TCO White Paper TCO Comparison: ADP vs. Ultimate Software Payroll/HRMS Solutions

Gantry Group TCO White Paper TCO Comparison: ADP vs. Ultimate Software Payroll/HRMS Solutions June 2005 TCO Drivers Ultimate Software s Workforce Management solution UltiPro is a payroll/hr management offering that is rich with functionality. The all-inclusive pricing results in a low TCO. In a study of three Ultimate customers and three similar ADP customers, ADP s average 3-year NPV TCO was 52% higher than UltiPro. Top Ultimate TCO Advantages Single fee for all HRMS & Payroll services Lower internal labor costs for service administration and delivery Rich functionality, particularly for managers and administrators, without sacrificing flexibility and control Integrated payroll and HRMS supports realtime analytics for business intelligence and strategic decision making. The Gantry Group, LLC 30 Monument Square, Suite 214 Concord, MA 01742

www.gantrygroup.com Contents CONTENTS...2 ABSTRACT...3 TCO COMPARISON OF ULTIMATE AND ADP PAYROLL/HR MANAGEMENT SOLUTIONS...4 CHALLENGES IN BENEFITS AND HR WORKFORCE MANAGEMENT...4 SOLUTION OPTIONS...5 IN-HOUSE OR HOSTED MANAGED SERVICES ULTIMATE SOFTWARE S SOLUTION...5 SERVICE BUREAU OUTSOURCING ADP S SOLUTION...6 ULTIPRO/ADP COMPARISON...7 TCO STUDY OBJECTIVES...7 TCO COMPARISON RESULTS & DISCUSSION...8 OVERVIEW OF CUSTOMER IMPLEMENTATIONS...8 TCO COMPARISON RESULTS & ANALYSIS...9 ADP TCO IS 28% HIGHER THAN ULTIPRO TCO...9 ULTIPRO CUSTOMERS GET MORE FUNCTIONALITY FOR THE VALUE...10 PERSONNEL COSTS ARE HIGHER WITH ADP...10 CONCLUSIONS...12 ABOUT THE GANTRY GROUP, LLC...13 ABOUT ULTIMATE SOFTWARE, INC....13 APPENDIX...14 METHODOLOGY...14 TCO CALCULATION APPROACH...14 HR Solution TCO Comparison March 2005 2

Abstract Unlike other recent studies comparing payroll and HRIS automation solutions that have focused on return on investment (ROI) by assigning monetary value to benefits received, this study focused on measuring the Total Cost of Ownership (TCO) of comprehensive solutions for HR, benefits, and payroll functions. Ultimate Software ( Ultimate ) sponsored a direct apples to apples comparison of the TCO of ADP solutions with the TCO of Ultimate s complete HR management solution. ADP was selected for comparison because most industry analysts have given little coverage to ADP as an HR workforce provider, preferring to compare Ultimate s solutions with ERP vendors like SAP and PeopleSoft. To address the lack of third-party comparison with ADP, Ultimate engaged the Gantry Group, LLC, to conduct a direct TCO study of customers of both vendors. Gantry Group identified a set of three companies with ADP HR/payroll implementations. Each company was carefully selected to match with one of three of Ultimate s customers. Three industries were chosen including healthcare, manufacturing, and consumer retail/banking. Company sizes ranged from 1,000 1,500 employees, 3,000 5,000 employees, and 12,000 plus employees. ADP and Ultimate customers were matched by industry and by size. Because Ultimate s offering is all inclusive providing automation for virtually all HR functions, including payroll, benefits, compensation and performance management, HRIS/HRMS, training & development and more and ADP s offerings were discrete modules, Gantry measured the various cost components of the same functions even if not provided by ADP. The study revealed that the average 3-year Net Present Value TCO for ADP was 52% higher than for Ultimate. A key driver to the TCO difference is due to: The primary reason for this is due to key differences in the two solutions, including: UltiPro monthly fees include more features and functions; ADP charges separately and additionally for items that are included in UltiPro. ADP s solutions require greater internal personnel support in HR than does UltiPro. HR Solution TCO Comparison March 2005 3

TCO Comparison of Ultimate and ADP Payroll/HR Management Solutions Challenges in Benefits and HR Workforce Management Across enterprises of all sizes, the primary business missives facing HR departments is the same: to reduce time spent on administrative tasks, and to reduce/control the costs of HR service delivery. 1 As they attempt to execute on these missives, HR executives biggest challenges continue to be retention and development of key employees, decreasing the costs of benefits, and increasing the quality of service levels. Increasingly HR departments are seeking solutions for these challenges based on technology or outsourcing for functions like benefits enrollment, workforce management, performance management and compensation planning to help them reduce administrative costs and provide more strategic support to their organizations. Enterprises clearly view solutions that automate or offload HR business processes to be important tools that address their challenges. Solutions that help HR organizations to meet their objectives have been emerging in recent years out of the category of business process management. According to Gantry research of hundreds of HR managers and executives in the U.S., over 60% of respondents believe employee and manager self-service are important goals within the next two years. "Self-service" broadly refers to a range of transaction-based processes related to benefits administration that leverage Webbased automation. Using Internet browsers, individuals throughout an enterprise can electronically enroll in health plans, view 401(k) and retirement transactions, and perform a variety of tasks that used to be accomplished manually by an HR administrative employee. Self-service benefit functions available across the entire employee base of an organization include items like entering life event changes, 401(k) benefits calculations, retirement contribution and transaction reports, claims transactions, reporting, and many more. Traditionally each time a company employee wanted to review their benefits, had a question about applicable benefits or needed advice, they would make a call to the HR department. Here an HR staff member would answer questions, research issues, retrieve information, enter life event changes and enroll employees in benefits as appropriate. HR employees could spend a majority of time just performing administrative tasks in support of employee benefits. Self-service functions available to executives, managers, and administrators include, for example, comprehensive reporting tools for business trend analysis and daily operations, ability to approve staff requests for training online, and Internet-based processing for new hires, job changes, and salary upgrades. It s no surprise that companies look to streamline and automate these processes to reduce administrative costs and enable HR to perform more strategic, highervalue work. 1 Annual Gantry Group HR Executive Study, 2003, 2004 HR Solution TCO Comparison March 2005 4

Solution Options As HR departments struggle to transform themselves into strategic organizations that support and help to shape corporate goals, they look to technology solutions that promise to aid in the automation and streamlining of non-core business processes. Several years ago, their options were limited to costly, cumbersome ERP systems or smaller niche offerings that automated only one or two HR functions. Today there are many more options including robust and comprehensive HR management/payroll solutions, which are available as in-house or outsourced (remotely hosted) solutions. While the market forecasts for HR outsourcing of people, processes, and technology are projected to be rapidly on the increase, payroll may be less likely to be outsourced particularly with large enterprises (by number of employees on the payroll) with economies of scale. Gantry Group research conducted between 2004 and 2005 indicates that 64% of companies with over 1,000 employees are managing payroll administration in-house. The percentage of in-house payroll operations increases to 75% for companies with over 10,000 employees. With today s hosted solutions, companies can retain in-house control while outsourcing the IT functions for supporting and maintaining the system. In-house or Hosted Managed Services Ultimate Software s Solution As HR technology has advanced, new functionality has made in-house management of HR and payroll more cost effective than at any time in the past. This option, being increasingly used by medium- to large-sized enterprises today, automates payroll/hr management through the deployment of solutions that are either licensed and implemented on an in-house server, or hosted remotely and purchased through a per employee per month fee structure. Aside from the ability to maintain control that results from keeping HR and payroll functions in-house, another key advantage includes improved integration resulting from all payroll and HR functions being managed on one single system. UltiPro from Ultimate Software is one such solution. Ultimate Software s UltiPro the company s payroll, employee management and Web-based selfservice solution - is available under either a license model or a service model. The license model includes an upfront fee and 20% annual maintenance fee; software can be deployed in-house on the customer s own server or hosted remotely, by Ultimate. In the service model, customers benefit from fees based on a charge per employee/month. Additionally, remote hosting of the solution by Ultimate (UltiPro Intersourcing) enables enterprises to avoid internal IT support costs. No matter the business model selected, the UltiPro Workforce Management solution offers comprehensive, integrated automation. Because there is a single database driving all HR functionality, information and data is highly accessible through fully customizable ad hoc reporting capability. Business analytics, included as an integral part of the solution, are another benefit of UltiPro s integrated approach and draw on timely information from all HR and payroll processes. Ultimate s Intersourcing solution includes: HR Solution TCO Comparison March 2005 5

Ultimate s licensed or per/employee/month solutions also offer enterprises a wide range of choices with respect to outsourcing HR/payroll functions, such as tax filing, check printing, and W-2 preparation. The Ultimate solution includes the capability for calculating paychecks, and taxes. Customers can choose to have these items sent to a service bureau for execution, or they can keep these functions in-house. Service Bureau Outsourcing ADP s Solution An alternative to an in-house (or remotely hosted) HR management solution is the service bureau approach where portions of HR functions are taken over by the vendor as part of the service. ADP - one of the most established and oldest service bureaus - became synonymous with payroll processing well over a decade ago. As technology has advanced and markets have shifted, ADP has now expanded beyond payroll transaction processing, offering HR management and administration solutions as well. HR Enterprise is ADP s primary service offering for outsourced HRIS providing enterprises with the ability to streamline and automate HR processes with a service bureau model. Technology solutions are hosted by ADP (older implementations include a client piece as well), and certain functions such as check printing, tax calculation and filing, and W-2 preparation and fulfillment are included in the service. ADP s approach to HR workforce management comes from a service bureau perspective, whereas Ultimate s history is software development. Both companies offer solutions that reflect their respective histories. HR Solution TCO Comparison March 2005 6

UltiPro/ADP Comparison UltiPro/Intersourcing ADP Payroll/Enterprise Pre-formatted out-ofthe-box 600+ reports limited reporting Real-time database Web Query Business Analytics Ready-for-use BIC Process Automation Customized Reporting added cost Enterprise Integration added cost Self-Service Workforce Fully interactive limited added cost Portal Single database design Avoided IT Support Off-cycle Check Runs added cost Payroll Adjustments added cost Multiple Tax Jurisdictions added cost Designed from the perspective of HR business processes, UltiPro has some clear advantages that are reflected in the average 3-year TCO (see TCO Comparison Results & Discussion): HR management workflows out-of-the-box, no separate configuration required, no extra cost Robust workforce portal (managers, administrators, employees, broader workforce) Multiple FEINs handled with ease, including instant reporting on multiple locations/divisions separately or on the company as a whole Hundreds of customizable HR, payroll & benefits reports any time from the Web Ready-to-use workforce analytics on topics such as turnover, overtime & benefits costs All workforce data accessible at any time, in seconds Real-time access to payroll results Total control & flexibility over payroll processing schedule One all-inclusive low monthly fee, no extra charges TCO Study Objectives Gantry Group set out to systematically compare the quantitative TCO of Ultimate Software s Intersourcing HR management solution with that of ADP s HR solutions. Consistently apply a TCO study methodology to quantify and compare TCO outcomes of payroll and HR solutions deployed by Ultimate customers and customers of an Ultimate competitor. HR Solution TCO Comparison March 2005 7

Comparatively analyze and highlight the specific areas of TCO outcome differences and cost drivers of three (3) pairs of apples to apples deployments (3 Ultimate customers, 3 ADP customers) of Web-based payroll and HR management solutions. Calculate the annual average TCO experienced by 3 Ultimate Software customers and 3 similar ADP customers. Quantify and differentiate the TCO of Ultimate s Web-based payroll and employee management solution from the equivalent TCO of ADP s offering. TCO Comparison Results & Discussion Overview of Customer Implementations Small Company Pair: Product Description: UltiPro/Intersourcing (per employee per month pricing option) remote hosted solution Implementation Time: 4 months. Modules not used: Recruitment and Training modules not yet in use. Modules in current use: Payroll Processing, Benefits Administration/enrollment, Web Self-service, Workforce Management, and Business Analytics and Reporting. Product Description: ADP Payroll/HR Enterprise, etime Implementation Time: 2-3 months. Modules not included: No self-service, online management or enrollment. Modules included: Hosted HRIS, Time and Labor management, ReportSmith for report template programming. COBRA outsourced to ADP under separate contract. Mid-Sized company pair: Product Description: UltiPro/Intersourcing (per employee per month pricing option) remote hosted solution Implementation Time: 4 months. Modules not in use: Performance management, Compensation management modules not yet in use. Modules currently in use: Training module implemented in 2005. Currently using Webbased manager and employee self-service, payroll, tax filing, recruiting and workforce management. Product Description: ADP Payroll/HR Enterprise Implementation Time: 18 months. Modules not included: No manager or employee self-service or Web-based enrollment. Modules included: Hosted Enterprise HRIS and ReportSmith for report template programming. FSA contracted separately with ADP and has its own associated employee Website. Separate databases for payroll and HRIS. HR Solution TCO Comparison March 2005 8

Large-Sized company pair: Product Description: UltiPro/Intersourcing (license fee plus annual maintenance pricing option) Implementation Time: 17 months Modules not in use: None Modules in use: All product features including payroll, HRIS, HR benefits, FSA, COBRA and employee and manager self-service, workforce management, business analytics. Product Description: ADP Payroll/Enterprise hosted remotely with client software component. Implementation Time: 24 months. Modules not included: etime or interfaces to financial service providers. Separate databases for HRIS and benefits. Modules included: Currently using payroll administration, tax services, HRIS. H&W, FSA, COBRA on separate ADP application being phased out, with customer service Website, online enrollment, billing and administration of all benefit plans. TCO Comparison Results & Analysis ADP TCO is 28% Higher Than UltiPro TCO Based on Gantry Group s research of six companies (3 using UltiPro and 3 using ADP Payroll/Enterprise HRIS) the 3-year Net Present Value of TCO across these firms was 52% higher for ADP or over $1,000,000 more annually. While the TCO in the first year of implementation is comparable between UltiPro and the ADP solution, this changes in the years following. The primary reason for this is due to key differences in the two solutions, including: UltiPro monthly fees include more features and functions; ADP charges separately and additionally for items that are included in UltiPro. ADP s solutions require greater internal personnel support in HR than does UltiPro. HR Solution TCO Comparison March 2005 9

UltiPro Customers Get More Functionality for the Value The total monthly costs including both basic per employee fees and additional ongoing costs over and above those fees were, on average across the 6 companies, higher for the ADP customers. Ongoing additional fees levied by ADP include the following items: Support for customized reports for more than 3 reports ($/yr) Multiple tax jurisdictions ($/additional jurisdiction) Adjusted payrolls ($/adjustment) Wage garnishment ($/garnishment) COBRA administration ($/event/ee) Monthly GL interface fees ($/mo) Tax services ($/ee/pay) Customized communication ($/letter) Monthly fees for customers of ADP for basic payroll processing and benefits administration again are higher than for customers of Ultimate due to the breakout of service components into individual line items. These include monthly fees for etime (ADP time and expense management), FSA, and fees per check (in addition to the monthly payroll processing charges). While the basic monthly fee for hosting and payroll/hr administration are similar between the two offerings, UltiPro s fee includes items for which ADP charges extra. Personnel Costs are Higher with ADP On average, across the 3 customers for each solution vendor, UltiPro customers are able to accomplish payroll and administrative tasks in less time than ADP customers. In the first year, the amount of personnel time required for training and system proficiency ramp was about the same for both vendors. Over time, however, the amount of time required by personnel interacting with the system is less for UltiPro customers. HR Solution TCO Comparison March 2005 10

Gantry found that the drivers of this differentiation in labor requirements are due primarily to specific benefits that result from UltiPro: Tight integration of UltiPro with its time clock solution, improving the accuracy of its payroll; less time spent correcting errors Web-based Manager Self-Service distributes the employee-related administrative workload Real-time, sophisticated workforce analytics for strategic decision making readily available instead of manipulating manual spreadsheets. Out-of-the-box workflow processes for managers, executives, administrators enable interface with HR to be accomplished quickly via the Web portal. None of the three ADP customers had access to Web-based self-service, requiring workforce management tasks to be executed through manual emails and electronic document transfer. Overall the degree of automation and integration of HR functions was relatively low, with most capability and automation focused on the payroll part of the solution. HR Solution TCO Comparison March 2005 11

Conclusions When companies of similar size and industry are compared, the TCO of UltiPro averages ½ of the TCO of ADP s HR/payroll solutions when considered over a three-year period. While UltiPro s first year costs are slightly higher than those for ADP, the trend for the years post-implementation shows significantly lower TCO. Extrapolating from this trend, Gantry estimates that over a 5-year period the NPV TCO for UltiPro would be even lower. The solutions are comparable for the 3-year NPV TCO components of training and hosting costs, however on a yearly basis postimplementation, ADP costs in both areas are considerably higher than UltiPro. The primary drivers for ADP s higher TCO derive from: the demands on internal personnel required by the solution; individual pricing for each solution module; and, the compounding of extra costs charged by ADP for items outside of the base offering. UltiPro s HR/payroll solution is comprehensive, providing multiple services (including web-based employee and manager self-service) for one monthly fee. While the ADP offering was developed for each function separately (beginning in payroll processing), UltiPro s was designed as a single solution right from the start and developed with HR business processes as a focal point. ADP s modular expansion into other HR processes beyond payroll has resulted in an offering that in the three cases examined in this study is less effective at reducing internal personnel costs and is priced for units of functionality that add up considerably. HR Solution TCO Comparison March 2005 12

About The Gantry Group, LLC The Gantry Group is a research and consulting firm specializing in technology ROI. With over 300 technology clients, 4,000 business process interviews and profiles in our knowledgebase, and more than 1,000 ROI business processes and value drivers modeled, we offer our clients the greatest depth and breadth of ROI experience and invaluable objectivity. The Gantry Group uses analysis drawn from practiced operational experience, supported by custom primary research, to help IT vendors and enterprises forecast accurate ROI and TCO. Gantry Group translates the business process enhancements that result from IT solutions into enterprise bottom-line impact. This analysis helps vendors to sell their solutions more persuasively and enterprises to make more informed buying decisions. Through a rigorous interview approach, Gantry Group profiles real enterprises with solution deployments to isolate and capture actual business performance metrics before and after implementation. Gantry Group develops predictive ROI tools that measure and quantify the effect of the technology on business performance prior to investment. Using these results, technology vendors can substantiate their solutions real ROI and expected payback horizons to increase revenue. Enterprises can realistically evaluate and forecast the likelihood of net financial benefit derived from a technology solution. For more information about Gantry Group, visit www.gantrygroup.com or call 978-371-7557. About Ultimate Software, Inc. Ultimate Software, a leading provider of Web-based payroll and workforce management solutions, markets award-winning UltiPro as licensed software, as a hosted application through Intersourcing, and as a co-branded offering to Business Service Providers (BSPs) under the Powered by UltiPro brand. The Company employs approximately 465 professionals who are united in their commitment to developing trendsetting solutions and delivering quality service. Ultimate Software customers represent diverse industries and include such organizations as Benihana Restaurants, The Container Store, Elizabeth Arden, The Florida Marlins Baseball Team, The New York Yankees Baseball Team, Omni Hotels, Ruth s Chris Steak House, SkyWest Airlines, and Trammell Crow Residential. More information on Ultimate Software s products and services can be found at www.ultimatesoftware.com. UltiPro and Intersourcing are registered trademarks of The Ultimate Software Group, Inc. All other trademarks referenced are the property of their respective owners. HR Solution TCO Comparison March 2005 13

APPENDIX Methodology To meet the objectives, Gantry s approach called for the identification of six companies, three that were deployed customers of Ultimate and three customers of ADP. Care was taken to ensure that each of the three pairs of companies to be compared were of the approximate same size and had similar business models. The three Ultimate customers were selected first, and were selected on a first come basis. Customer selection criteria was founded on industry and size - their TCO experience with Ultimate s solution was an unknown. The selection criteria derived from Gantry s desire for the following respondent make-up: 1 pair of companies with ~1000-2000 employees in healthcare (providers) 1 pair of companies with ~ 3000-5000 employees in manufacturing 1 pair of companies with ~10,000+ employees with branch/retail business models Upon identification of the Ultimate customers, Gantry researched and recruited a matching set of ADP customers. Aside from the criteria listed above, the ADP customers had to have been using an ADP solution for some combination of payroll plus at least one other HR function. The following table summarizes the final selection of study participants: Vendor/Product EE Size Industry Ultimate/Intersourcing 1,200 Healthcare ADP Payroll/Enterprise HR 1,165 Healthcare Ultimate/Intersourcing 3,000 Manufacturing ADP Enterprise/ADP Payroll 3,400 Manufacturing Ultimate/Intersourcing 13,000 Banking ADP Enterprise, WinFlex 12,000 (H&W) Retail During the recruiting selection process, Gantry developed a detailed interview session guide to be consistently applied to all participating companies. The session guide was designed to capture TCO drivers at a granular level. TCO Calculation Approach Gantry s objective was to calculate and compare the 3-year, Net Present Value (NPV) TCO for each of the six companies participating in the study. The categories of cost that were considered for each participant included the following: HR Solution TCO Comparison March 2005 14

Setup/implementation fees Consulting fees Recurring Hosting Costs Hardware Costs (check printers, printers & associated maintenance contracts) Monthly solution fees (Payroll, Benefits, HR workforce management) Personnel (HR, Payroll, IT) Cost Training and Expense Cost Other ongoing fees Customized report maintenance W-2 filing, disbursement Check printing, disbursement FSA administration COBRA administration Wage garnishment Customized employee C&E (benefits enrollment, new hire letters) development, disbursement Custom GL interface maintenance Custom other interface maintenance Tax calculation and filing Additional jurisdictions Payroll adjustment Check paper stock/postage Costs for implementation, setup, configuration consulting were considered as one-time, upfront costs; if a company paid this cost in multiple payments over the three-year period considered, then that was reflected in the calculation. The 3-year NPV was calculated using the standard Net Present value equation with an assumed discount rate of 15% for all TCO evaluations: NPV = cashflow/(1+discount rate) n, where n=3. HR Solution TCO Comparison March 2005 15