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HOW TO SELECT
YOUR outsourced
payroll provider;
9
steps to making
your decision
The author has personally participated in the assessment of current position, scope definition, objective setting, EOI/tender, proposal assessments, price comparison, ROI analysis and decision criteria with over 100 companies (72% of which decided and have successfully outsourced their payroll with significant benefits achieved and cost reductions averaging more than 60% savings)
1 | P a g e Contents:
Step
1
How to identify what you are trying to achieve; 7 common
reason people outsource payroll
Step
2
Prioritise your objectives and develop selection criteria to
suit
Checklist and SCORE CARD for evaluating suppliers
The 9 key stages (of your project plan) for EFFECTIVELY
OUTSOURCING PAYROLL
Step
3
Step
4
Step
5
Step
6
Step
7
Step
8
Step
9
TENDERS; how to obtain the information you require;
choose between these 3 strategies
Evaluating service providers; price isn’t everything
How to assess the BUSINESS CASE for and against
outsourcing; 6 things you need to know
Undertake reference checks
Audit and Parallel Payroll verifications; 6 steps your
Implementation should include
GO LIVE; your payroll is outsourced
How to prepare and present the BUSINESS REPORT on
savings made by outsourcing and benefits gained
2 | P a g e If you are reading this, it is statistically likely that you are considering outsourcing and that you are looking for methodology and guidance to increase the probability of a good result for your business, whilst at the same time making it easier for you to put the proposal forward.
“Having personally participated in the assessment of current
position, scope definition, objective setting, EOI/tender,
proposal assessments, price comparison, ROI analysis and
decision criteria with over 100 companies (72% of which
decided to & have successfully outsourced their payroll with
significant benefits achieved and cost reductions averaging
more than 60% savings)”
Before you rush into the exercise, take some time to plan the process. Regardless of your ultimate goal – be it increasing internal efficiencies, saving money, or even reducing the business risk and exposure – a well-planned and smooth transition will ensure that you
maximise your organisational benefits. It is very common that this exercise is being conducted because there are too few people in your business and it will give key people back vital time to focus on core business. Outsourcing your payroll will also import best practice, by using a dedicated payroll provider you can benefit from industry specialists, all aspects of your data and all information leading to payroll will be more secure and data managed. Once outsourced whenever a complex payroll question arises in your business you can get the answer. Whether it is redundancy, long-service leave, salary packaging or complex termination calculations, answers can be provided.
Organisations outsource payroll and other core business functions for many reasons, all of which are unique to each specific business. Identifying and defining your objectives will develop the very basis of your selection criteria and thus is fundamental to ensuring that you select the right service provider.
Possible objectives to consider (identify and then rank) include:
1. Reduce your cost structure...
Saving money is the most common reason for outsourcing payroll – typically, organisations should expect to save 40-70%. Ultimately the ROI could be the main justification albeit there will be considerable benefits and technological
advantages. In order to effectively evaluate the service options it is essential that you first determine your current cost structure. You may not realise how much it actually costs you now which is the wage cost to capture hours, interpret what those hours mean for payroll, process pays, check calculations,
Step
1
How to identify what you are trying to achieve; 7 common
reasons people outsource payroll
3 | P a g e investigate gaps in information, produce summaries, receive sign off, answer all questions about pay related matters, provide payslips, make changes to employee records, calculate terminations etc
2. Reduce reliance on particular individuals...
You may be concerned about how much of the payroll process is conducted by too few people in your business, or how much you rely on those few people. The current situation may also cause stress around payroll, particularly if a vital person is sick. Dependence on one or more individual(s)
unnecessarily exposes your business to a number of risks, including, miscalculations, mistakes or poor
compliance management.
3. Increased compliance...
The simple truth is, it is both challenging and costly to remain on top of a demanding and constantly-changing Australian compliance landscape. Regardless of whether your challenges are income tax,
superannuation, industrial relations or payroll tax, they are all complex. The cost of getting it wrong (or even proving that you are right) could be sizable. Compliant outsourcing reduces the business risk and exposure.
4. Improve your strategic focus around core business and new projects...
To have highly-qualified senior managers spending time supervising
payroll/payroll staff is not only expensive, but can also be dysfunctional for the organisation.
(They also may be operating outside their expertise; do they know payroll?)
Outsourcing your payroll will give key people back vital time to focus on core business.
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5. Receive the latest cloud and ESS technology overnight...
Technological benefits and increasing internal
efficiencies are often an essential component in any mix of outsourcing objectives. You will gain instant access to reporting, web-based leave
management, employee self-service, or even time and attendance. There are a variety of cloud functions that can radically improve efficiencies, data control and risk management within your organisation. Why stay with paper based forms and systems?
6. Immediate access to payroll expertise...
Whenever a complex payroll question arises in your business you can get the answer. Whether it is redundancy, long-service leave, salary packaging or complex termination
calculations, answers can be provided. Understanding the Fair Work legislation,
keeping up-to-date with changes to superannuation or new taxation requirements, or even just managing the nuances of payroll tax is not necessarily a responsibility that should be managed within your business.
7. Best-practice, Security and governance...
Governance forms a critical part of effective risk management. Do you have appropriate disaster recovery processes, system back-up and data storage? How do you address separation of duties and compliance auditing?
By using a dedicated payroll provider you can benefit from industry best practise, all aspects of your data and all information leading to payroll will be more secure and data managed.
5 | P a g e Once you have identified your specific objectives from the “How to Identify what you are trying to achieve; 7 common reasons people outsource payroll”it would be good practice to prioritise them. This should expose you to some additional thinking and potential benefits which may sit outside the original brief and thus should be incorporated into the business case you prepare. In Step 5 I will provide you with guidance as to how to assess the business case for and against outsourcing and provide you with a base template.
The decision around ‘selection criteria’ is going to be ruled to some extent by whether this project has been assigned to you to work through, or is your initiative. If this is an assignment that has been delegated to you, then you should take time out now to meet with the sponsor and seek clear indications of what is important to them (or to their boss) and what they believe would be important to the organisation. This can guide the importance you put on key aspects of the comparison that you conduct: it may also lead you to specify those criteria, or factors affecting those criteria.
‘If this is your initiative, then the same time out could be used to fine tune
this process; take some time to clearly establish the outcomes that you
would prefer and the things that you feel are important to you. Ultimately
you will still need to promote the recommendation to peers or seniors in
your business.’
The outsourcing process is actually extremely straight forward. Naturally using and following a clear check list and score card like the one below will improve the probability of optimal results. You can establish your own checklist from first principle, edit the one below, or use it as it is if that would be helpful and save you some time.
To provide you with an insight of the stages you should go through please refer to the ‘9 key stages to affectively outsource your payroll’. This will assist you with planning and may help you to manage the expectations of peers or managers within your business.
Step
2
How to identify what you are trying to achieve; 7 common reasons people outsource
Prioritise your objectives and develop selection criteria to
suit
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Below is a check list of key items that you could use to evaluate the payroll outsourcing suppliers.
Checklist items -
Supplier 1 Supplier 2 Supplier 3
1. Did the supplier clearly scope our business requirements?
2. Price Comparison
3. Does this include annual Payment Summaries, an annual % of staff turnover and all logically required
inclusions based on our business criteria and scoping?
4. Location: Where is the supplier located and where are the phones answered? 5. Will we have a dedicated consultant we
contact every time?
6. Business needs quoted in entirety?
7. Detail provided: Is there a full
explanation of the services on offer? And do they cover everything the business could benefit from now and in the future? 8. Are future needs available in the same
product range?
9. Preparedness to comply with our process
10. Size and longevity of provider
11. Technology available to deliver solutions and advantages
12. Responsiveness to our questions
13. Guarantees and SLA’s to operational excellence
14. Reference confirm service levels
Checklist and SCORE CARD for evaluating
suppliers
7 | P a g e The most overlooked step by many service providers is accurately scoping and clearly mapping advantages for your business. Most are too busy just trying to get your signature; they aren’t ensuring they are the best fit for your business.
Scoping: Actively scoping your specific requirements first, and examining the rightoptions to meet your needs now and possibly in the future as your business grows. Many providers miss this step completely, trying to ‘sell you their solution’ and it’s not until you’re being implemented that you realise there are limitations or gaps.
Proposal (and comparisons): Request a proposal from your suppliers and use theChecklist and Score Card to evaluate the suppliers. A detailed proposal should consist of:
a) an understanding of your current situation and payroll processing procedure, b) a detailed recommendation meeting your objectives,
c) an outline of the approach the partner will take; including the detail they will go though during Implementation,
d) the benefits of the solution put forward,
e) transparent pricing; including Implementation and Annual Year End processing and
f) a number of SLA’s around service level guarantees; including service quality & timeframe delivery, and
g) an overview of other products and services available in the companies suite for future business needs.
Demonstration: Seeing the product in operation will provide you with a visual andpractical introduction to the experience for you and your employee. You will be able to take advantage of clever technology which solves issues you may not have grouped into this project.
Return of investment (ROI): Any service provider can provide you with a proposal, buthow many will provide a detailed, transparent proposal, with clear expectations of savings and genuine ROI for your business. ROI is an important measure for all businesses, so make sure you investigate this with your provider. You should choose options based on your business needs.
Business case: Your service provider should carefully and confidentially help youthrough building a business case to present to key stakeholders in your organisation based around your requirements. This is not just limited to the cost savings, so be sure to build in all the elements that will strengthen your case.
Implementation Plan: The provider should be able to provide you with a plan for thesmoothest capture of current information and a clean transition to move forward. This is not something you will do 5 times in your career; but it should be something your new partner specialises. Make sure there is a clear milestone process that is carefully project managed. In particular focus on step 6.
The 9 key stages (of your project plan) to EFFECTIVELY
OUTSOURCING PAYROLL;
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Project Management: Once you have signed with your provider it is important for bothparties to have an understanding of where the status of the Implementation is, who owns what task and the project is running on time. The use of a project managed milestone process whether provide this transparency & peace of mind
GO LIVE: A lot of detail should be emphasised around the GO LIVE of your payroll.During the Implementation phase you should be provided with a project plan which will enable you to have a transparent step by step matrix of the information required, delivery timeframes and ownership.
Every GO LIVE is different therefore the Implementation plan should be tailored to your needs. Information required to GO LIVE will include: year to date, company payroll data (e.g. cost centres, payment groups, default Superannuation details and payslips to name a few) and payroll data - one of your last payroll is ideal. The company is set up, a parallel payroll can be run and data reviewed and compared. Your implementation consultant should discuss the findings with you. At this point you should be able to determine is another parallel is required. (it is common for there to be more than one parallel)
Sign off of the payroll data should occur before the GO LIVE payroll. You should only sign off for GO LIVE when you are comfortable with the produced outcomes.
Business report on savings and technology: Whether you have been asked totimeline the preparation of a report, to ascertain the extent to which the perceived benefits have come into fruition in the implemented strategy, this is still a very
worthwhile exercise. If you did your homework and took into consideration thoughts and ideas conveyed through this white paper, you should achieve the business case as a minimum. Whilst we will cover this in detail in step 9, it is useful to know that you should expect the result from step 5.
Beginning with the end in mind you need to receive all of the core information that will enable you to assess the business case and prepare your recommendation.
Sometimes stating the obvious is required: if you do not ask for all of the information and then receive it you are at the risk of making an assumption and you may well fall prey to a sales person who says “Yes” on the phone and then does not comprehensively include the costs in the quote. This will create two issues:
a. You may incur additional charges after you have signed the contract and implemented, resulting from services that you do require but were not included in the quote;
b. When you investigate the detail to challenge the additional charges your information may be lacking and the supplier may have been able to sneak in an innocuous clause.
TENDERS; how to obtain the information you require;
choose between these 3 strategies
Step
3
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1. Written Proposals
Contact each of these providers and ask for a proposal that outlines the services they provide as well as the associated costs. Professional payroll organisations will ask to schedule a discussion to identify your objectives and current points of pain. Without this discussion, either on the phone or face-to-face, you will end up with an off-the-shelf product that may not provide the solution you are after. It may meet some of your needs, but it is also probable that it will involve you making compromises on what you are ultimately trying to achieve.
Proposals are essential; they often highlight offerings that you didn’t consider but, on reflection, find attractive. If they align with your objectives, there is nothing wrong with modifying your criteria once the process has started. At the end of the day, you need to end up with the best possible outcome for your organisation to maximise your return on investment (ROI).
2. Tenders
A tender is a formal process and many folk feel that there project is not appropriate to Tender, or perhaps that no one will respond. In actual fact the process of sending out a tender is very straightforward and you would typically forward it to the same suppliers who would be on the list that you would contact for a proposal.
A useful tip: someone from your organisation should still make an initial
contact and check who the tender should be forwarded to, then email it out
with a clear closing date. There’s no need for it to be a long while away.
People who prepare tenders for the supplier are used to unreasonable
turnaround times, so give them a fortnight at most; it will be a welcome
relief to them and should improve the quality of their submission.
Ironically setting a longer time that 2 weeks often leads to fewer responses as suppliers know they have time, de-prioritise the task and may forget to have it in on time.
Carefully compare the responses. Again this really isn’t as onerous as it may at first seem. Simply check the detail in the answers to see who meets your criteria. Often the detail in the tender is a good indication as to what the future could look like with that supplier: short partial answers at a time when they are trying to impress you and win your business could indicate that once they have won the tender they will be even briefer and less detailed. If it looks like they scraped together the barebones of a response maybe that is the standard they work to. In the same way, a really well prepared tender with detailed answers, proper explanations and careful attention to the question, could indicate that the supplier will be operationally excellent if you choose them.
If you get stuck and need help or should you wish, we have several tender documents on file that you could essentially choose between and rebadged. You could then add or subtract from the questions, add tailored questions of your own from your business summary or to make sure you satisfy the purpose of your study, or select questions from each of the samples in order to create a hybrid. In any case it will give you a very healthy starting point. Simply contact me and I can provide these for you in soft copy.
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3. EOI
Whilst the name differs in this instance and Dr Google will provide some subtle differences, the concept of conducting an Expression of Interest literally lets you conduct an exercise which is essentially equivalent to a tender. So all the quick points I made above apply here. Once again, if it would be of assistance, please ask and I can provide sample EOIs. Perhaps you could compare the formats and then decide which way you would like to go.
General advice that will be appropriate whichever way you precede.
Make sure that you keep a record of all interactions with service providers, including:
i. How easy it was to get through to a sales representative
ii. What questions you were asked, and whether they were more interested in selling a product than developing a solution aligned to your requirements
iii. Whether the proposal reflected what you were looking for, or was it a generic sales pitch that didn’t take into account your specific needs.
The data you collect at this stage will feed into the evaluation process.
Look for key detail which addresses your objectives and scores highly on your specific criteria.
Perhaps a reasonable indicator of the operational excellence of the
business (and what you can expect), is the extent to which the “sales folk”
demonstrate the attention to detail. Your interactions throughout this
discovery process will enable you to form an initial opinion, of the extent to
which the supplier representatives are operationally focused, or likely to
have told you anything to get the order.
Your evaluation process needs to ensure that each provider has: a) Met the criteria you have established, and
b) Demonstrated a service acumen that (hopefully!) translates to the service provided. Among the issues to consider are:
1. Does the service provider have clear and measurable service SLA’s?
2. Does the service provider accommodate the range of services you need? Do these services form a part of your essential criteria?
3. How highly do they value quality, and how is it tested and measured? If they can’t measure quality, then they can’t guarantee they can deliver it. A quality organisation should provide you with measurement metrics – what’s not measured is not managed 4. How flexible are they in making technical adjustments in response to your requirements
or suggestions?
5. Are they committed to the ongoing development and delivery of best-of-breed tools? Do they have developers?
Step
4
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6. Are they large enough to continually satisfy your needs as your business evolves and grows?
7. What’s the cost of the service they are providing, and how does that compare with other service providers? How does it compare with your ‘true’ current in-house costs?
Given your saving 40-70% and the most expensive provider will still save you 30-60% be
prepared to go for a quality and an operationally excellent business partner. Remember that this is going to be a change management process: you are choosing someone that you are going to rely on and feel comfortable working through this exercise with. Even if you both plan it very well, the supplier you choose is going to need to be adaptable to the changes that come up
within your organisation. Look for a company that clearly excels and is conducting these types of exercises frequently. It’s also a very sensible idea to go with a Project managed approach; look for a company that has a milestone process that clearly outlines what is to be achieved at each stage as they proceed. This will not only make it easier for you, but it is a real indicator that they have a good handle on the process that will start once your business signs off.
This is where clear forecasts are needed. You are essentially projecting your current business situation as the first scenario and capturing what this scenario means for your business. You can use some straight forward calculations to extrapolate the actual costs of your current approach. You can then compare this to essentially keeping your current staff and change the way that payroll is conducted (assuming of course that you have a desire to still run payroll internally).
In this scenario you would be looking to either use someone else’s software running on your own computer network, or to use someone else’s fully compliant platform running on the cloud. Part of your analysis would include a cost/savings comparison. It is likely that this second scenario will be included into your analysis or excluded based on the primary objectives of the current business situation.
If for example your motivations include the desire to free up key individuals, it seems likely that a true outsourced solution will be appropriate. I cannot tell you how many times i have spoken with the panel about options and then simply asked “if this is kept in house and you use a compliant platform, then who exactly is going to be the person responsible for running the payrolls on that platform?” Interestingly enough the looks around the room often make it clear that neither the finance team or the HR team really want to be in charge of payroll and the staff internally are not really equipped to do so. Knowing this early will save you some time in the process.
The alternate scenario that you are essentially assessing is then the exact picture that your business could expect if it went ahead with your recommendation. To do this there are several fundamental points that you will need to cover:
1. The exact costs that can be expected to be incurred as a direct result of entering into the recommendation. This can usually be forecast for you by the companies that prepare the proposals. Care should be taken using a scorecard to make sure that they don’t deliberately miss key components of the pricing,
Step
5
How to assess the BUSINESS CASE for and against
outsourcing; 8 things you need to know
12 | P a g e
2. The exact savings that your organisation will be able to make in terms of reduced time and wage costs being the delta in the work required to be completed internally. Naturally this assumes that the staff time is redeployed to other activities that are of benefit to the organisation. Whilst the focus on core roles can and should be mentioned, the business case cannot extend to any suggestion of what could be achieved through freeing upthese resources. But mitigating risks is a real point that can be listed and costs could be attached to each risk,
3. The indirect benefits should be included into the business case and they should include all improved functionality that will be accomplished through this exercise. This will include the availability of technological advancements and improved Employee services that could be achieved. It won’t hurt to include the improved way both you and the decision makers will be able to use the new service; there’s nothing wrong with people relating to their experience,
4. Future pathway opportunities that may also be in line with future business objectives should be enumerated. I would include a statement that this did not affect the recommendation, but note the benefits that arise from opening up these future paths as a consequence of the recommended path,
5. Some timeline of when costs and benefits could separately be expected to come into play is a sensible inclusion into the business case. It will show stakeholders the fuller picture and should also help to alleviate concerns through the change process,
6. If the recommendation includes an audit of your current payroll and potentially involves the new supplier providing clarity around current pay processes and clear corrections of any inherent mistakes, then cover these clearly in your business case also. The supplementary reason for this is that it creates an expectation that such circumstances may/will exist and reduces the ‘organisational shock’ when mistakes are found. This is a sensible way to outline the mitigation of risk,
7. Now is the time for you to outline the process that you completed and attach any specific documentation that came from your analysis. By doing this you are sharing the strategy that you followed. It should give credence to your next stage of the business case, reduce derision and help flow the team
towards a conclusion and decision,
8. Finally you business case should provide a brief outline of each scenario, explain your position on the
recommendation you are making, then clearly state your preference and then 3 to 5 key reasons for your recommendation.
13 | P a g e Ask them for referees from similar-sized businesses. Don’t expect
the service provider to be perfect – it just doesn’t happen! What you should expect, though, is that when problems do occur, they are managed in a professional manner. You are looking for a partner who can work with you to achieve effective outcomes. Undertaking planning and due diligence is essential when outsourcing your payroll. Before you rush in and commit to an external provider, take the time to identify your core objectives. It’s essential that your solution is not only cost-effective, compliant and customised to meet your requirements and responsive to your changing needs, but also aligns with your core business objectives.
Ask for their help in preparing your internal business case, after
all, you don’t want to identify a payroll provider – you want to identify a payroll solution and a lasting relationship.
The most important component of any outsource payroll project is the quality of the implementation process.
1. Define your payroll requirements
An Implementation Manager should work with you to document your entire payroll set-up requirements. The entire implementation from data collection through to GO LIVE should be mapped out within your Implementation Plan.
2. Provide payroll data
Once the “Information required for payroll set-up” is received the data can be checked to ensure that it is complete, clear, accurate and unambiguous. Any clarification required will be sought from your representative. It’s at this stage that the supplier will be able to conduct a full audit of your current payroll data, company set up and provide you with a transparent & accurate evaluation and recommendations.
3. Run a trial payroll
It is best practice where possible, to run a trial payroll based on a recent payroll, allowing verification that we have fully understood your payroll requirements. This is an essential component in delivering a quality outcome, and we will run this trial as many times as necessary until you are 100% satisfied that the supplier completely understand your requirements.
4. Verify trial payroll
Once the trial run has been completed, you would receive a full set of management and verification reports to ensure that quality standards are met prior to the first live payroll.
Step
6
Undertake reference checks
Step
7
Audit and Parallel Payroll verification; 6 steps your
implementation should include
14 | P a g e 5. Train client & document process
During the implementation phase the supplier should be able to provide you with training and documentation manuals for reference at any stage
6. Client sign-off then GO LIVE
Everything should now set-up and your new payroll and employee management systems in place! Your account manager should stay in close contact with you during the entire process.
Once your payroll is live, an account review and account management plan should be established. A degree of commitment around face to face site visits, 3, 6 12 monthly reviews of your payroll will allow you to maximise your benefits to outsourcing.
Your business is and will forever be evolving and your payroll service provider should be able to evolve with you. This is why it is important to understand the full capacity of what the suppler services entail as it may become relevant for you down the track. Having a supplier, now a business partner who invests in its product with be beneficial.
This step is the logical continuation of step 5. You will be analysing the extent to which each of the elements included in your business case have in fact come into play.
The reason to volunteer step 9 is that it creates a clear win win for you as the person who has made the business recommendation:
If the project has run smoothly forwards, you have the formula for the report, because you will update you’re already prepared and approved (by then) business case and simply confirm what has eventuated. All the workings were already included so the required report is straight forward. You can then enumerate the result. If you are feeling confident, you can actually enumerate some of the projects in point 2 that you could not then mention, because the key staff who have had time to focus in core areas may by now have had some new projects come good.
Conversely, if for any reason any aspect of your business case did not play out the way that you had in your draft scenario, then here is a magnificent forum for you to analyse
Step
8
GO LIVE; your payroll is outsourced
Step
9
How to prepare and present the BUSINESS REPORT on
savings made by outsourcing and benefits gained
15 | P a g e the ramification and make a further recommendation as to next best steps. I’m
comfortable that I do not have to further explain the benefit of that herein.
Thus you can use the same criteria and in most cases the exact same report. Be sure to change the core heading, mark the updated position clearly, change the dates, include a list of the invoices paid and show that they are in line with what you had forecast. Finally it would be good to include a 4 or 5 bullet point summary at the front of the document, briefly stating the findings and lastly stating the conclusion.
Don’t wait any longer and contact us at Aussiepay . With over 20 year’s experience, let’s discuss your payroll challenges today and get the first step of the process underway.
About Employgroup
Employgroup is a full service employee management provider including human resource management and time & attendance.
Launched in August 2014, the new service arms of Employgroup include:
Aussiepay– the flagship payroll outsourcing solution
EquipHR– a new human resource information system (HRIS) including performance
management, on-boarding skills matrix and employee exit
Synchronise– new time and attendance (T&A) system including award interpretation
eCorporate– full spectrum of cloud-based employee management solutions including payroll,
HRIS and T&A
ePayroll– cloud-based payroll solution designed for the SME market
To discuss how Employgroup can help you contact us:
P: 1800 372 976 or
W: www.employgroup.com.au
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