Not started offering payroll self-service yet? Watch out: you could soon find yourself in the minority.

Many organizations still tend to think of self-service as an HR-centric technology that’s largely about letting employees fill in their home address and bank details online, instead of sending a form for an HR administrator to fill in. But a survey just published by Webster Buchanan Research in association with Computers in Personnel demonstrates that adoption is spreading across multiple people management disciplines, from recruitment to performance management. Among them, there’s particular interest in payroll – no doubt in part because its transactional nature means it’s a good target for cost reduction initiatives.

As we explained in a separate survey on recruitment last year, Webster Buchanan divides self-service into two types: informational and transactional. Informational self-service is about giving employees, managers, and in some cases job candidates, access to information such as details of training courses or job vacancies. Transactional self-service enables managers and employees to interact online with HR and payroll – for example, by submitting individual performance reviews or applying for a training course.

With informational self-service, our survey shows that some 17% of respondents already provide online pay advice (an ‘electronic payslip’) today and 42% plan to do so within twelve months. So if they’re true to their word, by this time next year almost three in five payroll departments will be providing electronic payslips in some form. Even if current economic conditions slow down this planned adoption rate – which, frankly, is quite likely – it’s still only a matter of time. And of the 41% of respondents who said they don’t plan to roll out electronic payslips over the next year, the bulk (32% of the overall total) intend to do so long-term.

Similarly, over one in ten respondents already enable employees to view their pay history online, 38% plan to within twelve months, and another third (34%) are looking to do so long-term.

All of which puts some interesting context to a discussion I had just last week with a payroll manager who won’t make her employees’ pay histories available online for fear of confidentiality breaches. When I asked her whether she was comfortable using online banking with her own financial institution, I got an immediate ‘yes ’ – followed by a short pause while these two seemingly contradictory perspectives were reconciled. It’s completely reasonable to have reservations about confidentiality and privacy, of course, but ideally they should be a trigger to talk to IT about what security measures it can put in place, not an excuse for inaction.

Elsewhere, meanwhile, self-service adoption trends point upwards in a host of areas including recruitment, absence and training. For more information – and to find out what HR managers are doing elsewhere in everything from adopting Web 2.0 technologies to reporting and analytics – you can check out the report’s executive summary and download the full publication free of charge.

Is it really sacrilegious to suggest that sometimes – just sometimes – payroll should be content with delivering a poorer quality service? 

Coming just a few months after Webster Buchanan Research published our Payroll Performance Scorecard, a tool designed to help organizations better measure and manage payroll performance, this might seem a bit of an odd question to ask. But as we suggest in our latest research report, ‘Balancing cost and service quality in payroll’, payroll is caught between a rock and a hard place when it comes to service quality.

On the one hand, payroll’s goal is to deliver 100% accuracy, 100% timeliness, 100% compliance and high-quality employee service: on the other, like every other business function, it has to do so within ever tighter costs constraints. So unless you can dramatically change the equation through a significant shift in the way you work – such as automating ageing manual processes – something has to change, or something has to give.

As we point out in our report, payroll’s room for manoeuvre is pretty limited. You can’t compromise on your compliance obligations, and you’re not going to last long in your job if you mess with the timeliness of payroll delivery. So that leaves accuracy and quality of employee service as the two most obvious places to focus any cost-cutting efforts. The latter, thankfully, has big potential. As we point out in our report, payroll can borrow techniques from the consumer customer service environment to reduce the cost of interacting with employees, using everything from internet-based self-service to new Web 2.0 tools such as blogs and wikis. In fact, by doing so it might be possible both to cut costs and improve the quality of service.

Accuracy, though, is more tricky, and for some organizations may require a shift in thinking, particularly in terms of assumptions about delivering world-class versus industry standard performance. As the report asks, “is it acceptable for payroll to accommodate the possibility of a marginally higher level of errors – particularly errors with lower monetary value – in return for lower costs?”

The report stresses that “this is not about breaking business models that work: in organizations where payroll is processed with world-class levels of accuracy and at a cost that’s acceptable to the business, it would be illogical to compromise on quality. But if the costs are too high – for example, if there’s a lot of manual work involved within the payroll department – then there may be a trade-off in switching from world-class performance to industry standard in return for cost reductions, if only as an interim measure while the automation options are weighed up. Likewise, in an organization where accuracy levels are still unacceptably low, the cost of striving for world-class performance may be prohibitive, and industry standard may be a more realistic target."

Again, is that really sacrilegious – or just a sensible approach to coping with the realities of a cash-strapped economy?

Whether they’re outsourcing or using on-premise systems, one issue that rankles with customers is when they're forced to do things the way their vendor wants, not the way they'd choose. But how realistic is it to dig your heels in – and is it even a battle worth fighting? 

Historically, customers have long been in the habit of adapting their HRIT systems to suit their own needs. Sometimes they simply do cosmetic work, such as reconfiguring fields and screens – other times, they wheel in a bunch of consultants, roll their sleeves up and start rewriting the underlying software code. But this deep-level customization can be expensive to carry out and complicated to maintain, particularly when you get round to upgrading the system in the future. In fact, in the past large-scale customization was one key reason why so many bigger IT projects overran.

That’s why the trend in recent years has been away from customization and more towards living as much as possible with what the supplier delivers ‘out-of-the-box’. You're still going to want to personalize it – but ideally, you’ll restrict your changes to top-level configurations rather than messing around with the core code. Taking this approach does mean your options for adapting the software are only as good as the configuration choices provided by your vendor, of course, and this requires something of an act of faith. But if you're not sure whether your HR and payroll software vendors have successfully managed to convert their years of experience into built-in best practices that really work for you, it won't be too hard to test out what's available. Inevitably, there’ll be some compromise because the vendor’s perception of best practices won’t necessarily match your own - all other things being equal in the purchasing cycle, though, the question then is simply, who's got the best fit?

Similarly, in most outsourcing arrangements, the goal is to enforce standardization as far as possible so that vendors can benefit from economies of scale. Customers will always be able to demand a highly-customized service if they’re prepared to pay for it, and this is still common in many business process outsourcing deals. But some outsourcing set-ups – particularly ‘multi-tenant’ models in the hosted services field, where all customers use the same ‘instance’ of software from the outsourcer – are built on the assumption of a large degree of standardization with a range of configurable options offered on top. What distinguishes the vendors is how broad the range is and how easy it is to get yourself up and running.

So is enforced standardization such a bad thing? For sure, some aspects will always irritate customers – outsourcers insisting on early cut-off deadlines for payroll data is one that springs instantly to mind. But much HR and payroll activity is pretty standard – Webster Buchanan Research estimates, for example, that around 70 per cent of payroll processes are common regardless of the organization or even the country. More importantly, standardization is a core goal of most international HR and payroll projects because it allows organizations to replicate best practices around their country operations, helps improves information visibility and makes it easier to consolidate vendors. If you’re heading in that direction anyway, how much does it really matter if you have to lean slightly more towards your supplier’s way of working to get it done?

Is it just me, or is the HR and Payroll outsourcing market getting more complicated as I get older? Once the world was largely content with business process outsourcing and managed services – now there’s everything from multi-country payroll brokers to hosted services vendors to consider. 

Webster Buchanan Research has been working on three different research reports that touch on the outsourcing sector over the last few months. Next month we’ll be publishing a report on HR System Outsourcing, a form of outsourcing where customers pass responsibility for system maintenance, efficiency improvements and data management to a third party. We’ll also be releasing a separate report on balancing cost and quality demands in payroll, which looks into the payroll outsourcing options. And last November we published a report on developments in hosted services (or Software as a Service), a fast-growing form of IT outsourcing where a vendor runs the software on its own systems, and the customer accesses it over the internet.

In the course of this research we’ve defined seven types of HR outsourcing and five types of payroll outsourcing – thankfully, with a hefty chunk of crossover between the two. They include:  

• Tactical services, such as check printing or employee reference checking
  
• Hosted services and next generation hosted services, the latter applying to an emerging trend where we expect vendors to start adding consultancy services around their software offerings. A good example is HR business intelligence, where the vendor might use its own software to carry out people-based reporting and analysis of a customer’s HR data
  
• HR system outsourcing as defined above
  
• HR process outsourcing, where the service provider takes control of an entire HR service or discipline, such as recruitment
  
• Managed services, common in payroll, where the outsourcer takes over responsibility for parts but not necessarily all of a business function
  
• Business process outsourcing, a full-blown service where the provider takes control of the vast bulk of the HR or payroll function, from administrative staff to systems, usually in conjunction with other business functions such as finance.
  
• Payroll brokers and aggregators operating in the multi-country payroll field, which rely on a network of partners to process payroll in individual countries and provide a single interface for the customer
  
• Hybrid outsourcers, providing a combination of the above
  

Why do these variances matter? Well on the one hand, they demonstrate how a maturing sector such as HR and payroll outsourcing is becoming increasingly nuanced as it evolves, potentially making it better placed to meet a wider range of business needs. On the other, they indicate once again that HR and payroll managers really need to be on top of their game when it comes to weighing up the vendor market. Webster Buchanan is launching two research reports and a new series of web seminars in this area next month that may help with the latter - watch this space…

Measuring performance takes on new significance in a recession, when everything from your headcount to your travel budget hangs by a delicate thread. But as you make decisions about the future of your HR and payroll operations, are you confident you’re using the right metrics in the right way?

Benchmarks – both internal and external – are a great starting point for analyzing HR or payroll performance, but they’re a lot more meaningful if you take time to look at the context behind them. Think of a standard payroll metric such as the FTE ratio – the number of payroll team members versus the number of employees they serve. When Webster Buchanan Research carried out a qualitative research study among multinationals last summer, we found huge variances in these ratios – ranging from 1:200 to 1:1000 in Europe, and going even higher (one to many thousands) in some US operations. With such large discrepancies – often between different country operations within the same company – deciding who’s really pulling their weight is a little like a bank trying to work out which securitized mortgages to hold onto.

In fact, you can only really make meaningful decisions if you weigh up the many different factors that impact payroll performance. The size of your employee base is clearly one of them, given that larger payroll functions by rights should benefit from greater economies of scale. But the nature of the workforce is equally important, since the mix of hourly versus monthly pay, the extent of overtime and the volume of joiners/leavers will all impact payroll complexity. On top of that, it’s worth looking at the degree of automation, how much payroll work is outsourced, the quality of initial data input and the nature of the payroll function’s responsibilities, which can differ from company to company.

The picture gets even more complicated when you compare payroll internationally, since different regulatory regimes and even country infrastructure issues can impact performance.

All of which explains last month’s launch of Webster Buchanan’s Payroll Performance Scorecard, a set of tools designed to help HR, payroll, finance and other senior executives get a better grip on how well their payroll team really functions. While the Scorecard was developed with members of Webster Buchanan’s Multi-country Payroll Forum, it works equally well for both national and international payroll set-ups. Starting with the core metrics typically deployed in payroll – including accuracy, timeliness, compliance, cost and quality of service – it outlines a number of additional metrics that give greater granularity, and then identifies ways to assess the impact of all the associated contextual factors.

Like benchmarks, the Scorecard doesn’t provide all the answers about your performance, of course, but it does provide some guidelines to help you get a fuller perspective.