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The results from the 2010 Payroll Performance Study are now available.

For the first time, the study took on a more global perspective.

2010 Global Payroll Performance Study


By Felicia cheek

24 May 2011

Figure A: Employee Population for the 2010 Performance Study

7% 5%

16%

As more companies focus on consolidating global payroll operations, the annual performance study has been modified to reflect this trend. The resulting metrics reflect three regional peer groups the Americas, EMEA (Europe, Middle East, and Africa), and APAC (Asia/Pacific) regions. The 2010 effort marked the first truly global payroll performance study. The studys participants included local and multinational companies around the world, representing various industries, employee populations, geographical locations, and levels of complexity.
demographics and definitions

15% 17%

In the past, the performance study focused on the process cost (labor + outsourcing) for cost metrics. Now, in order to do an apples-to-apples comparison between outsourcing and in-house processing, the studys cost metrics represent the total cost (labor + outsourcing + technology + overhead) of payroll processing. The demographics for the studys participants are included in Figures A-D. In addition, Figure E on page 26 shows the demographics of the studys participants on a regional basis. Companies that participated in the performance study were classified as either local or multinational. Local companies are those that pay employees in only one country. Multinational companies are those that pay employees in two or more countries. Local companies represented 74% of the entire population and 26% were multinational. From a cost perspective, the data shows local companies are able to leverage economies of scale to process payroll at a low cost, regardless of their geographical location. Global companies (defined as companies that pay an equal amount of employees in all three regions) were also able to leverage economies of scale to process payroll at a lower cost than multinational companies. Multinational companies (defined as companies that pay employees in two or more countries) processed payroll at a higher cost around the world primarily due to smaller employee populations in a multitude of countries, which negatively impacts their ability to leverage economies of scale. Past studies have always included companies with employees in different geographical locations. Felicia Cheek is Global Time to Pay Advisory Program Director for The Hackett Group, a global strategic advisory firm and a leader in best practice advisory, benchmarking, and transformation consulting services, including shared services, offshoring, and outsourcing advice.

27%
<1,500 25,501<50,000 1,501-5,00 50,001-100,000 5,001-10,000 >10,000

13%
10,001-25,000

Figure B: Industries Represented in 2010


Manufacturing Technology Hardware & Equipment Software & Services Automobiles & Components Health Care Equipment & Services Commercial Services & Supplies Diversified Financials Retailing Pharmaceuticals & Biotechnology Media Energy Insurance Comsumer Services Utilities Telecommunication Services Food, Beverage & Tobacco Transportation Non Profit Capital Goods

Banks Other

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However, in 2010 the study had sufficient companies to create regional peer groups: the Americas, EMEA, and Asia/Pacific regions. Companies that pay employees globally chose which part of their operations to benchmark for this study. For example, Wolters Kluwer pays employees globally, but chose to benchmark only their U.S. operations. So Wolters Kluwers data is part of the Americas Region in this study. The long-term vision for the performance study is to create a peer group for each country. Realizing that each region has countries with different levels of complexity, the complexity of each region has been rated as high, medium, or low complexity. Figure F on page 28 shows the levels used to measure complexity.
top performers

Figure C: Sourcing Solutions


Offshore 8% Outsource 36% In-House 56%

Figure D: Corporate Alignment

8% 2%

The Top Performer peer group includes companies that scored in the top 25% in both efficiency and effectiveness (see Figure G on page 28). Top-performing companies create a peer group of companies that are leveraging best practices to achieve high levels of performance. Overall, they leverage technology, strategic outsourcing, and automation to achieve top performance in payroll. The 2010 studys Top Performer peer group is almost equally split between human resources, 37%, and finance, 38%, in corporate alignment. The shared services alignment has increased from 6% in 2009 to 16% in 2010. For those payroll organizations that are aligned under human resources or finance, 39% of them have a shared services structure. This is a trend seen for several years with organizations using the shared service structure continuing to be top performers. (continued on page 28)

45%

45%

Human Resources

Finance

Treasury

Other

Figure E: Profile of Participants on a Regional Basis


Characteristic
Average Number of Countries Corporate Alignment Human Resources Corporate Alignment Finance Corporate Alignment Shared Services Sourcing Captive (in house) Sourcing Outsourced Sourcing - Offshored Corporate Standardization Workforce Management Ownership Average Employee Population Employee Type Hourly Employee Type - Salaried Expatriate Severed
26 May 2011

Americas
2 42% 48% 7% 64% 32% 4% Business Unit/Operations Payroll 10,001 25,000 43% 55% 1% 1%

EMEA
10 46% 44% 10% 36% 63% 1% Local Human Resources <1,500 40% 58% 2%

Asia/Pacific
5 50% 41% 9% 21% 67% 12% Local Human Resources <1,500/ 5,000 10,000 37% 60% 2% 1%

For the first time, the study collected data on payroll overpayments and found that Top Performers had annual overpayments of approximately $375,968 annually while only collecting 68% of the overpayments. From discussions with Top Performers, it was found that the ability to collect overpayments is largely dependent on legislative restrictions and the culture of the corporation. Unlike the global peer group, all of the Top Performers track overpayments, realizing it has a direct impact on the bottom line and is a symptom of a problem in the payroll process. About 71% of Top Performers said they had experienced overpayments caused by termination pay. Other top causes of overpayment are leaves of absence (experienced by 50% of Top Performers), and time reporting errors (experienced by 43% of Top Performers). Additional causes of overpayments are detailed in Figure H on page 30. A summary of metrics for Top Performers are detailed below:

Figure F: Regional Peer Groups Represented in Study

EMEA Region

Americas Region Asia/Pacific Region

Industry Complexity Level


High Medium Low

Americas

EMEA

Asia/Pacific

4 4 4

Top Performers
Total Cost Per Employee Total Cost Per Payment/Payslip

Cost

$73.85 $2.71
Payroll Resources

Top Performers
Payroll Resources/1,000 Employees

Figure G: Top Performer Peer Group on Hackett Value Grid

0.804
Metric

Top Performers
Payroll Processing Accuracy Rate Retroactive Payment Rate Dollar Value of Payroll Overpayments Overpayment Collection Rate Paperless Payment Distribution Rate Employee Personal Data Automation Inquiries Resolved on Initial Contact

99.96% .06% $375,968 68% 93% 64% 67%


Each dot on The Hackett Value Grid represents an organization that participated in the Performance Study.

Other characteristics of Top Performers from the 2010 Global Payroll Performance Study: 62% of top performing payroll organizations own the time and attendance process. Clear ownership of the time and attendance process makes it easier to streamline the endto-end time reporting process, which accounts for 34% of payroll errors and 12% of off-cycle payments. 45% of top-performing payroll organizations measure the total cost per payment/payslip on a regular basis to help them monitor their operations, while only 9% measure the total cost per employee (total cost = labor + outsourcing + technology + overhead). They believe they have more control of the cost per payment/payslip than the cost per employee.

85% of top-performing payroll organizations indicate they


have a high level of executive support. Unfortunately, up to this point, the lack of a clear payroll strategy has limited the ability to leverage executive support to increase organizational influence (see Figure I on page 30).

77% of top-performing payroll organizations have made


major improvements in their business processes over the last year. Developing clear and concise business processes

28 May 2011

is a major component in the service delivery model. In addition, comprehensive business processes allow payroll organizations to maximize services provided by third parties.
americas region

Figure H: Major Sources of Overpayments for Top Performers


71%

50% 43%

The Americas Region includes 29% 29% North, Central, and South Amer21% ica. Figure J on page 32 shows the countries that were included in the scope of this region. 7% 7% The Americas Region is rated a medium level of complexity. Termination Leave of Time Incorrect Disability Other Military Bonus/ The majority of the studys parPay Absence Reporting Pay Rate Pay Pay Incentive Pay ticipants are large companies based in the United States. North America includes Canada, Mexico, and the Figure I: Level of Executive Support for All Participants United States. North America has a small number of primary languages: mostly English and Spanish, with French in parts 1% of Canada. The currencies are limited to the Canadian and 10% U.S. dollars and the Mexican peso. From a compliance perspective, the multitude of state/province and local requirements in the United States, Mexico, and Canada factor into the overall complexity in this region. Central and South Americas primary languages are Spanish, Portuguese, and Dutch. The Argentine and Columbian pesos are the common currencies, along with 44% the Brazilian real and other regional currencies. There are some countries, such as Venezuela, with currency blocs. The geopolitical climate in Venezuela heavily influences the conversion rate of the local currency. Currency blocs make it challenging and risky to convert local currency due to strict controls. This increases the complexity of the treasury function, and the added political climate in Venezuela results in frequent legislative changes. Brazil has complex 45% legislative requirements as well. Characteristics of the Americas Region are: Electronic payment is largely up to the employee and as a result, is not 100% (direct deposit + payroll cards) as it is in other regions. In addition, when jurisdictions High Medium Low None allow a company to mandate direct deposit, 57% of companies in the Americas Region dont require it. This year, 48% of payroll organizations in the study are Multiple pay cycles are common in this region, unlike aligned under finance and 42% under human resources. The other regions where the pay cycle is a legislative requirestudys data does not show that payrolls alignment within ment of the country. the organization has an impact on performance; it continues The cost of payroll administration is heavily influenced to be based on the overall corporate goals and objectives. by North America, where the payroll provider landscape is more mature and companies are better able to leverage The use of payroll cards to pay employees in the United economies of scale. States and some parts of Mexico, Central, and South America continues to be a positive factor in performance, The alignment between human resources and finance conparticularly in the area of payment distribution as it offers tinues to change from year to year, albeit the gap is small.

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the employer the same benefits as a traditional electronic payment (i.e., reduced reconciliation, escheatment, and fraud). The payroll card offers all the employer benefits of a traditional electronic payment. Multistate taxation in the United States is a major challenge in the area of tax filing and payments. Yet 79% of companies in the Americas Region do not use a time and attendance system (or any automated system) to track the work location of employees. A summary of metrics for the Americas Region is detailed below:

Americas Region
Total Cost Per Employee Total Cost Per Payment/Payslip

Cost

$103.51 $4.11
Payroll Resources

Americas Region
Payroll Resources/1,000 Employees

0.944
Metric

Americas Region
Payroll Processing Accuracy Rate Retroactive Payment Rate Dollar Value of Payroll Overpayments Collection Rate for Overpayments Paperless Payment Distribution Rate Employee Personal Data Automation Inquiries Resolved on Initial Contact

99.90% .03% $979,883 71% 79% 48% 61%

The Americas Region cost per payslip is 34% higher than Top Performers and the cost per employee is 29% higher. In addition, study participants in the Americas Region use 15% more resources per 1,000 employees for the payroll administration process than Top Performers. Although many payroll organizations in the Americas Region are working on time and attendance projects, time and Figure attendance errors still represent 36% of the total payroll errors and account for 43% of Medium Industry payroll overpayments. Complexity In future studies, we hope to have enough data to divide the current Americas Region into two regions, North America and South America. This division will better allow us to reflect the maturity of payroll processing in North America and the impact of differing legislative requirements and geopolitical factors in South America.
emea region

studys participants in this region were multinational companies with almost 70% of their employees based in North America. Participating companies in the EMEA Region have varying employee populations in multiple countries. In fact, the average number of countries in which participating companies have employees in this region is 10, compared to two in the Americas Region and five in the Asia/Pacific Region. In the EMEA Region, 46% of the payroll operations are aligned under human resources with 44% aligned under finance. From a sourcing perspective 63% of the studys participants in this region outsource payroll, which is a common practice of multinational companies based in a different geographical location. Each country in this region is fairly unique, thus payroll administration costs are significantly influenced by local legislative requirements. Although the euro is the currency used by many countries, its not the only currency used in the region, which contributes to the treasury function playing a much larger role in the region. Local legislative requirements create a bit of a talent puzzle in this region. In fact, a large part of the payroll strategy is determining what resources can be sourced on a global, regional, or local basis. As a result, in some instances there are necessary redundancies in resources as it is very challenging to find a payroll resource that is skilled in processing payroll for multiple countries. Some characteristics of the participating companies in the EMEA Region are: The companys geographical footprint plays a major role in the cost of payroll administration as it determines their ability to leverage scale. In essence, most payroll processing solutions are not able to scale down in countries where they have smaller employee populations and, as such, the cost in those populations is based on a minimum number of employees which many times may be higher than their population. This region currently has a low level of automation and

J: Americas Region Overview


Countries
Canada Mexico Costa Rica Panama Argentina Brazil Colombia Ecuador Peru United States Venezuela

Currencies
Canadian Dollar Mexican Peso Costa Rica Colon Argentina Peso Brazilian Real Colombian Peso Peruvian Nuevo Sol United States Dollar Venezuelan Bolivar

Languages
Spanish Portuguese Dutch French English

The EMEA (Europe, Middle East, and Africa) Region is very complex with multiple languages, currencies, and legislative requirements (see Figure K on page 34). Most of the

The majority of employees in the Americas Region are in the United States

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system integration due to the use of payroll processing solutions with limited technology capabilities. As a result, productivity is lower, requiring more resources to administer the payroll process. In the EMEA Region electronic payment distribution is predominate. Electronic payment/payslip distribution is increasing, but not as common as seen in the Americas Region. As a result, the electronic payment/payslip distribution distribution rate is less than 100% even though electronic payment is 100%. Pay cycle requirements are determined on the country level and are generally monthly. However, in many instances companies are required to pay a bonus payroll and/or a pay advance that in many cases means they process 13 or 14 pay cycles a year. It is typical for multinational companies in this region to have multiple payroll solution providers requiring the management of many contracts and service level agreements (SLAs). In fact, many process improvement activities in this region include consolidating payroll solution providers in an effort to streamline the process and minimize the number of contracts and SLAs. A summary of metrics for the EMEA Region is detailed at right. The cost of payroll administration per employee in the EMEA Region is 65% higher than Top Performers and 90%

EMEA Region
Total Cost Per Employee Total Cost Per Payment/Payslip

Cost

$213.61 $26.65
Payroll Resources

EMEA Region
Payroll Resources/1,000 Employees

2.398
Metric

EMEA Region
Payroll Processing Accuracy Rate Retroactive Payment Rate Dollar Value of Payroll Overpayments Collection Rate for Overpayments Paperless Payment Distribution Rate Employee Personal Data Automation Inquiries Resolved on Initial Contact

99.36% .008% $109,824 67% 50% 26% 14%

higher per payslip. Multiple legislative requirements, cultural differences, and currencies contribute to the high cost of payroll administration. While there are many local payroll solutions in the EMEA

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Region, comprehensive global Figure K: EMEA (Europe, Middle East, Africa) Region Overview solutions are at the beginning of the maturity curve. For examHigh Industry Countries Languages Currencies ple, only 86% of companies Complexity indicate the payroll and human European Euro Luxembourg English Belgium resources systems are currently Danish Krone Catalan Netherlands Cyprus Israeli New Sheqel Spanish integrated. During the next two Norway Denmark British Pound Galician years, they expect only a 6% Portugal Finland Swiss Franc Portuguese Spain France increase in the level of integraNorwegian Krone Croatian Sweden Germany Swedish Krona Dutch tion. In fact, when looking at Icelandic Hungarian Switzerland Greece future integration of the payroll Bahraini Dinar United Kingdom French Ireland system with the accounting and Croatian Kuna Russian Iceland Israel time reporting system, none of Czech Koruna German Lithuania Italy Egyptian Pound Czech the studys participants expect Morocco Jordan Estonian Kroon Greek any of them to be 100% integratKazakhstan Oman Hungarian Forint Danish ed in two years. The inability to Jordanian Dinar Finnish Poland Kuwait leverage technology for routine Kazakhstani Tenge Swedish Qatar Latvia Kuwaiti Dinar Italian processes continues to impact Romania Lebanon In the EMEA Region, Latvian Lats Luxembourgish the overall productivity of payRussia Austria Lebanese Lira Norwegian multiple cultures, roll in the EMEA Region. Saudi Arabia Bahrain Lithuanian Litas Irish languages, currencies, The business processes for Slovakia Bulgaria Moroccan Dirham Latvian and legislative Omani Rial Lithuanian Slovenia Croatia commission, bonus, incentive, Polish Zloty Frisian requirements add South Africa Czech and stock payments show a Qatari Riyal Polish to the complexity of Republic Tunisia large percent of companies in Romanian Leu Romanian processing payroll in Turkey Egypt the EMEA Region have payroll Russian Ruble Russian UAE Estonia the region Saudi Riyal Slovak resources responsible for the Hungary South African Rand Slovenian Ukraine entire end-to-end process. In essence, they perform the initial calculation and review and approve the calculation. At the end of multinational companies based in the Americas who generally the process, they manually load the data into the payroll system. outsource the payroll process in the region. In fact 64% of This is common for many exception processes found in the EMEA participants indicate outsourcing the payroll process allows Region. It also speaks to the need for a well-planned payroll them to increase their internal strategic focus. Locally, the study strategy enabled by a comprehensive service delivery model. shows more companies process payroll in-house and leverage the shared service structure. A summary of metrics for the While the EMEA Region expects to have only a 6% increase APAC Region is detailed below: in the level of system integration during the next two years, they are planning to have a 19% decrease in their transactional Asia/Pacific Region Cost focus. This will come from leveraging technology in areas like employee self-service. Currently the number of employees using Total Cost Per Employee $180.40 self-service for time entry is expected to increase from 38% to Total Cost Per Payment/Payslip $8.69 47% in the next two years. In the area of employee self-service for personal data entry and modifications, usage is expected to Asia/Pacific Region Payroll Resources double in the next two years from 8% to 16%. Payroll Resources/1,000 Employees 2.422 The various regional complexities and cultural differences reduce the benefits of root-cause analysis. Currently, 31% of Asia/Pacific Region Metric participants in the EMEA Region indicate they do not track the Payroll Processing Accuracy Rate 99.04% type of payroll inquiries they receive. As the region continues to transform, more focus on root-cause analysis will help increase Retroactive Payment Rate .11% productivity by minimizing inquiries and payroll errors. Dollar Value of Payroll Overpayments $205,380
apac region

The Asia/Pacific Region (APAC) is most commonly known for the significant number of countries with low labor costs (see Figure L on page 36). Many companies leverage lower labor costs by substituting people for technology and automation. Most importantly, the studys data is highly reflective of large

Overpayments Collection Rate Paperless Payment Distribution Rate Employee Personal Data Automation Inquiries Resolved on Initial Contact

51% 71% 25% 36%

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Characteristics of the participating Figure L: Asia/Pacific Region Overview companies in the Asia/Pacific Region are: 82% of companies in this region recMedium Industry Countries Languages Currencies ognized significant improvements in Complexity quality during the last year. The payroll Australian Dollar Chinese Australia Yuan Renminbi Japanese processing accuracy rate is 99.04%. China Hong Kong Dollar English Hong Kong 12% of companies in this region offIndian Rupee Korean India shore the gross-to-net calculation. Rupiah Cantonese Indonesia 92% of payroll systems are integrated Japanese Yen Malay Japan Won Mandarin with the human resources system, but Malaysian Ringgit Tamil Korea only 68% are integrated with the time New Zealand Dollar Filipino Malaysia and attendance system. Philippine Peso Thai New Zealand Shared service centers are common Singapore Dollar Vietnamese Philippines Taiwan Dollar in this region and considered a natuSingapore Thai Bhatt ral part of doing business. Vietnamese Dong In the Asia/Pacific Region, Taiwan Labor costs accounts for only 27% of Thailand labor costs are extremely the total cost of payroll administralow and shared services is Vietnam tion; however, the number of resourcSri Lanka common. es used for the payroll administration South Korea process is higher than that in other regions. The cost per payslip for the APAC Region is 69% higher than summary Top Performers at $8.69. This cost is highly reflective of the The cost of payroll administration varies significantly from countries in the study. In the study, India, Singapore, the Philipregion to region. As the capabilities of payroll service providers pines, Malaysia, and Thailand accounted for 59% of the employmature to meet the needs of a globally compliant and integrated ees being paid in the Asia/Pacific Region. The cost of payroll payroll, it is expected that costs will decrease. Unfortunately, processing in these although significant progress has been made in the last 10 years, countries tends to be much more needs to be done to minimize the complexity of a significantly lower globalized payroll organization. Until such time, multinational Go to www.americanpayroll.org than it is in more and global companies must focus on not only building a and search for performance complex countries comprehensive payroll strategy, but perfect execution of that for details about the 2011 study such as Australia, strategy. China, Japan, and As payroll professionals, our challenge is to educate and to participate. New Zealand. In procurement, finance, and human resource executives on addition, the study the complexities of global payroll, in order for them to better had a sizable number of companies in countries that tend to prounderstand the uniqueness of payroll administration in a global cess payroll in-house with low-cost resources. Many companies environment. leverage shared service centers in low-cost locations to process Looking ahead, we encourage you to participate in the 2011 payroll for the region. Payroll and Workforce Management Performance Study to help In the APAC Region, availability of low labor costs somebetter understand regional complexities and how companies times means it is more cost effective to hire local resources to around the world are leveraging global insight and best process payroll than it is to leverage technology. As a result, practices to minimize the risk of noncompliance. the number of resources used for every 1,000 employees is 67% higher than Top Performers. Technology costs represent resources for additional information only 10% of the total cost of payroll administration in the APAC Go to www.americanpayroll.org and search for Region compared to 35% in the Americas Region. performance for details about the 2011 study and to Obviously any form of human intervention has a potential participate. Participants receive a customized presentation impact on quality. More than any other region, 82% of companies and an individual WebEx meeting to discuss your individual in this region indicated they made significant improvements in results. quality during the last year. Historically low labor rates have had Keep abreast of payroll metrics on a regular basis by a negative impact on quality. From system integration and autoaccessing the Payroll Metrics Portal at mation perspective, this region has the most opportunity for www.payrollmetrics.org improvement with the payroll system being integrated with the Metrics, trends, and best practices collected from the accounting system only 75% of the time and the time reporting performance study are shared with APA members in the system only 68% of the time. Metric of the Month feature in PAYTECHonline. n

36 May 2011