The Great
Transformation Guide

ADP has authored a series of thought-provoking articles exploring the relationship between organisations and payroll. From the HR and payroll challenges of global expansion to the rich resources of payroll data; from the payroll skills shortage to the true cost of inefficient processes; this series helps to identify and solve obstacles and appreciate and embrace the ever-greater asset payroll can become to companies navigating a treacherous business landscape.

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Finding the real cost of payroll and making it more cost-efficient

XX Month 2024 0 Comments

HR and finance executives are under constant pressure to reduce operating costs and the drive to optimise costs is growing. Businesses cannot afford to ignore payroll, particularly if global expansion is in their future.

Pay, on average, accounts for 50 to 60 per cent of a company’s business spend and that labour cost is essential. However, there are creative ways to reduce it, such as a shortened workweek, using temporary workers or reducing pay frequencies.

Before moving forward first ensure these changes will be cost-effective.

Counting the cost

Payroll costs are determined by your company's size, payroll operating model and the countries in which you have employees, among other factors.

Costs for running payroll in-house will include:

  • Purchasing software licenses
  • Installing the hardware and software
  • Ongoing resources to maintain and upgrade the on-premise payroll infrastructure

For a cloud payroll (SaaS) systems, costs will typically comporise:

  • Fees for implementing your new payroll software: a fixed upfront fee, based on the number of employees, regions and the complexity of your legacy payroll environment. Include the internal implementation effort from payroll, HR, IT and project management teams
  • Annual, ongoing fees to your payroll provider, usually based on the number of employees and the service level if you have contracted one

Quantifiable payroll costs

In the study the Total Economic Impact of ADP Global Payroll - conducted by Forrester and commissioned by ADP - researchers identify the measurable cost savings of investing in ADP Global Payroll in the following key areas:

  • Compliance cost avoidance
  • Direct cost avoidance
  • Payroll process efficiency gains

Don't discount the hidden costs

The 'hidden' costs of processing payroll exceed the visible ones most of the time, meaning companies often fail to exploit productivity gains made from analysing and cutting hidden costs. This is because payroll processes normally involve the HR, finance, IT and other departments, and include:

  • Onboarding, training and replacing payroll professionals
  • System maintenance, reliability and interface costs (creating API integrations with HR and other business software)
  • Manually collecting employee information for payroll or manually importing some of the upstream calculations needed to process payroll
  • Currency fluctuations and conversion costs

Think about the opportunity cost when your company expands into a new market without the payroll flexibility to integrate it quickly. The price could be at the expense of your international expansion.

The simple solution to payroll cost efficiency

The single biggest way to cut payroll costs is to outsource your payroll processing, especially in smaller countries. For most countries, processing payroll isn't a core business or profit-making activity, so entrusting this to payroll professionals with the expertise and infrastructure to handle it just makes sense.

Outsourcing converts the cost of payroll administration from a fixed to a variable cost, based on the number of employees and company locations in scope. As you employ more staff in new geographies, you will already have the global payroll infrastructure in place that can scale to support your growth.

Encourage your board to trial payroll outsourcing when your company expands into a new country or region if you meet internal resistance. The ability to see and report back on the benefits in action makes it far easier to secure an enterprise-wide commitment further down the line.

Ultimately, the key question isn't how much payroll costs but how much it could save you.

To dive further into the topic of payroll cost efficiencies, download ADP's guide on the cost of global payroll and learn how organisations were able to reduce their payroll effort by 75 per cent over three years in their smaller markets.

Download ADP's Guide to Debunking the myth that global payroll is too costly for smaller countries

Sources: ADP

  1. Total Economic Impact of ADP Global Payroll, conducted by Forrester Consulting, commissioned by ADP