With payroll departments under relentless pressure to cut costs and improve efficiency, this Briefing Paper examines what options are open to organisations looking to make both short-term and long-term improvements. Focusing on the difficult balance between reducing costs and maintaining service quality, it argues that organisations should weigh up a combination of strategic and tactical steps. In particular, the Paper argues that:

• Tackling the cost versus service quality argument may require HR and payroll managers to challenge traditional assumptions, from their quality objectives to the metrics they use to measure performance. While goals relating to timeliness and compliance are effectively immoveable, some organisations striving for ‘world-class’ performance may benefit from accepting a marginally lower level of service quality (perhaps ‘industry standard’) in return for lower costs
• There are a number of ways to reduce costs while maintaining (or even improving) service quality, ranging from sharpening up the quality of payroll data input to reducing the volume of one-to-one interactions with employees. In some cases the change management process may require more emphasis on the ‘stick’ than the ‘carrot’
• In order to drive down costs, organisations are advised to assess the business case for investing in IT tools and services that automate manual tasks, help streamline processes and reduce people-dependent interactions. At a time when both funds and IT resource are limited, the business case for investment needs to be compelling and is likely to incorporate additional factors beyond cost, such as risk reduction
• HR and payroll managers should look broadly at their software and service options, and not be afraid of weighing up HR and payroll self-service – which can cut payroll administrative overhead and reduce employee inquiries – as well as newer, low-cost internet-based collaboration and communication tools
• Every assessment of payroll efficiency should include a detailed cost/benefit analysis of running payroll on-premise, versus shifting to outsourced services. Keeping in mind the danger of making comparisons based on distorted data, organisations need to carry out a comprehensive assessment of all the relevant cost components, including indirect costs that they may not immediately think to bring into the equation
• The outsourcing market is broad, and there are a number of different types of outsourcing service. They range from tactical outsourcing of tasks such as pay slip printing to full-blown business process outsourcing, where the bulk of the payroll function is handed over to a third party