How to structure and staff your company’s payroll function
As an industry leader in human capital and payroll solutions and services, our clients often ask questions about the payroll process and how to improve it. Two frequently asked questions are: how to structure their payroll function and how to know if they are staffed appropriately. This article will provide tips and best practices on these topics.
Structure of the payroll team
An important part of your organization’s payroll strategy, whether your organization is a domestic-only carrier (eg, country of origin) or a global carrier (eg, multi-country), is deciding on the payroll structure. payroll function. The structure involves considerations on the concentration of payroll activities, as well as the level of payroll activities kept in-house versus outsourcing. A description of the structural options is shown in the figure below:
Of course, the reality is often more complex than a simple two-by-two matrix when a company has a hybrid structural model.
Level of concentration of payroll activities
As an organization grows, the number of employees increases and in turn, the complexity of payroll increases with all the associated laws and regulations involved in different regions, especially if the organization expands beyond- across state, provincial or even national borders. While the trend as a business grows may initially be to have different payroll departments for each location or business unit, this typically leads to redundancies, non-standard processes, and inefficiencies.
The prevailing practice is to concentrate all transactional and/or administrative financial activities, including payroll, in a centralized model. For example, Deloitte’s Global Payroll Benchmarking report indicates that 77% of survey respondents centralize payroll. For large global organizations, centralization usually takes the form of a regional model, as having a centralized payroll team for the world for large companies is probably too much. (ADP’s business transformation practice estimates that one full-time equivalent (FTE) employee can handle the processing of no more than approximately 7 low-population countries when the technology is standardized).
In the ideal world (organizations with very mature payroll departments), the organization will establish a Payroll Center of Excellence (COE), which is responsible for overall governance, standards, policies and processes, continuous improvement, direction of technology and automation strategy, and develop a common set of metrics for the company’s payroll. These guidelines and policies can then be adapted to individual locations or regions as needed.
A global process owner can be assigned for the end-to-end payroll and/or procurement process to provide dedicated direction and governance to the process. Consulting firm The Hackett Group found that 86% of top performers in their research indicate that there is an enterprise-wide process owner for payroll. For example, the Global Payroll Process Manager at Halliburton is responsible for end-to-end process analysis, increasing payroll efficiency and effectiveness, continuous improvement and benchmarking, and identifying automation opportunities, among other responsibilities.
Large, geographically distributed organizations should also consider one or more regional payroll shared services centers. According to the latest EY Global Payroll Survey, 69% of respondents said they leveraged shared services for HR and payroll delivery in 2021. Shared service centers drive process standardization, process expertise, reduce duplication of effort, monitor and facilitate compliance, enable better reporting and analysis. They also emphasize customer service and measurement and accountability through the use of Service Level Agreements (SLAs). For example, industrial manufacturer Kennametal consolidated its disparate HR, payroll and time management activities into regional shared services centers to centralize, standardize and automate processes. Through this initiative, Kennametal was able to reduce its cost per service and generate annual savings of $3 million.
Level of activities kept in-house versus outsourced
Organizations generally consider outsourcing activities that are not strategic or that others can do better in terms of meeting compliance, reducing costs, improving efficiency and/or providing specialized expertise. The payroll process in particular presents many complexities, with rules and regulations that vary by industry and change frequently. It’s no wonder this process is a frequent candidate for some level of outsourcing: according to the Deloitte survey, 73% of organizations outsource at least some aspect of payroll. For example, taxes and garnishments are specialized areas of payroll, with serious repercussions if not done correctly. As a result, ADP sees these payroll areas frequently outsourced. According to ADP, top reasons to outsource payroll include: saving your staff time for higher value activities, minimizing payroll errors, improving data security, staying current with changing regulations and improve compliance, integrate data and improve data accuracy, facilitate employee self-service, and save employer costs in the long run.
Payroll team management
A second question frequently asked of ADP by its clients is how an organization can tell whether or not it has the right payroll staff. Like structure, staffing should follow the organization’s payroll strategy. In other words, if a global company has decided to keep local payroll in multiple countries due to country-specific requirements and complexities, it has made a conscious decision to have a likely higher level of staff responsible for company-wide payroll than other organizations with a larger number of employees. centralized model.
Some good insights into staffing can be gained by looking at a company’s performance on its payroll process metrics. It is common practice for an organization to consider a balanced set of performance metrics for its payroll process (compliance, cost, productivity, efficiency, cycle time, quality, and satisfaction), so as not to maximize one metric at detriment of another. For example, if the payroll process has a lot of errors and/or low stakeholder satisfaction, it could be staffing issues (e.g. understaffing) or automation issues (caused by many manual processes) or even people. issues (e.g. not having adequate training, skills or documentation to support staff; staff burnout, etc.), or a combination. A root cause analysis will facilitate further investigation into the ultimate reasons for process performance.
Fortunately, from a staffing perspective, there are market benchmarks available from organizations such as the ones cited in this article that can provide guidance to help you understand how the staffing levels in your company compare to those of other organizations, both inside and outside your industry. For example, according to the Deloitte survey, in the United States, on average, each FTE can manage 1,425 employees. ADP’s business transformation practice, informed by Hackett’s best-of-breed data as well as ADP’s in-house subject matter expertise, estimates this amounts to approximately 1,538 employees per payroll FTE in a managed services model.
Subscribers to ADP’s Data Cloud benchmarking service can also benchmark the percentage of employees ranked in payroll to see how it compares to other organizations, inside and outside of its industry. With these market benchmarks in hand as a reference, your organization can see where it stands against other organizations and make decisions accordingly. Again, a staffing KPI like this is just one metric on a balanced scorecard of metrics (effectiveness); be sure to review your other payroll process metrics to understand the overall picture of your payroll process performance and whether or not you need to change payroll staffing. And remember that staffing levels are influenced by multiple factors, including the level of digitization and standardization across the function.
Structuring and staffing your payroll function are important considerations that should align with your organization’s strategy. Organizations can leverage ADP’s expertise and the experience and lessons learned from others that have gone before them in terms of adopting leading practices such as centralization, centers of excellence, shared services and comparative analysis. And ADP is here to help you every step of the way as a partner on your great payroll journey, from process benchmarks to partnering with the Hackett Group or DataCloud organizational benchmarks to understanding where you are today. , until you are relieved of the administrative work. and provide deep expertise through technology only, a managed service, or full payroll outsourcing.