Buyers seek better compliance, platform integration, and multi-country support from payroll providers, NelsonHall report finds.
by Debbie Bolla
As companies evolve to withstand today’s global economy, the face of payroll outsourcing is changing, according to a recent market analysis report entitled, “User Requirements from Payroll Services,” conducted by advisory firm NelsonHall. Traditionally, payroll outsourcing is mainly utilized by organizations for cost savings, and while that is still a motivating factor, industry issues including globalization are playing a role in the market’s development.
The findings of the report are based on feedback from interviews with 150 senior-level HR executives in the U.S., U.K., and Europe. They were asked key questions on the following topics: current usage of outsourced payroll services; future sourcing of payroll services; payroll platform preferences; and buying process for payroll services. The report highlighted three major trends in payroll outsourcing.
An Increased Requirement for Multi-country Payroll Support. As global outreach expands, multi-country capability becomes a key criterion when selecting a payroll provider. According to the report, more than 50 percent of corporations are seeking a single-platform payroll provider to service multiple countries. The report forecasts the number of countries supported by outsourced payroll will increase by seven percent in 2009.
Improved Payroll/ERP Integration. In the U.S., 42 percent of organizations are using a third-party for payroll services while 68 percent of companies maintain the function in-house. Overall satisfaction levels bode better for third-party providers: 82 percent of organizations are highly satisfied with their vendor’s services while the level decreases 17 percent to a 65-percent rate with in-house payroll services.
Overall, 65 percent of organizations would be willing to move to a new payroll platform as part of an outsourced payroll service if there were an increased number of advantages. For example, a perceived benefit for business executives is the integration of payroll with the existing ERP platform. More than 90 percent of organizations said it was very important for their payroll platform to be integrated with their ERP platform. Payroll software is a possible solution for this desire. Such technology from Oracle and SAP allows payroll to be a part of an ERP system that services multiple countries.
Integration of Payroll with Other HR Processes as Part of a Broader Contract. The report cited overall growth in payroll outsourcing. In 2009, 19 percent of organizations plan to purchase or significantly extend their use of third-party payroll services, but the future of payroll may be determined by its ability to integrate with other HR processes to suit the steadily increasing need for multi-country capability. Nearly 66 percent of organizations place an emphasis on improved integration between payroll and the HR platform. Eight percent of those interviewed are expected to increase their use of third-party payroll services as part of a wider HRO contract this year.
The report also examined areas of satisfaction with current outsourcing payroll services. Executives expressed content with quality of service; ability to reduce the cost of service delivery; ability to reduce internal involvement; access to payroll expertise; reduced error rates; reliability of service; and the ability to add functionality as required. Noted areas of improvement include meeting predicted costs; additional costs reduction; improving pricing transparency; improving integration with client systems; speed of response; improving communication; increasing client involvement in problem-solving and decision-making; and improving multi-country support.
So where does this leave the future of payroll? While new desires for the payroll function have emerged—multi-county capability and integration with ERP and the total HR platform—cost savings still remain the core adoption driver and perceived advantage. Outsourcing payroll garners greater savings than maintaining the function in-house, business executives said.
Another emerging trend is the adoption of offshoring. The study noted that on average offshoring payroll services could achieve an additional 10 to 20 percent in savings. While the desire of U.S. executives to use an offshore vendor (in lieu of using a local provider) is less—by a slim margin of eight percent—32 percent of U.S. organizations surveyed said they are willing to offshore their payroll function to earn greater savings.
Executives were also asked what their required benefits from outsourcing payroll were, and responses included improved legislative compliance; reduced service cost; transformation of payroll systems; improved platform and technology; greater control of service; improved quality of data; and need for improved reporting tools. A good sign for the future of the market: More than 80 percent of U.S. organizations are considering outsourcing more of their HR activities to a provider currently supplying them with payroll services.