Making the case for outsourcing payroll

16 June 2021 - Reading time: 5 Minutes

Outsourcing

During May, we hosted a series of virtual roundtables with a range of Heads of HR and Payroll. Supporting the roundtables were two experts in the field of payroll management and automation; Stephen Knapman – Global Sales Manager of SD Worx, and Audrey Wilson – UK Head of Reward and Benefits at Capgemini. Whilst the conversations were wide ranging, in this article we will summarise a few of the key topics discussed and the conclusions reached.

The need for change

For many organisations like yours, payroll management is a routine but critical business function that ‘just happens’ in the background; most of the time, staff get paid the right amount and on time. Yet, as every payroll team knows, at times it can be far from routine, and failure or delays are simply not an option.

Although the day-to-day operations of a stable payroll process typically run smoothly, it is when you want to make a change (whether instigated from the payroll function or not) that challenges can arise, especially if payroll management is not fully considered. For example, Audrey described how Capgemini’s global HR transformation program also required adopting a best-of-breed integrated payroll solution; the two were inextricably linked.

Here are some of the other pre-covid reasons for thinking about your payroll solution:

  • Entering new markets
  • Mergers, acquisitions, or divestitures.
  • Changes in your operating model (especially where it impacts the workforce).
  • Major IT transformation, especially moving to ‘Software as a Service’ or to the cloud.
  • Consolidation and/or simplification of your payroll systems and processes or moving to a shared services model.
  • Business continuity planning

In addition, all the leaders present at the roundtables had been impacted in one way or another by the pandemic; some were already on a journey of transformation and sped up, others found themselves having to quickly adjust to a changing business environment.

The most pressing reasons for changes in payroll management because of the pandemic became apparent almost immediately:

  • Lockdowns were having a direct impact on staffing, with employees being laid off or put on furlough.
  • The introduction of numerous and different business and income support schemes.
  • Remote or hybrid working, demanding more flexibility of both businesses and employees, especially in location and hours of work.
  • The need to conserve cash, particularly in those sectors most severely affected.

The reality is this; the complexity, volatility, and uncertainty of the last year are going to be a factor for some time yet, but whilst there is nothing good about the pandemic itself, some good things came about because of it. Nonetheless, there are some challenges too.

Challenges with payroll management

Complexity and volatility

The pandemic greatly increased the workload of payroll teams, in dealing with both internal challenges (such as a changing workforce) and a shifting international landscape (for example, the differing regulations or support regimes) and all of this when many payroll teams were themselves working remotely.

International operations

For many of the leaders we spoke with, having a consolidated platform that works across all their geographies was a significant issue even before the pandemic. Every country has their own laws and regulations that must be adhered to, and local payroll teams have often developed their own unique ways of working, with their own paperwork and service levels.

Furthermore, the knowledge and expertise needed to work in this diverse landscape was difficult and expensive for an organisation to turn into ‘institutional knowledge’.

Consolidation and simplification

Having a complex ‘patchwork’ environment becomes a particular issue when you want to ‘globalise’, simplify, or outsource payroll. Often the internal processes are so fragmented or poorly documented it can appear daunting to even consider changing them. As Audrey so eloquently put it:

“Being international is easy but delivering consistent business processes is the strategic and operational business challenge.”

Continuity of working

As we mentioned at the beginning of this article, most payroll teams are so good at their jobs they make it look easy, and so your business can focus its attention elsewhere. However, for most employees, being paid correctly and on time is critically important, especially in uncertain times.

Our payroll leaders talked about how hard they have had to work to address challenges in two areas:

  • When a problem arose in one of the smaller, less well-supported countries or
  • Insufficient resources to cope with members of the payroll team becoming unavailable.

Typically, the challenge was twofold; knowing who to turn to when needed, and dealing with the issue itself.

Making a change

Several of the leaders also talked about the barriers they faced in making a change. Whether it was dealing with legacy systems, too many or complex processes, a lack of resources, or just risk aversion; there must be a compelling reason for you to want to make the change and it is sometimes not obvious to quantify how it is better than the status quo.

The benefits of changing your approach to payroll management

Supporting the ‘New World of Work

Even if your organisation will not be offering remote or hybrid working in the immediate future, you will still need to operate within an environment where it has become commonplace, whether it be a legal requirement or not.

Many employees are now asking for greater flexibility about where they work and when, and this can include pay and benefits. At its most extreme, this can include employees wanting to work in different countries, or simply being able to vary their hours to accommodate childcare commitments. Many businesses also want to be able to offer this to attract and retain talented employees from a more diverse labour pool.

Strategic Agility

Over the last year or so, many businesses had to ‘pivot’ so often to reflect the rapid pace of change on the ground that they were practically pirouetting, and during all that period, payroll teams needed to keep up. In doing so, inherent weaknesses within existing payroll processes became apparent, often requiring extraordinary effort from the team to overcome. In adopting a more sustainable, flexible, and efficient way of working, the payroll team can enable wider business transformation, rather than hinder it.

Reduced risk

Several of the leaders on our roundtables talked about the risks they face in having multiple payroll teams and vendors in the mix. By consolidating with a single payroll provider (one with an ecosystem of in-country payroll partners) they not only reduced risk, they greatly simplified the process of resolving issues whilst also increasing accountability. As Stephen said:

“We had to build a global partner ecosystem to offer the breadth and depth of coverage our clients need.”

Reduced cost

Cost management was top of mind for many businesses during the pandemic and will be so for some time yet. That said, many organisations are now looking to the future and are redoubling their transformation efforts. If 2020 was about ‘surviving’, 2021 will likely be about ‘thriving’. Far from slowing down, business transformation will continue at pace and the scope will increase to encompass more business processes and functions.

Improved wellbeing of payroll staff

Just like their colleagues, many members of the payroll team found themselves working in a different and often far-from-ideal environment. At the same time, their ‘business as usual’ workload went up and the time available for dealing with exceptions or new business demands went down. By transferring a lot of the routine work to an outsourced platform, you give them the space to deal with these challenges and to seek new ways of supporting the wider business.

Making the business case for change

Whether it be addressing the challenges, or seizing the opportunities, or a combination of the two; you will probably need to make a compelling business case to secure support for making a change.

Here are some things to consider:

The financial case

Where you demonstrate the return on investment in cash terms; typically, the savings that will be accrued because of making the change.

The ‘burning platform’ case

Because of a major impending change elsewhere forces change upon payroll (e.g., implementing a new HR or workforce planning system).

The risk mitigation case

Where the likelihood and impact of failure is now so high as to warrant active mitigation.

The opportunity case

Where the option to change has presented itself (for example, contract renewal, or as part of a wider transformation agenda).

Address the ‘do nothing’ option

Whilst you may not like it, this is always considered, does the decision need to be made? Or can it be deferred? Identify why the change needs to be made now.

There will be others that you can think of, but whatever your reason for making the change there are also steps you can take to ensure that the transformation itself is successful.

Ensuring a successful transition

Audrey discussed some of the key factors that Capgemini had to consider in securing the success of their payroll transformation programme. Here are some of them, as well as others added by Stephen and the other leaders:

Identify your reasons to change

Before you begin the transformation journey, make note of the reasons why your organisation needs to undertake it and consult with other stakeholders (or 3rd-parties) where necessary.

Have a clear vision

Document what success looks like and what are the outcomes you need to achieve. Whilst there may be detours on the journey, your destination should remain the same. It is the outcomes you specify and quantify that a vendor will be measured against.

If you know where you are and where you want to get to, you can plot a course; remember that:

It doesn’t matter how fast you are travelling if it is in the wrong direction!”

Define the scope

If your payroll system must be part of a wider ecosystem it needs to be stated at the beginning and not as an afterthought. Also document any risks and assumptions.

Make your vendor a partner

Which means working with a vendor that has a stake in your success and the wherewithal to deliver it. This is both a function of due diligence on your part and culture on theirs.

Collaboration

Part of being a partner is to align your teams and resources. SD Worx takes great pride in the way they support their clients along the journey; from shaping the vision to delivering the result.

Field the best team

From both your talent pool and from the vendor. As Audrey said:

"We relied heavily on the SD Worx team to achieve our objectives together. We felt they brought their best people to our project.”

Have a proper transition process

Which will include engaging the incumbent vendor or team. Change does not just happen; you need to engage and excite the team and agree when-and-how the transition will be made.

Do not let ‘perfect’ deter progress

In the current climate, trying to anticipate every circumstance or address every concern could cause endless delay to even starting the journey. Far better is to work with your partner on a phased, ‘iterative’ process of roll-out and retain the flexibility to adjust course as needed.

You are not outsourcing your responsibility

During deployment and beyond, always remember that you are outsourcing some of the work but not the responsibility or ultimate accountability. So, you need to work with a partner you can trust.

Celebrate the wins

Do not just wait until the final piece of the project has been delivered. At a time when good news can be hard to come by, it is important for everyone that we celebrate making progress and hitting milestones.

You are not alone

Perhaps one of the most powerful impressions we got from the roundtables was the sense of community that began to form. As one of our leaders said:

“I used to feel that I was the only one going through this, but I can see that I am not alone and that it is possible to come out of the other side.”

If you need any help developing a business case for payroll outsourcing, you can book a free consultation with us. 

 

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