ADP: Total Cost of Ownership of Payroll and HR Functions Can Be Significantly Reduced
Industry Study Reveals Outsourcing Multiple HR Functions to a Single Vendor Reduces Costs
by 24 Percent on Average
ROSELAND, New Jersey - ADP®, a leading provider of HR, payroll and benefits administration services, today announced the findings of a new study by PwC entitled “The Hidden Reality of Payroll & HR Administration Costs.” According to the study’s findings, many organizations can achieve greater efficiencies and cost savings by outsourcing payroll and HR administration functions, rather than performing them in-house. Specifically:
-- Organizations managing payroll, workforce administration, time & attendance, and health & welfare benefits in-house using premise-based or hosted software solutions spend 18 percent more, on average, administering these functions than organizations that outsource to ADP.
-- Large organizations actually spend 27 percent more to manage payroll, workforce administration, time & attendance, and health & welfare benefits in-house than similar-sized organizations that outsource to ADP.
-- Organizations using multiple software vendors to administer payroll, workforce administration and time & attendance functions in-house spend 32 percent more, on average, than organizations that outsource to ADP.
Based on data collected from 279 participating large (those with more than 1,000 employees) and mid-sized (100 to 1,000 employees) organizations, the study breaks down the different cost drivers of payroll and HR administration, and details the strategies that are enabling some organizations to administer business-critical functions such as payroll, workforce administration, time & attendance, and health & welfare benefits in more cost-effective ways.
Key among the study’s findings is that, on average, in-house administration of payroll, workforce administration, time & attendance, and health & welfare benefits typically requires more than $1,400 per employee per year (PEPY) for large organizations and nearly $2,000 PEPY for mid-sized organizations. In addition, it found that many ’hidden costs’ that organizations frequently overlook account for more than 50 percent of the total cost of ownership of administering these functions in-house.
“While most companies consider costs such as a payroll department’s staff, or the acquisition costs of a new ERP solution, many fail to recognize certain hidden costs necessary for operating and integrating these interdependent processes,” said Carlos Rodriguez, president of ADP National Account Services and Employer Services International. “Organizations often apply separate technology and process solutions to individual administration functions without considering how those solutions work with each other, which serves to drive costs up due to task overlap and other inefficiencies. Clearly, there is a better way.”
The study also reveals that despite technological advances, payroll administration costs have actually increased rather than decreased since 2003, as organizations have focused on technology innovation rather than overall process transformation.
The study concludes that cost effectiveness stems from comprehensive process transformation and not just technology innovations. The researchers explain that significant financial benefits may await organizations ready to embrace and implement change.
Interested individuals can download a complimentary copy of “The Hidden Reality of Payroll & HR Administration Costs” study at www.adp.com/tco2011.
Scott Pollak, a director in PwC’s human capital benchmarking division Saratoga™, will present the findings of the study at a live webinar on February 1, 2011 at 1:00 p.m. EST. The event is sponsored by ADP. For more information and to register, please visit www.adp.com/tco2011.
The Hidden Reality of Payroll & HR Administration Costs is a primary research study sponsored by ADP, but conducted and prepared by PwC. The study is based on data collected from 279 participating organizations, ranging in size from 100 employees to more than 100,000 employees. All participating organizations are U.S.-based companies or subsidiaries or business units of non-U.S. companies, and come from more than 17 industries, with the most prevalent industries being manufacturing (15%), healthcare (13%), and finance, insurance and real estate (10%). Federal and state governments were not specifically addressed in the study.
Senior financial and HR executives (i.e., CFOs, VPs of HR, VPs of Finance, Directors of Payroll and Controllers) were invited to participate, and in cases where an organization had multiple respondents provide input, a single consistent response was created. Many organizations also participated in phone interviews conducted by a PwC representative. In total, PwC performed more than 500 phone and email follow-ups to clarify completed participant data. This approach enabled respondents to provide total costs, rather than just labor or system costs.
PwC conducted the study primarily through use of a confidential web-based questionnaire with over 100 in-depth questions administered from May to August of 2010. This study marks the fourth installment in a series during which PwC has surveyed more than 600 organizations. Previous studies occurred in 2003, 2004, and 2006.
Automatic Data Processing, Inc. (Nasdaq: ADP), with nearly $9 billion in revenues and about 550,000 clients, is one of the world’s largest providers of business outsourcing solutions. Leveraging over 60 years of experience, ADP offers a wide range of HR, payroll, tax and benefits administration solutions from a single source. ADP’s easy-to-use solutions for employers provide superior value to companies of all types and sizes. ADP is also a leading provider of integrated computing solutions to auto, truck, motorcycle, marine and recreational vehicle dealers throughout the world. For more information about ADP or to contact a local ADP sales office, reach us at 1.800.225.5237 or visit the company’s website at www.ADP.com.
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