. Organizations stay with an outsourcing provider s SaaS technology longer than the alternatives. 8

9 1. Reduced per paycheque expenditure Organizations that employ an in-house payroll solution experience a 30% higher TCO on a per paycheque basis when compared to organizations that outsource the same function. 9

10 2. Integrating functions such as payroll and time & attendance can lead to financial benefits Business decisions are often made for a single process or function without consideration for the bigger picture. The result is a series of disconnected processes that do not deliver desired business outcomes. In the end investment is required in the form of people and technology to address the gaps that exist. Organizations who manage payroll and time & attendance functions in-house experience a 43% higher TCO than those who outsource the same two functions. 10

11 3. Outsourcing multiple functions delivers cost efficiencies Mid-size and large organizations that outsource all functions payroll, time & attendance, HR data administration, and health & benefits spend on average 25%-31% less than those that use an in-house approach. mid-size organizations Large organizations $34.87 $43.43 $16.49 $

12 4. Employing a single vendor strategy delivers overall TCO advantages through the avoidance of seams costs Many organizations fail to realize the presence of seams cost the cost associated with integrating and managing what would otherwise be a series of disconnected business processes. While these seams costs are present within many HR departments, the study revealed that they are largely absent from organizations that outsource payroll, time and attendance, and HR data administration functions to a single provider. While the benefits of outsourcing payroll alone have been revealed, it was found that when organizations outsource all three functions payroll, time & attendance, and HR data administration to a single provider, they spent on average 21% less than those who only outsourced the payroll function and performed the time & attendance, and HR data administration functions in-house. 12

13 5. In-house technology implementation costs increase TCO Organizations that keep their payroll system in-house incur implementation costs that are about 3x higher than those who outsource payroll and leverage the technology offered by the provider. mid-size organizations outsourcing payroll systems to ADP $18,000 $52,000 mid-size organizations managing payroll systems in-house 13

14 Economies of scale result in a lower TCO Not surprisingly, large organizations have a lower average TCO per employee due to economies of scale when compared to mid-size organizations. While mid-size organizations have fewer, and typically more senior resources that are responsible for business process covered in this study, large organizations will generally employ a larger number of entry-level staff. Mid-size organizations also tend to operate largely manual processes as they lack the scale required to invest in technology. As you will see in the next couple of slides, we anticipate that mid-size organizations will close the automation gap in the coming years. 14

15 Hidden costs can represent up to 50% of a given TCO function System installation cost System upgrade cost There are also many hidden costs that can lead an organization to underestimate TCO. Direct labour cost Outsourcing cost Frequently overlooked hidden costs include: Indirect labour cost System maintenance cost By realizing their true TCO, organizations are better able to manage cost and assess alternative service delivery strategies. Indirect labour costs Direct non-labour costs System maintenance costs 15

16 Adoption of SaaS technology will grow in Canada PwC s industry analysis suggests that HR-related technology in Canada (particularly for the HR data administration function) is lagging behind the U.S. market. Canadian organizations are either operating under an inefficient manual approach to HR data administration or are looking to adopt a next generation SaaS approach, effectively leap-frogging over a traditional in-house software implementation. Most organizations within Canada lack the economies of scale to justify the investment associated with implementing and maintaining an HRIS software solution, however the emergence of SaaS solutions from providers such as ADP is allowing its clients to get the best of both words. SaaS-based solutions provide Canadian companies with a way to access the capabilities provided by an HR information system without incurring the costs that are traditionally associated with one. When comparing ADP clients that use the ADP HRIS as a service package with those that employ a commercial off-the-shelf HRIS package, it was revealed that the latter spend 19% more on average than those who outsource to ADP. In the upcoming years, we expect SaaS adoption in Canada to increase due to the presence of financial burdens associated with an in-house approach. This is especially true when $52,000 outsourcing the domain does not only provide cost efficiencies, but expertise and support as well. $18,000 ADP clients that use a commercial off-the-shelf HRIS package 10% 40% ADP clients who currently use the ADP HRIS as a service package 16

17 Conclusion cost reduction strategies In summary, this study identified four notable themes: 1. Outsourcing delivers cost savings. 2. A single vendor service delivery strategy returns financial benefits. 3. Organizations employing multiple providers and/or technologies to deliver HR services incur seams cost. 4. Organizations often overlook hidden costs and therefore underestimate their TCO. The study reveals the importance of managing HR service delivery strategically. The true total cost of ownership will only be apparent when looking across HR processes, rather than focusing on a single process in isolation. A holistic approach will enable organizations to make sound decisions on their HR service delivery strategy, ultimately resulting in lower overall TCO. 17

18 Questions? 18

19 Thank You Please feel free to contact me with any questions or comments that you may have. Michael Kolm Phone:

20 PwC 20