Survey shows buyers prefer a payroll solution that plays well with their ERP investments and can be rolled out across multiple geographies.
by Helen Neale
As expected, the current economic environment is maintaining the pressure on organizations to reduce their cost to serve both overall and, in particular, support functions such as HR. Accordingly, one of the main drivers for payroll outsourcing remains the need to reduce the cost of payroll processing.
However, the current environment is also causing organizations to take a wider perspective than payroll cost cutting in isolation. Organizations are typically looking to develop new country markets to find growth opportunities outside the U.S., U.K., and mature markets of continental Europe, and they need to demonstrate improved compliance with internal HR processes by achieving greater HR process standardization. These pressures are leading to two key developments in payroll services: a need for increased multi-country coverage and a need for greater integration between payroll and wider HR and ERP systems.
Over the next year, organizations typically expect to increase the number of countries where they will use third-party payroll services while reducing the number of suppliers used. In a recent global survey of payroll outsourcing by NelsonHall, companies expected the number of countries supported by outsourced payroll to increase by seven percent in 2009 from 4.3 to 4.6, while the number of suppliers used reduces by nine percent from 2.3 to 2.1. While these changes might not seem dramatic, they are indicators of an important ongoing trend toward increasing multi-country payroll outsourcing and increasing concentration of the payroll outsourcing market in the hands of those suppliers with strong multi-country capability.
Indeed, multi-country capability is emerging as one of the key vendor selection criterion when organizations choose a payroll vendor, right after its ability to understand client needs and drive process change. Approximately half of the organizations surveyed by NelsonHall expressed a high requirement for consistent/consolidated service across multiple countries as part of any future payroll outsourcing contract, with a similar proportion seeking improvements to their payroll support in additional or new countries. In line with this thinking, the major functional improvements required from existing payroll systems are improved flexibility to handle remuneration schemes and bonus structures, improved support for overseas payroll, and improved scalability of geographies and currencies. Consequently, more than 50 percent of organizations prefer a single contract for payroll services across countries and where possible a single HR platform across geographies.
While satisfaction with in-house payroll services is moderately high with 65 percent of organizations highly satisfied with in-house payroll services, satisfaction levels are on average higher for third-party payroll services, where 82 percent of organizations are highly satisfied. Areas of high satisfaction with third-party payroll services traditionally revolve around its ability to reduce the cost of service delivery, while reducing internal involvement and providing access to specialist expertise. Nonetheless, areas for improvement and the need for even greater cost cutting exist, and organizations frequently seek improved integration with client systems. Indeed more than 80 percent of organizations have a high requirement for transformation of payroll systems and processes, with the majority of organizations seeking improved payroll integration with the HR platform and other HR processes as part of any third-party payroll service.
Improved payroll/ERP integration is the major way in which organizations perceive that their current payroll systems could be improved. Indeed, more than 90 percent of organizations perceive that it is highly important for their payroll platform to be part of an integrated HR platform covering both payroll and wider HR support functionality.
In terms of services, this thinking is leading to the re-emergence of “beyond payroll” HRO as a major market opportunity. Nineteen percent of organizations expect to purchase or significantly extend their use of third-party payroll services this year. While 11 percent expect to continue to focus on purchasing standalone payroll services, eight percent expect to increase their use of third-party payroll services as part of a wider HRO contract. This development is being led by U.S. organizations, and there are significant differences in purchasing behavior by geography. The majority of organizations in Continental Europe plan to purchase stand-alone payroll outsourcing services, with organizations in the U.K. being equally divided between those purchasing stand-alone payroll and those engaging in a broader scope deal. U.S. organizations predominantly expect to purchase payroll services as part of a wider HRO deal