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To Outsource or Not to Outsource: The Role Payroll Can Play in Cloud HCM Adoption

Rizing’s Mike Ellis Discusses Outsourcing and Other Options SAP Customers Have When Moving HR and Payroll to the Cloud

by Lauren Bonneau, Senior Editor, SAPinsider and AJ Whalen, Senior Research Analyst, SAPinsider

December 9, 2019

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SAPinsider recently spoke with Mike Ellis, President, Rizing HCM APAC, to discuss the state of SAP SuccessFactors market today, global trends he is hearing from clients, and options for SAP customers in the area of outsourcing payroll specifically. Ellis, who has nearly 30 years of experience in HR transformations, cloud implementations, and payroll outsourcing, was one of the founding partners of Synchrony Global, which Rizing acquired at the start of 2019. 

Learning Where SAP SuccessFactors Solutions Can Add Value To Your Organization

A key finding from the recent SAPinsider research report, “State of the Market: How the Cloud Is Transforming HR” was that the number of companies evaluating SAP SuccessFactors Employee Central for core HR is on the rise, with 39% of both cloud-focused and on-premise organizations indicating they considering implementing the solution in the next 12-24 months. 

According to Ellis, the flexibility offered by Employee Central and the SAP SuccessFactors suite is a key factor in helping customers meet their specific business objectives and is driving the increase in adoption. “If your business challenge is to organically grow your workforce, you can implement the recruiting and onboarding modules to focus on finding that right talent and bringing them into the business. And conversely, if your environment is heavily regulated and you have stringent learning compliance requirements, you can leverage learning,” he says. “A big benefit is the ability to extend through SAP Cloud Platform and the ecosystem that SAP has developed together with its partners.” In fact, recent SAPinsider research showed that 37% of leaders have already started exploring SAP Cloud Platform to tailor both their existing and future cloud-based HR solutions.

In SAPinsider research, 40% of overall respondents cited cost reduction as a key driver of cloud HR investments, and Ellis sees investment in both core HR and payroll as a key to achieving that. “Ultimately, the biggest cost savings I find are enabled through implementations of SAP SuccessFactors Employee Central and SAP SuccessFactors Employee Central Payroll, depending on the company size and ability to offer self-service capabilities, which then allows HR teams to focus on more strategic elements as opposed to transactional elements,” he says. 

How SAP customers approach adopting SAP SuccessFactors technology seems to differ based on geography. In the Asia Pacific region, which is Ellis’s area of focus, there are even different trends between the geographies of Australia/New Zealand (ANZ) and Southeast Asia. “Historically, the ANZ sub-geography has been slightly ahead of the curve in terms of adopting cloud HR technology and implementing traditional talent management modules — such as onboarding, performance and goals, and compensation — which was largely fueled by HR transformation projects. The Southeast Asian sub-geography was more focused on recruiting and learning due to the employment market’s extremely tight competition for talent — and being able to recruit effectively and then spin those resources up to return value through targeted learning is key,” he says. “However, more recently, both of those sub-geographies are experiencing a push to look at payroll systems because there’s been legislation introduced around tighter control and frequency of payroll reporting. Consequently, a lot of the old technology that hadn’t been updated was effectively replaced through a two-year cycle.” 

In contrast, Ellis notes that US customers today have a tendency to show an interest in two main themes: experience management (XM) with SAP Qualtrics and the SAP SuccessFactors Employee Central Payroll solution. “When companies make massive investments in core HR and talent first and virtually ignore payroll, they are then driven to go back and look at their payroll solution to make sure they are keeping up to speed on the technology, integration requirements, and the available solutions out there.”

Payroll's Place in a Continuous Cycle of Innovation

What role, if any, does payroll play in a company’s decision to implement cloud HR technology? According to Ellis, whether or not payroll plays a role in an SAP customer’s decision to adopt cloud HR technology depends on what part of the organization owns payroll. “If finance owns payroll, for example, then any form of payroll transformation is typically tied into the finance transformation,” he says. “But ultimately, payroll as the initial transformation is often the enabler of a business case for cloud HR and getting into that talent piece.” 

Ten years ago, companies were spending $20 million on traditional legacy SAP systems for payroll so there was little money left in the budget to devote toward the talent management improvements, according to Ellis. “Then the wave hit of new agile, quick, and nimble implementations of cloud software like SAP SuccessFactors solutions — where customers get time to market quickly and effectively and the user experience (UX) is much better than the on-premise portals they previously had,” he says. “Now that these customers are experiencing great cloud capabilities for core HR and talent, they realize they are not getting the same benefits in payroll so they are swinging back around to look at easy-to-implement ways to improve payroll.”

For example, Ellis describes one Australian company with a payroll and talent management success story translatable anywhere in the world. This company had been using an early-days cloud solution that lacked the level of automation and productivity gains a more current cloud solution could have enabled and also required eight administrators to run the monthly payroll for 2,500 employees, which is a less-than-ideal administrator-to-employee ratio. “When we suggested SAP SuccessFactors solutions as the best fit for their needs, they thought it would be too expensive,” he says. “But we helped them look at their business case and their existing spend. We built a transformation roadmap of the comprehensive benefits that would be returned after replacing their tier-two solution with an SAP SuccessFactors implementation. And over a five-year period after the SAP SuccessFactors transition, they will have achieved around $3 million in savings to the business as opposed to costing them more.” 

It seems to be recurring cycle — as new innovations happen and new technology is released, companies will continually seek productivity gains and therefore cost reduction across the board. In payroll specifically, there is new technology being released, such as SAP’s Payroll Control Center add-on for SAP SuccessFactors solutions and SAP ERP Human Capital Management (SAP ERP HCM). “It’s this never-ending cycle paired with a realization that the big, old 12- to 24-month payroll implementations are not going to be tolerated anymore and there are better ways of doing it,” says Ellis. “So that’s where you are seeing a bit of a rejuvenation in the payroll space.” 

Outsourcing Can Offer Flexibility and Improved User Experience for Some

For customers that are looking at options to enhance or replace existing payroll technology, there are many decisions to be made, with one of the first being whether a business process outsourcing (BPO) solution makes sense for them. Rizing’s Synchrony Payroll is an example of a BPO solution that offers SAP SuccessFactors Employee Central Payroll as a payroll engine. The Rizing offering, according to Ellis, is comprised of three different service models that offer customers the flexibility to choose their own level of payroll processing autonomy, depending on the size, scale, and level of control they wish to retain in terms of payroll processing. 

In addition to payroll processing flexibility, BPO solutions like Synchrony Payroll and Synchrony People offer core HR capabilities through SAP SuccessFactors Employee Central that allow global companies to offer a consistent, compelling user experience, regardless of where employees work. The single global platform can also lead to more consistent payroll processes and improve data integrity. “From an employee or manager perspective, it shouldn’t matter where you are hired from,” says Ellis. “The front-end UX stays exactly the same, and the self-service capabilities of accessing paystubs and applying for leave run through SAP SuccessFactors Employee Central. It’s direct into the database and that inadvertently will increase payroll accuracy because there’s no waiting for files to replicate or fail. And therefore, employee satisfaction is directly impacted because payroll errors are reduced.”

What Does This Mean for SAPinsiders?

Based on our research and conversation with Mike Ellis of Rizing, the following considerations can help SAP customers evaluate payroll options available and find the best solution and model for their organization:

  • Perform due diligence to fully understand the requirements of outsourced payroll arrangements. Any company looking to outsource its payroll should perform a full account of expectations for the outsourcing arrangement. Is it an automated interface? Will data be provided in a spreadsheet or will it be fed directly from the core HR system? Answers to those questions can affect the business case and either add or reduce risk to the payroll function itself.
  • Closely examine outsourcing costs for your specific payroll operations. From a cost perspective, companies should know how they will be charged. Some outsourcing providers charge on a per employee pay slip versus an employee per month fee, while others take into account different payroll frequencies when calculating quotes. Ideally, customers should know what that month-to-month bill is in advance because that visibility into cost is ultimately one of the benefits of outsourced models.
  • Understand how your geographic distribution affects your choice of payroll solutions. Customers need to account for all countries in which they run payroll and understand the coverage extent or limitations of their chosen payroll solution. As of fourth quarter 2019, SAP SuccessFactors Employee Central Payroll covers 46 countries, which gives multinational customers a great coverage base. But customers must also develop a coverage plan that will accommodate any remaining countries not covered by SAP SuccessFactors Employee Central Payroll today. 
  • Consider the impact of integration on your choice of payroll solution. There are various flavors of SAP-based outsourced solutions in the market, but not all of them integrate equally with both SAP SuccessFactors solutions and SAP ERP HCM or offer privately hosted services. Customers should be sure to have a clear understanding of the capabilities of outsourced platforms in order to minimize data integrity issues and their associated risks.

Following this strategic guidance should help SAP customers determine how they will approach payroll decisions, including how to move payroll to the cloud and whether outsourcing might be the right fit for them. The full SAPinsider report “State of The Market How the Cloud Is Transforming HR” is available for free download now.

 

Lauren Bonneau, Senior Editor, SAPinsider, can be reached at Lauren.Bonneau@wispubs.com.

AJ Whalen, Senior Research Analyst, SAPinsider, can be reached at AJ.Whalen@wispubs.com.

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