Profit from Payroll - How to find the best technology

Reproduced with permission from the book, Profit from Payroll by Tracy Angwin, CEO, Australian Payroll Association

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Price is what you pay, value is what you get. -Warren Buffett

If only I had a dollar for every time someone asked me what the best payroll technology was!

Of course the answer is “it depends”.

As discussed in chapter seven, it actually depends on a lot of things, including your industry, the types of employees you have, how often you pay them, what physical environment you work in, whether they are mobile, if you need job costing, the level of detail required in your general ledger, your employment policies and industrial agreements and the level of technical expertise of your employees. Whilst that’s not an exhaustive list, you get the idea of the complexities involved.

The key to finding the best payroll technology for your organisation is to get very clear on what your requirements are.

While a lengthy document isn’t necessarily required, you can’t leave any room for assumptions by third parties. It’s always the assumptions that get both buyers and sellers into trouble!

When you are writing your requirements document, break it down into sections that reflect your payroll process. You should make your payroll process very clear, as the last thing you want to find out after you purchase a system is that your process needs to fit into their technology setup. If you ever hear that phrase, it’s likely that your return on investment figures will be significantly effected.

While you don’t need to write the document as if explaining a concept to a five year old, it’s really important that the document explains any internal processes or payment that may be unique to your organisation. If there’s a certain way you do things, spell them out.

Once you have a requirements document, which may be a request for proposal or a fully specified tender document, you need to determine which organisations you wish to ask for a response.

I’m not a fan of sending a request for tender or proposal document to as many vendors as are in the market. It’s a drain on internal resources to read and score more responses than necessary and it’s also not fair to ask vendors to bid for business that they don’t have a realistic opportunity to win.

If you choose to use a consultant to assist you with the procurement of your payroll technology, be very aware that this is a strategy often used to maximise the cost of a consulting resource. The only party that wins is the consultant and in the process they will get many organisations off side, potentially including the one you wish to contract with for your new payroll system.

I prefer a much more transparent approach. To do this, you need to understand what your showstoppers are first.

Depending on what type of organisation you are will determine your list of showstoppers. When I deal with large organisations assisting them to evaluate technology options, I ask them what would stop them from purchasing from a vendor.

A big showstopper for most medium and large employers is key person risk. That is, notwithstanding the quality of the product and services provided, the potential supplier has key person risk if there is one person that has to make or sign off all decisions, is key to implementation or development with no backup, or generally runs what may be a large company like a small company. There is typically little delegation or process documentation. Most large employers looking to implement payroll technology find this risk unacceptably high.

You may have determined with your IT colleagues that you prefer a certain form of software delivery such as cloud technology. If this is the case, ensure you do your research with vendors to understand exactly how they deliver their software as a service. Some vendors have genuine cloud technology while others have client server technology in a hosted environment. You need to understand the implications of these differences for your organisation and keep or remove these vendors from your shortlist accordingly.

You may be looking to integrate HR functionality, time & attendance or award interpretation technology with your payroll system. Each supplier will have different offerings in these areas, so it’s best to get an understanding of the breadth of their offerings before deciding to include them in your selection process. If this is a showstopper for you, remove suppliers that don’t have all the modules that you need.

Often you get a better outcome both functionally and financially, by interfacing best of breed products together. For example, if you have complex rostering requirements, it may be a better solution to have a specialised rostering provider working with a specialised payroll provider. As long as the vendor understands how you are running your procurement in relation to potential partnerships this may not preclude them from providing a response. But if it’s a showstopper, make this requirement clear up front.

Some organisations want fully integrated systems and single databases. If this is a showstopper, make sure you have a good understanding of the product architecture before asking a vendor to submit a response.

Some organisations looking for new payroll systems have specific requirements around where the data is housed or where the support team geographically works from. There are often very prescribed data standards for government and large employers. If this applies to your procurement process, it’s a simple question to qualify a supplier as to whether they meet these standards.

Most organisations don’t like to be the first to try a new software system, particularly if that system affects the pay of every one working for you. The more risk averse an organisation is, the more likely this is to be true. If you have a large payroll and large payroll team, you may wish to ensure that the system you choose has a large market share so getting the skills and experience in the use of that system is easier.

Not all payroll suppliers provide outsourcing services, and if they do, there can be many different models on how this is delivered and exactly what is outsourced. If you have specific requirements on outsourcing part or all of the payroll process, ensure that the vendors understand this before they agree to provide a response.

The cost of payroll products and services varies widely in the market. So if you have a firm budget it’s best to be up front about that to ensure that the vendor agrees they can provide what is required and stay within your financial constraints.

From here you will take the list of possible vendors and based on your showstoppers will reduce this from a possible 40 to probably 5 or less. Payroll system procurement projects are always more successful if organsations spend more time with less vendors to get a good understanding of who can provide the products and services that are required.

Once you have identified those organisations to ask for a response, you need to give them several weeks to provide a proposal. I typically use a combination of looking through replies for additional show stoppers that hadn’t been identified

up front and a weighted marking scale based on their responses.

I prefer to elicit long form answers rather than giving them the option to say yes or no, comply or does not comply. If you don’t encourage long form answers, you might get a yes or complies response, however not the detail that there might be a manual workaround to get the outcome you are looking for. So frame your questions in terms of how they do something rather than if they do something.

From this process you should be able to get the list down to a maximum of three shortlisted vendors who you will ask for product demonstrations.

At this point it’s very important to invite potential suppliers to demonstrate based on a workshop environment following a script that you will develop. There’s little to be gained by allowing them to deliver a canned presentation. Typically their standard presentation will focus on showing you the sizzle in their product, which while impressive, won’t necessarily cover the basic fundamentals of your payroll operation.

When developing your scripted workshop requirements, ensure it mirrors your payroll process and where possible use actual data and calculations for them to present.

The vendors will need several weeks typically to set up a database to demonstrate your requirements, but will do this happily if they know they are a carefully selected one of two or three. Make sure your workshops include the full end to end payroll process as well as demonstrating standard and bespoke reporting requirements.

Make sure that all the questions you need answering are documented and ticked off while you watch the demonstration. This means that not only do you ensure consistency in the demonstrating process but you know you are comparing apples with apples. Ensure each vendor has the same amount of time allocated to them for the presentation and they are aware of the time constraints when they are given the script to deliver.

Using a weighted scoring system, score each of your requirements from the workshop script. If questions aren’t answered or it seems likely that the vendor isn’t able to provide the level of functionality you need, score accordingly. Once the weighted scores are completed for each vendor it is generally quite easy to see which is the most appropriate solution provider for you. When I work with organisations going through this process, this normally is in synch with the gut feel about which vendor you think would be most suitable.

When you are putting your weighted scoring information together, don’t forget to include all services that contribute to the ongoing relationship you will have with your payroll provider. This includes assessing their support capability and capacity, how regularly their team are trained and whether they have nationally accredited payroll qualifications, how upgrades are handled, how their employee interface works, whether they have mobile capability and what options are available for ad hoc reporting.

Once you determine a preferred vendor, it’s important to go through a thorough due diligence phase of the project which will provide tangible evidence that the vendor can supply what they propose to deliver.

Don’t just rely on references that the vendor supplies to you. Get set to do your own research and get in touch with other employers who have recently implemented or use the proposed system, preferably in your industry or a similar one.

Understand how many clients the vendor has in your industry or a related industry. While it’s not compulsory that they are a specialist in your area of business, you want to know if you are the first in your industry to implement their system, as the time they will take to familiarise themselves with how your industry works needs to be factored into the project plan and preferably also into their pricing.

Changing payroll technology is a disruptive exercise, and with employee self service and mobile technology impacting every one of your employees, it’s not a process that you should plan to go through any more regularly than necessary.

Therefore you need to have a good understanding, not just of their current technology, but ensure they are very clear in communicating their product strategy and roadmap for the coming several years at least. I like to know what types of functionality is scheduled to be included in their coming releases and determine whether that will improve the product for your organisation or whether their product roadmap is developed as a reaction to fixing client complaints about functionality. Ideally there will be a mix of the two in their product roadmap.

The last thing to assess by speaking with their current clients is probably the thing that will most impact your ongoing relationship with the supplier. That is their reputation for supporting their clients.

It’s all very well having great functionality and the latest in payroll technology, but if the organisation you choose to work with has a poor reputation for supporting their client base, it can make for a very fractured relationship. Payroll is time critical, so understand how they handle their support calls and what their metrics are for answering them. If a vendor doesn’t share or publish their support metrics, you might like to ask why not. At the very least suggest you are suspicious that they might be hiding something.

Once you identify your preferred vendor, you will receive from them a copy of their standard client contract and service agreement. It is important to check the details in these documents very carefully and make sure they are not only commercially acceptable to your organisation, but operationally acceptable as well.

This means you need to have it clearly defined in the agreement with your supplier which party is responsible for deliverables, particularly if it includes payroll services. You need to understand your resourcing requirements, particularly if you are engaging a contract for payroll outsourcing. Make sure you include what type of support is available and what hours you are supported. This is particularly important if you are operating with staff in another time zone from where the payroll is being processed.

A schedule for the payroll process with cut off times for each step should be included in the agreement as well as any penalties that you wish to subject the supplier to if they are in breach of their deliverables.

Whilst this is a high level process that I work with when evaluating and selecting payroll technology, you might want to add particular steps to suit your own specific requirements or procurement processes.

Key points

• There is no one best payroll system;
• Assume nothing;
• Don’t forget to consider integration and reporting requirements.

Checklist

• Make sure you have a very clear procurement process;
• Include workshops in due diligence;
• Document your requirements in more detail than you think is necessary.

Author note:

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