In-house payroll costs soaring

26th April 2010

Businesses that use in-house software to manage and run their employee payroll are spending an average of £85,000 on set-up costs, maintenance charges and administration time, as well as hidden costs such as IT support, according to research by ADP, the provider of outsourced HR and payroll services. The study has found that these costs could be almost halved through the use of SaaS (Software as a Service) systems.

The research, which questioned 100 HR and finance professionals with responsibility for the payroll function, found that the costs of maintaining in-house payroll software can quickly mount up. For example, respondents were found to pay an average of over £7,000 a year in license charges, with some companies paying up to £21,250.

Plus there are many hidden and indirect costs to consider. Respondents said that their IT department spends between one and three days a month maintaining and upgrading the system, at a cost of around £8,000 per year. Meanwhile, with in-house software the payroll department itself is spending many hours on unnecessary administration, with the collection and collation of payroll data, payroll processing and variable data entry taking up the most time.

These activities could be streamlined through web-based systems, saving the equivalent of nearly £24,000 a year and respondents said that by freeing up this time, they could catch up on their workload (20%), focus on their HR and finance responsibilities (18%) as well as check and streamline their payroll processes (18%).

Surprisingly, a fifth (20%) were unable to say what they paid for their payroll software at all, with one in ten (11%) unable to say what their annual license charge is. This suggests that many businesses could be paying much more than they should be, with absolutely no awareness of the potential savings that could be made.

Don McGuire, Managing Director, ADP UK, said: “Payroll is usually only visible to an organisation when something goes wrong. As a result, companies often neglect analysing and tracking payroll efficiency, or looking at the cost and value for money of the technology they are using. This can mean that they are paying too much, or failing to see where efficiency savings can be made.

“But our research shows that those organisations using in-house payroll software rather than a more modern SaaS system, could be throwing thousands of pounds down the drain in unnecessary costs and inefficiencies. Payroll is one area where significant short and long term savings can be made and in the current climate, this shouldn’t be ignored.”