ROI on automating the Payroll Function
By: Tushar Bhatia
Date: January 6th, 2010
Posted in: Compensation Planning, HR Best Practices, HR Technology, Payroll | 51 Comments »
It is difficult to anticipate the benefits of taking your payroll online. This was a challenge faced by one of our recent customers where the HR department found it challenging to estimate the ROI derived from implementation of an integrated Payroll software. 
This article describes some of the benefits analyzed and presented to the senior management such that critical purchase dollars were allocated for the procurement.
The exercise which started as a small initiative actually helped me dive deeper into how a CFO or CEO perceive their human resources department and what are their expectations from an HR platform.
What I will share here is a small part of the study in how organizations are managing their human capital assets and the challenges being faced versus what are the best practices. In this, I will share what are the different metrics and how can organizations save costs in this critical area.
Elements of ROI
To determine the ROI, we had to first understand how the payroll process works in a manual environment. Our interactions revealed that there are three distinct steps in the successful processing of a payroll which are:
1. Data gathering
2. Processing
3. Disbursement and Reporting
For each of these steps above, there are multiple sub-processes which may take substantial effort and time.
To understand the complexities involved in payroll processing and gaining deeper insights into challenges being faced, we further analyzed many other companies across multiple industry verticals, different employee types (blue collared, white collared, management) and found a median effort for each of the sub-processes. Some of these sub-processes on which we could identify the metrics are:
1. General
a. Number of FTE (Full Time Employees) required
2. Data Gathering
a. Number of time records processed in one year
b. Number of Employee Validation Errors seen during the year for time records which will require corrections and authorizations at multiple employee levels.
c. Time for adding a new employee to the system with salary structures and all other required data
d. Time for removing a terminated employee from the payroll system.
3. Processing of Payroll
a. Number of payroll transactions processed
b. Cycle time for audit of payroll prior to disbursement
c. Number of manual checks disbursed.
4.Disbursement and Reporting
a. Number of payroll related queries
b. No of payment errors
c. Cycle time to process a payroll error
d. Time for creation of reports which are submitted on a monthly, quarterly, half-yearly and annually per employee
Once these metrics were identified, we studied the impact of these metrics in manual processing vs processing using web-based, integrated software such as EmpXtrack.
The example below refers to the results for a mid-sized organization with approximately 1,000 employees across multiple locations. The results are the total time spent in one year for processing monthly payrolls.
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The analysis of the above data gave an unimaginable saving of costs to the tune of $150,000 per yearwhich is much higher than the cost of acquisition of a software such as EmpXtrack.
The following image graphically illustrates the impact of some of the parameters in the chart above:
We further analyzed the intangible benefits (some of which had cost implications as well) of using our web-based software. Some of these are:
1. No need to print payslips. Employees can view their payslips online and these are emailed automatically as well for their records.
2. Minimum payroll related queries post processing. Allows the accounts/HR to complete many more important tasks.
3. Minimum impact when salaries change. Update at a single place is reflected automatically. This avoids reprocessing of payroll.
4. Low impact when new employees are added. For example – for a multi-locational organization with distributed hiring, it becomes difficult to process payroll for new employees.
5. Minimum impact when employees quit.
6. Integration with time reporting systems saves costly mistakes and reprocessing time.
7. Automatic updates to tax tables when the need arises.
8. Archiving of Payroll data for statistical analysis in respect of different employee types.
To analyze the ROI for your company, please fill in the attached form and contact us. We will be happy to analyze your processes, at no obligations, and suggest areas where improvements can be carried out.
January 7th, 2010 at 1:07 am
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February 17th, 2010 at 12:14 am
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March 8th, 2010 at 7:56 am
Technology has catch up on payroll processing making it systematic and cost – effective.
March 26th, 2010 at 10:43 am
Solid article well covered.
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April 24th, 2010 at 2:34 pm
Your blog looks nice, however it would be better if you can use lighter colors as well as a professional design. This will ensure that a lot more readers come to check it out.Informative post by the way!
May 16th, 2010 at 9:09 am
Very well written post, do you have an rss feed I can subscribe to?
May 17th, 2010 at 2:26 am
Thank you! You can find the RSS feed to the blog at http://www.empxtrack.com/blog/feed/ which is also available at the right section under the Meta block (Entries RSS)
Hope that works.
Tushar
May 19th, 2010 at 10:34 pm
Figuring this stuff can be super painstaking, thanks for typing this post to clear up some confusion.
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he automation also has helped speed payroll and accounts payable … In 2002, HealthFirst added Web-based functionality to all its ERP applications. … and automating its supply chain and purchasing processes, Bonham estimates. …
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