Ask the Expert: How to prepare for implementing a payroll system Ask the Expert: How to prepare for implementing a payroll system

Ask the Expert: How to prepare for implementing a payroll system
30 Apr 2015

Q. We have all read the horror stories about failed payroll implementations. With more and more organisations undertaking such projects, how can you ensure that you are in the best position to start?

It is estimated that at any one time 11 per cent of organisations are involved in a payroll implementation, whether it is for a single country in-house application or a global outsourced solution, but are they ready to undertake this activity? Many organisations are not and suffer the consequences during the implementation or after going live. The costs of selecting the wrong solution can include:

• Reputational damage from paying employees incorrectly
• The time and effort cost of diverting resources from primary roles to focus on resolving the issues
• Paying for external help to resolve the situation
• In the worst-case scenario, the time, effort and financial cost of having to do it over again.

Before even thinking about shortlisting vendors and writing an request for information (RFI) or request for proposal (RFP), the current processes and procedures should be fully documented to save time and define the requirements for the new system and/ or service:

Document and analyse the current system set-up

Many organisations that have been running the same application for many years often do not have a detailed understanding of the current setup as it ‘just works’. More often than not they find nasty surprises when they lift the lid on their payroll systems. The full setup of the current system should be understood and documented. This includes the following important items:

• Payments and deduction elements and their calculations eg terms and conditions for all categories of employees, pension contribution calculations and the pro-ration rules for benefits taxed at source
• All data fields and tables and their content eg salary structure tables for grades and spinal points, all country specific customised fields and absence types and reasons
• The current interfaces into and out of the payroll eg time and attendance interfaces and group ledger (GL) files and where the system sits in the HR and finance landscape so you know the impact of replacing it
• All reports currently produced from the system eg exception messages and bespoke reports for third parties.

Without fully understanding the current system set up, any selection of a new service may be flawed. It is important to understand what basic functionality is required and whether or not any bespoke functionality is required eg complex protected earnings calculations.

As you check how the current set up is documented, it is advisable to select five or six of your most complex scenarios to include in the RFP and ask the shortlisted vendors to demonstrate how their system caters for these requirements. It is accepted that all vendors provide compliant payroll systems. It’s how they do this and how flexible they are to meet your requirements that the selection decision will be based on.

This exercise also offers you a good opportunity to rationalise elements and reports no longer needed. Requiring the new vendor to build reports or include fields no longer required can add time, effort and cost to the implementation.

Documenting your system setup prior to the start of an implementation will save a significant amount of time during the design phase. It will also potentially reduce cost if you’re going to use an implementation partner, as you’ll understand all the requirements for the new system and have them to hand.

Document current processes and procedures

The current processes and procedures of the payroll function (and also feeder processes) should be fully documented. This includes all system and nonsystem steps and who undertakes these activities eg the payroll calculation process, the cut off dates, when the trial runs are processed and when and what documents are created for checking and submission to third parties and statutory bodies.

Having a full understanding of the current processes and procedures will clarify what activities are currently undertaken by your in-house resources and which activities you require the new vendor or system to undertake, such as automated notifications and submission of statutory reports.

There is a misconception that changing your model from in-house to outsourced will mean many of your current activities are moved to the vendor. However this is often not the case, as your in-house resources will still be responsible for entering data, reconciling the trial and live runs and approving the outputs.

The documented processes and procedures will also support the contracting phase of the vendor selection where the full scope of services are negotiated. They will also be updated during the implementation when the system design is confirmed.

The current data processes should also be documented. Knowing how data gets to the current payroll system and who owns it will enable you to understand the interface requirements and the impact a new solution will have on the current HR systems (including time and attendance and selfservice portals).

Many companies find that there is a need to hold additional data in the HR system to avoid having to give their in-house resources access to an outsourced vendors application and the compliance and control implications this would bring.

The documentation of the current situation should cover all countries in scope and not just the countries with large employee populations and/or complex requirements. The large employee population countries will most often account for the complexity encountered, but the new system and/or service will potentially have a bigger impact on the small employee population countries.

In these locations, payroll staff undertake multiple roles and the new system will likely replace a solution that has been in place for many years, offering a lot more functionality and complexity than was previously available.

Knowing what you currently do and what you’ll need in the future will help you in selecting the right vendor and application and avoid the costly mistake of selecting the wrong one.

Rebecca Mullins MSc FCIPP, a senior manager at Deloitte, leading the consulting payroll service

 

Q. We have all read the horror stories about failed payroll implementations. With more and more organisations undertaking such projects, how can you ensure that you are in the best position to start?

It is estimated that at any one time 11 per cent of organisations are involved in a payroll implementation, whether it is for a single country in-house application or a global outsourced solution, but are they ready to undertake this activity? Many organisations are not and suffer the consequences during the implementation or after going live. The costs of selecting the wrong solution can include:

• Reputational damage from paying employees incorrectly
• The time and effort cost of diverting resources from primary roles to focus on resolving the issues
• Paying for external help to resolve the situation
• In the worst-case scenario, the time, effort and financial cost of having to do it over again.

Before even thinking about shortlisting vendors and writing an request for information (RFI) or request for proposal (RFP), the current processes and procedures should be fully documented to save time and define the requirements for the new system and/ or service:

Document and analyse the current system set-up

Many organisations that have been running the same application for many years often do not have a detailed understanding of the current setup as it ‘just works’. More often than not they find nasty surprises when they lift the lid on their payroll systems. The full setup of the current system should be understood and documented. This includes the following important items:

• Payments and deduction elements and their calculations eg terms and conditions for all categories of employees, pension contribution calculations and the pro-ration rules for benefits taxed at source
• All data fields and tables and their content eg salary structure tables for grades and spinal points, all country specific customised fields and absence types and reasons
• The current interfaces into and out of the payroll eg time and attendance interfaces and group ledger (GL) files and where the system sits in the HR and finance landscape so you know the impact of replacing it
• All reports currently produced from the system eg exception messages and bespoke reports for third parties.

Without fully understanding the current system set up, any selection of a new service may be flawed. It is important to understand what basic functionality is required and whether or not any bespoke functionality is required eg complex protected earnings calculations.

As you check how the current set up is documented, it is advisable to select five or six of your most complex scenarios to include in the RFP and ask the shortlisted vendors to demonstrate how their system caters for these requirements. It is accepted that all vendors provide compliant payroll systems. It’s how they do this and how flexible they are to meet your requirements that the selection decision will be based on.

This exercise also offers you a good opportunity to rationalise elements and reports no longer needed. Requiring the new vendor to build reports or include fields no longer required can add time, effort and cost to the implementation.

Documenting your system setup prior to the start of an implementation will save a significant amount of time during the design phase. It will also potentially reduce cost if you’re going to use an implementation partner, as you’ll understand all the requirements for the new system and have them to hand.

Document current processes and procedures

The current processes and procedures of the payroll function (and also feeder processes) should be fully documented. This includes all system and nonsystem steps and who undertakes these activities eg the payroll calculation process, the cut off dates, when the trial runs are processed and when and what documents are created for checking and submission to third parties and statutory bodies.

Having a full understanding of the current processes and procedures will clarify what activities are currently undertaken by your in-house resources and which activities you require the new vendor or system to undertake, such as automated notifications and submission of statutory reports.

There is a misconception that changing your model from in-house to outsourced will mean many of your current activities are moved to the vendor. However this is often not the case, as your in-house resources will still be responsible for entering data, reconciling the trial and live runs and approving the outputs.

The documented processes and procedures will also support the contracting phase of the vendor selection where the full scope of services are negotiated. They will also be updated during the implementation when the system design is confirmed.

The current data processes should also be documented. Knowing how data gets to the current payroll system and who owns it will enable you to understand the interface requirements and the impact a new solution will have on the current HR systems (including time and attendance and selfservice portals).

Many companies find that there is a need to hold additional data in the HR system to avoid having to give their in-house resources access to an outsourced vendors application and the compliance and control implications this would bring.

The documentation of the current situation should cover all countries in scope and not just the countries with large employee populations and/or complex requirements. The large employee population countries will most often account for the complexity encountered, but the new system and/or service will potentially have a bigger impact on the small employee population countries.

In these locations, payroll staff undertake multiple roles and the new system will likely replace a solution that has been in place for many years, offering a lot more functionality and complexity than was previously available.

Knowing what you currently do and what you’ll need in the future will help you in selecting the right vendor and application and avoid the costly mistake of selecting the wrong one.

Rebecca Mullins MSc FCIPP, a senior manager at Deloitte, leading the consulting payroll service