Moving to Managed Services? Considerations for Staffing Your "Payroll Retained Team"
The purpose of this article is to provide considerations for how many payroll full time equivalents (FTEs) a company might expect to retain in a future state once it has outsourced more payroll administrative activities.
Determining the level of service (e.g., what activities an organization desires to keep in-house versus outsourcing to a third-party provider) desired for an organization's payroll operation is a key decision point in payroll strategy setting. Deciding the payroll level of service often comes down to considerations of culture, trust, cost, expertise and resources/staffing. Companies have a spectrum of options to select from when determining the level of payroll service:
- In-house: Maintain payroll technology, processing and employee inquiries with internal staff
- Technology only: Outsource payroll technology to a vendor, and keep payroll processing and employee inquiries in-house
- Managed services: Outsource payroll technology and processing to a vendor, and continue answering employee inquiries in-house
- Business process outsourcing: Outsource the full payroll function (also known as comprehensive outsourcing or BPO)
There are many benefits achieved as an organization moves from a technology-only level of service to a managed services model. The purpose of this article is to provide considerations for how many payroll full time equivalents (FTEs) a company might expect to retain in a future state once it has outsourced more payroll administrative activities.
Once an organization has decided to move from an in-house or technology-only model to a managed services model for payroll, ADP's Business Transformation Practice (BTP) team is often asked for guidance related to how many staff a company should retain for payroll activities post outsourcing (e.g., the size of the "payroll retained team.")
How to estimate the number of payroll FTEs needed in the future state
Moving from an in-house or technology-only model for payroll to a managed service model means that the third-party vendor assumes more payroll activities for the client, and therefore the level of in-house payroll FTE and the corresponding labor cost required by the company decreases. Various market benchmarking studies—for example, the latest Deloitte study for large enterprises—provide reference points about the number of payroll FTE per employee (e.g., payroll productivity) that survey participants report.
It is also important when referencing benchmarks to have an "apples to apples" comparison, so that you try to ensure that the number of payroll FTEs you are comparing against the benchmark is for essentially the same activities of work performed.
ADP's BTP team has developed a methodology to estimate the number of payroll FTE per employee range needed in the future state. The BTP begins with the head count in each country, leverages market benchmarks of payroll productivity, considers the current and future state level of service, and "adds back" time or FTE estimates based on complexity factors, such as country complexity, the number of pay frequencies, and the number of legal entities in each country.
For example, running payroll in a complex country such as France (which, according to several market studies, is considered the most complex country in which to run payroll), and having multiple legal entities in the country generally equates to increased complexity. Keep in mind that future-state staffing models for retained teams are not scientifically precise; they are estimates, so it's prudent to provide a range of estimated future state staffing.
Other considerations that will factor into how many payroll staff a company will need in the future state, in addition to the above:
Industry-specific
Some industries may have specific factors due to the nature of that industry that make payroll processing more difficult, thus requiring more people to process payroll.
Company-specific
If a company has a highly complex workforce, requiring complicated payroll, it may require more FTEs to process payroll than other companies.
Number of payroll providers and platforms
Companies that have multiple, disparate payroll providers and platforms across the enterprise will likely require more payroll FTE in total to process payroll, as the payroll teams have to be knowledgeable of and run different processes, monitor a variety of service level agreements and track independent key performance indicators.
Decentralized versus centralized service delivery model
If a company has strategically (or organically) elected to run payroll in a decentralized fashion across the enterprise (e.g., multiple, duplicate teams catering to the local population), then in total, the company will likely require more payroll FTEs.
Level of automation
The more manual processes that a company has in its payroll processing, the more people it will likely need.. Automation encompasses integrations between systems (e.g., payroll, HR, time and attendance) to prevent teams from having to spend time re-keying and/or reconciling data across systems. It also factors in the extent of employee and manager self-service, which typically reduces questions and redirects some tasks from the payroll teams back to the employee.
Level of documentation and standardization of processes
The less documented and standardized the payroll processes are, the more FTE the company will likely need on the team to process payroll.
Clear roles and responsibilities
Are payroll staff building expertise and capabilities in different areas with clear roles and responsibilities, or is "everyone doing everything?" If there is a lack of dedicated process ownership for the various pieces of payroll, and "everyone is doing everything," it is likely that switching costs and staff may not be as efficient as possible, thus requiring more people to do the work.
Implications for the company
A company's decision to outsource more of its payroll activities in the future state may have one or more of the following implications:
- Payroll in-house staff have time freed up for more value-added activities, such as business partnering, internal customer service, process improvement and analytics.
- As the company grows or as payroll professionals retire, it does not need to add payroll staff.
- The company decides to reallocate payroll staff to other in-demand activities or work.
- The company determines it needs to reduce the number of in-house payroll staff on the payroll team.
It is essential to remember that once a company has outsourced a significant portion of its payroll tasks, there is typically a period of transition and a change curve until the organization reaches its targeted efficiency levels.
A strong change management plan and clearly defined roles and responsibilities between the company and vendor are key to achieving the best results in the future state. And people, regardless of role, are not machines. They need time to socialize, network and collaborate; have bio and meal breaks; engage in continuous learning and so on. Don't forget to factor these considerations into your future-state staffing estimates.
Reskilling and upskilling are also considerations. Is it possible for payroll staff to be trained in the new skills of the future? Payroll skills are high in demand, and ADP's research has found that 81% of its survey respondents are upskilling payroll staff and changing how they work. Skills of the future payroll team include technology, analytics, process improvement and strategic planning. Similar to many HR functions, payroll is evolving to become a strategic organization the provides decision support and business intelligence to its internal stakeholders, leveraging future-ready skills along with strategic outsourcing and digital transformation.
Similarly, many organizations are considering internal mobility and skills-based approaches for talent and filling open roles. As a company evaluates its payroll staffing for the future, consider whether staff can be reallocated to where they are most needed within the organization. Payroll team members may possess a range of adaptable or adjacent skills, such as finance and accounting, HRIS, and data visualization skills, that can be leveraged across the company.
It is also prudent to reflect upon the long-term horizon as the company continues to evolve. It would be unfortunate to make a change to payroll staffing in the short term and then be forced to backtrack later if the ramifications weren't fully explored.
Conclusion
While there is no single "right" answer in terms of how many FTE companies' payroll teams will require in a future-state scenario, there are benchmarks that provide reference points and guidelines to consider in making that individual determination for your company. Conversations about staffing are highly personal ones for companies, with implications that can significantly impact people's livelihoods. Never forget the human aspect and impact of staffing and structure decisions and approach these decisions with empathy and as much transparency as possible.
Companies should fully explore change management and communication considerations in staffing decisions and approach these decisions with the strategic horizon in mind. At the end of the day, companies succeed or fail in large part based on the knowledge and power of their human capital, so ensuring you have the proper structure, staffing levels and skills on your payroll team both now and in the future is essential.
ADP offers global payroll and HR solutions for mid-size and large companies that unify your worldwide data and offer powerful administrative and analytics features. Learn more about what they can do for you.
