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Issues and Opportunities with Outsourcing Payroll

Introduction

The Payroll process by definition touches every single employee of the company, where the experience directly shapes each employee’s view of the company’s administrative processes.  The process perfectly fits the concept of a hygiene factor, where no one notices when everything works smoothly, and when things don’t the impact on productivity and customer satisfaction will be dramatic and, possibly, long lasting even if the problem is quickly identified and resolved. 

The Payroll process itself, while often within the scope of Shared Services, has been a bit of a misfit, where half the time the process reports into Finance and roughly half the time the process reports into HR.  There are even instances where Payroll reports into Treasury, in some cases only because of a serious error or a major problem when it was included in either Finance or HR.  Career pathing can also be difficult, since the Payroll process is highly technical with many accounting and regulatory compliance issues, so transitions into or out of other Finance or HR processes aren’t easy or even likely. 

Because of these challenges the Payroll process is one of the most common processes where companies make the decision to outsource to third-party providers rather than keep the process in-house.  This is particularly true for companies with revenues less than USD $500 million per year, and it is also likely for Peeriosity member companies where membership requirements are to have annual revenue of over USD $1 Billion per year, with over 50% of member companies having revenues greater than USD $10 Billion.  These companies are all large enough to support a captive Payroll process, yet, for many, their decision has been to outsource either significant components or the entire process.

iPollingTM Results Review

Recently, Peeriosity’s iPollingTM was used by an HR Services Director at a member company to explore the pros and cons of outsourcing their Payroll process.  Using this approach, the poll author was able to quickly gain insights to her issue, which she described as follows:

Our company is evaluating potential Payroll outsourcing providers and would like to understand the experiences of other major companies in this area.

Looking at the iPollingTM results, the first question asked whether Peeriosity member companies were outsourcing the Payroll process and, if yes, who they were using as their primary Payroll outsourcing provider.  The results indicate that 33% of Peeriosity member companies are performing the Payroll process in-house.  For the 67% of companies that are outsourcing, 56% are working with ADP as their primary Payroll outsourcing provider.  Here are the details:

The second question asked the companies that outsourced what t heir overall level of satisfaction is with the outsourcing service provider they selected.  Interestingly, only 13% are very satisfied, with another 31% reporting that they are satisfied, which means that less than 50% of the companies are happy with their provider.  For the remaining 56% of companies, 31% indicated they were neutral, and 25% indicated they were not satisfied.  

The following are some of the comments added by members:

  • The payrolls are processed timely. Our outsourced service provider’s model for customer support does not have the customer’s best interest in mind. It is far more helpful to have an assigned person that knows how your company works and its complexities. It is difficult having to explain the setups each time there is an issue.
  • We use ADP for international payroll and Ultimate for US Payroll.
  • ADP is for North America.
  • We use ADP in many countries, but they are not well-equipped in many others. Very dissatisfied with their flexibility, responsiveness, customer service and pricing.
  • We process our payroll internally. We do use ADP Tax Services and are satisfied with their services.
  • We utilize ADP for garnishment and tax payments, but not payroll processing.
  • Overall good service by ADP. They have had some service delivery challenges in US past 6 months.

Closing Summary

For critical processes like Payroll, making the decision to keep the process in-house or outsourced can be a difficult one, particularly for companies with tens of thousands of employees where there is enough volume of payroll transactions to support having resident payroll expertise inhouse.  Today, two-thirds of even the largest companies have outsourced the Payroll process, even though the overall satisfaction level with the services provided is mixed. 

At Peeriosity, member companies can quickly get beyond the top-level view to directly communicate with peers at companies who are facing similar challenges, allowing them to rapidly and easily leverage the lessons learned as the navigate the issues and opportunities of Payroll process outsourcing.

Does your company provide Payroll services using in-house resources or is the Payroll process outsourced to a third-party service provider?  If you have outsourced the Payroll process, what is your overall level of satisfaction?

Who are your peers and how are you collaborating with them?

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“iPollingTM” is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from participating or accessing content. Members have full visibility to all respondents and their comments. Using Peeriosity’s integrated email system, Peer MailTM, members can easily communicate at any time with others who participated in iPolling.

Peeriosity members are invited to log into www.peeriosity.com to join the discussion and connect with Peers.   Membership is for practitioners only, with no consultants or vendors permitted.  To learn more about Peeriosity, click here.



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