By Paula Musich
eWeek Magazine
For years, few other business processes
were outsourced with as much verve as the lowly task of
payroll. Indeed, the function of paying employees has
long been targeted as a time-consuming effort that robs
a company of resources better committed to core competencies.
Payroll was outsourcing's poster child.
But as software tools become easier
to use and vendors start to focus on smaller businesses,
a shift is taking
place. Enterprises are finding that payroll, the process
that gave birth to BPO (business process outsourcing),
can often be done better—with more flexibility and
less expense—in-house.
The growing change is taking some
users away from outsourced payroll stalwarts such as
Automatic Data Processing Inc.,
of Roseland, N.J., and Ceridian Corp., of Minneapolis,
with claims that the big players just can't—or won't—serve
the specialized needs of small and midsize businesses.
"Cost was a big issue, but the bigger issue was we had
no control over the payroll, and [difficulty] making changes," said
Kathy Broker, grants/ fiscal manager for the March of Dimes California
Birth Defects Monitoring Program, in Davis, Calif.
Broker, after working with ADP for 12
years, this year switched to in-house payroll processing to
lower costs and improve the
quality of the work. She said she expects to save the program
$3,000 a year in fees. "Their fees were extremely high," she
said.
"Our payroll costs were spiraling," echoed
Kevin McLeod, chief financial officer at Carolina Meadows Inc.,
a continuing
care retirement community in Chapel Hill, N.C. McLeod, a certified
public accountant, said he and other CPAs are championing the
trend of bringing payroll back in-house after recent price increases
among major outsourcers, including two hikes by ADP within 18
months.
By taking back their payroll processing
and implementing Best Software Inc.'s Abra Suite Human Resources
Information System,
Carolina Meadows has saved 87 percent—or $40,000—on
its payroll processing costs in the past year, according to McLeod.
Best Software's easier-to-use tools and
an improvement in the breadth of functions available for small
businesses made the
switch possible, he said. "The bulk of the work is setting
up your rules and tables. Once that's done, you run test payrolls,
change what needs to be changed and you're set," McLeod
said.
"Regardless of whether the technology is easier to use,
[small companies] are probably being engaged in the discussion
much more often because the scope of HR applications for the
smaller organization is greatly expanded," said Kirsten
Recknagel, an analyst at Gartner Inc., in Stamford, Conn.
Ultimate Software Group Inc., of Weston, Fla., maker of the
HR and payroll suite UltiPro, has customers including the Arizona
Diamondbacks baseball team and Benihana Inc. restaurants but
has recently begun focusing on midtier companies as well.
For the Allen Samuels Auto Group, a collection of car dealerships
based in Houston, adopting UltiPro resulted in an 85 percent
decrease in payroll processing time. The tools allow Allen Samuels
to keep payroll in-house, yet still concentrate on more strategic
endeavors, according to Gail Hegar, HR and payroll administrator
for Allen Samuels.
For any type of processing, "the more uniqueness there
is, the less value an outsourced solution will deliver," said
Lisa Stone, also an analyst at Gartner.
"ADP, Ceridian—those types of companies have a set
way of doing things, and they have proprietary programming," said
Carolina Meadows' McLeod. That typically leaves smaller organizations—especially
those with unique requirements—out of the equation.
"If you have specialty items, it makes sense to do it in-house," McLeod
said. The labor-intensive nature of senior housing requires that
Carolina Meadows closely monitor its costs and use a variety
of such "specialty items."
Such items can create errors in the process,
which aren't caught with an outsourcer until after an employee
receives his or her
check, according to the March of Dimes' Broker. "There were
always a couple of things every month with ADP. We have cafeteria
plans; we do a cost allocation where [employee accounts] are
broken down into [separate] funds—it was complicated. We
were told they could handle these options," she said.
"Certainly, every company is different," said Ceridian
spokeswoman Candy Patrin. "We have found that ... offering
a bundled HR solution that realizes the benefits of integrated
data will result in savings in data entry time and report writing.
Ceridian also takes on the burden of compliance for our customers."
In addition to the inflexibility, small
organizations often get less attention from outsourcers than
larger accounts do. "They
did admit to us that we're a very small account, so we were not
a priority for them," said Broker. "When you are paying
for something, you feel you should get some level of service.
But they couldn't generate reports that met our needs. We were
always dealing with customer service, and they didn't have knowledgeable
people in those positions ... and it did cost us more."
Broker, who also chose Best Software's Abra products, said she
believes any small company with fewer than 250 employees can
benefit from keeping payroll in-house, but finding the appropriate
cutoff is up to the organization.
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Reprinted from the October 7, 2002 issue of eWeek,
© 2002, Ziff Davis Media Inc., all rights reserved.
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