How three companies merged HR and payroll - Small, Medium,
Large - human resources, Ceridian Corp., AnnuityNet Inc.,
Todhunter International
Workforce, Jan, 2002 by Sarah Fister Gale
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The decision to integrate HRMS and payroll into a single system is a
no-brainer, says Mike Hanson, general manager of Ceridian, an HR
information services company in Minneapolis. To begin with, HRMS and
payroll have a lot of duplicate data, such as employment status,
compensation rates, benefits, and earnings history. "The two
databases are never in sync and are error-prone," he says. "It doesn't
take long for things to get out of whack."
An integrated system dramatically reduces errors because it
streamlines employee information into a single database. That means
that once a piece of information is in the system, it flows to all the
relevant fields. If, for example, you update an employee's address in
his personnel file, it is automatically updated in payroll.
Integrating HRMS and payroll also reduces the number of hours spent
on administrative tasks. With two systems, there are two people
entering the same information, Hanson says. In an integrated system,
you can design the workflow process so that a single person manages
all the data.
Integration isn't, however, a flawless solution. It can create new
problems, says George Eckhert, principal of Consulting Dimensions
Inc., an HR consulting firm in Ontario, Canada. "Compared to an
integrated HRIS, separate payroll and HR systems are simpler, use
less computer capacity, and are easier to administer."
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Even though payroll and HR systems have much common data, their
business characteristics are quite different, he adds. The primary goal
of payroll is to accurately and economically pay employees. The
HRMS's purpose is to manage the workforce and increase the return
on HR expenditures.
"Management's objective should be to make the HR system as
effective, powerful, and easy-to-use as is justifiable," he says, "but
there's no benefit to investing in a flashy payroll application." He also
warns that because payroll is such a critical function, the bulk of the
integration resources often gets funneled to the payroll application,
leaving HR with meager funding.
But even Eckhert admits that if it's done correctly and for the right
reasons, integration can be the right solution. If you do decide to
physically blend the two systems, first make sure the processes are
compatible, he says. "Someone must understand and document how
payroll and HR applications interact conceptually in order for them to
be implemented as one information system." That means that data
elements such as job codes and employee numbers have to be the
same in both systems.
You also have to determine the accuracy of your existing history,
Hanson adds. If your data is error ridden, you may want to leave the
legacy system and build a new database from scratch. And don't just
replicate the old processes, he says. Build new ones that are tailored
to your needs, "This is a perfect chance to build a better system."
When Rhonda Delph started working at AnnuityNet in 1997, it was just
her and founder Shane Chalke. They outsourced payroll, and Delph
handled all of the HR issues on paper herself. "It worked fine in the
beginning," she says, "but as the company grew, we needed an HR
system."
In 2001 they planned to buy an HR software application and continue
to outsource payroll, but their relationship with the payroll company
wasn't going well. There were frequent errors, some of which resulted
in tax penalties, she says. The payroll company also had originally
promised to provide AnnuityNet with Web access to payroll reports,
but it never launched its Internet platform. "It was a very manual
process. We weren't getting the service that we were paying for."
She realized that it made more sense to bring HR and payroll together
into one system. So in June of 2001, AnnuityNet installed an
integrated HRMS and payroll software package from Ceridian, which
immediately started saving them money.
By bringing payroll in-house, Delph eliminated a $30,000 expense
from the annual budget, which amounted to 1 percent of payroll.
AnnuityNet pays a monthly fee to Ceridian for each of its 60
employees plus processing fees, but the cost is insignificant compared
to the savings of bringing payroll in-house, she says. And the cost of
bringing in the new system was minimal. "The savings was so
significant it paid for itself in days."
Now Delph manages all of the employee files online. She can process
and submit payroll reports in hours instead of days. While she opted to
keep open enrollment off-line to create "a paper trail," employees can
access their data online and make updates, such as address changes,
reducing her administrative tasks.
"It's the kind of system the employees had been promised with the old
company but never given" she says. Even though it's added some
responsibilities to Delph's role, because she handles payroll herself
now, in many ways it's made her job easier. Once data has been
entered, it flows through the whole system, so she doesn't have to
make multiple updates of the same information. She can also print
reports instantly and verify that bills are accurate against her own
data.
The result is a virtually error-free process, she says. "It's very userfriendly, and it's a great service for our employees."
In 1998, Todhunter International realized it had to update its highly
customized payroll software because it wasn't Y2K compliant. "At that
point, we were faced with a decision," says Terry Carr, vice president
of administration. "We could convert the old software application or go
with an entirely new system." Because the legacy payroll system
wasn't giving Todhunter all that it wanted, Carr's team decided it was
time for a change.
At that time, Todhunter had no formal HR software in place. The
company used Excel spreadsheets and Microsoft Word documents to
manage employee information. "There were a lot of islands of data,"
he says. They decided it made sense to invest in a fully integrated HR
and payroll system. "We needed a complete overhaul."
In January 1999, the firm implemented Best Software's Abra HR.
Payroll, Training, and Attendance programs. The initial installation
focused on the payroll application. It was critical that it be up and
running before the end of the year in case there were Y2K problems,
Carr says. Within seven months, payroll was running and they had a
half year of payroll history in the database. "The implementation went
very smoothly and people absorbed it quickly."
One of the highlight features of the new payroll system is Unitime, an
automated time attendance program tied to the distillery's time clocks.
Previously, payroll administrators had gathered the time cards once a
week and entered the hours manually, calculating the total time for
each of the 300 hourly workers in order to process their weekly
paychecks. Now, Unitime electronically transmits that data twice daily
to the payroll system. No input is required.
"The data is a lot cleaner and it's more meaningful," Carr says. Checks
are produced and signed within the system, and payroll is processed in
a couple of hours. As a result, Todhunter was able to reduce its payroll
department from two people to a half-time person.
The new system saved additional money by eliminating time-card
errors and rounding. "When the data was entered manually, we
rounded up to the nearest hour," Carr says. "The new system pays
actual time. That saved a ton of money."
Toward the end of 1999, they started to build the HR databases, using
only one HR person and two temps. "It took a while. The burden on
them was extensive," he says. They re-created all the HR data related
to payroll, such as 401(k) and benefits information, then built
specialized fields, for information such as job titles and skill levels, and
began developing the training elements.
Although the HR system is still a work in progress, it is already causing
a stir at Todhunter. "We have information that we never had before
right at our fingertips," Carr says. Data on absenteeism, labor turnover
rates, and vacation time is helping the company plan for the future
and create a more positive work atmosphere for employees.
In the mid-1990s, GKN Automotive decided it wanted to become the
employer of choice in the automotive industry. "To do that, we needed
the technology to empower employees," says Ted Bishop, project
manager for HR applications. "Being a state-of-the-art company is a
valuable tool in the recruiting process."
At the time, GKN's payroll process was "a flat file system" that relied
on basic data entry to process paychecks every week, and there were
no HR applications. GKN's three dozen HR employees were
decentralized, all of them creating distinct HR processes for their own
regions.
"We needed to change HR from an administrative collection of data to
a proactive business-development process that would give employees
the tools to manage their careers," Bishop says.
In late 1994, he gathered representatives from all departments to
create a document outlining the functions that every department
wanted the new system to perform. They created an extensive
questionnaire and then began evaluating vendors. After a lengthy
review process, which took years to complete, GKN signed with
PeopleSoft in March 1998--on the condition that the system be up and
running by January of 1999.
"Five months was an aggressive target," Bishop says. "A lot of people
didn't think we could do it."
But they needed the system in place in order to be sure they had a
year's worth of data before Y2K. A small in-house team of only five
people, working with a third-party company, accomplished the task
just in time, even though two upgrades were made during the
implementation to accommodate new versions of the software. "There
were a lot of long nights, seven days a week," he says. "We all missed
Christmas that year?
Once the system was up and running, GKN was able to dramatically
reduce manpower. The payroll department was streamlined from three
sites to one, reducing the staff by half. The HR team was also
centralized and reduced by 20 percent.
"It changed the role of HR," Bishop says. "It's no longer an
administrative job. We've refocused our energy on planning for the
future."
That was just the beginning. A year and a half after the new integrated
system went live, PeopleSoft launched a Web-based version of the
tool. Going against its usually cautious nature, GKN agreed to be the
first prerelease customer for the new application.
"We saw the limitations of the version we had installed. Not all of the
functions we wanted were available to empower employees," Bishop
says. He had been considering customizing the system in-house when
PeopleSoft approached him. "It was a bold decision, but putting the
system online would give employees the functionality they needed."
After a great deal of debate, GKN decided that because the financial
implications were so appealing, working with PeopleSoft as a beta
customer was the best choice. "Customizing would have been a huge
expense," he says. "And we didn't want to wait two years for
PeopleSoft's Web version to be fully tested and available on the
general market."
To sweeten the deal, PeopleSoft gave GKN reduced rates and topnotch support. Within a similarly aggressive time frame, PeopleSoft
got GKN's payroll online and active in 40 days so that it would have a
live customer for its October 2000 user conference.
The transition was a success. There were no real technical issues,
GKN's fall open enrollment went off without a hitch, and the
employees liked it. "The Web version put a lot of access and control in
their hands," Bishop says. For example, employees can view payroll as
soon as it's done, so they don't have to wait to see how much they'll
be paid, and managers have employee information at their fingertips.
"It's made us all more productive."
RELATED ARTICLE: SMALL COMPANY
Integrated System Paid for Itself in Days
Name: AnnuityNet
Location: Leesburg, Virginia
Type of organization: Provider of Web-based technology solutions for
the annuity industry
Number of employees: 60
MEDIUM COMPANY
Payroll Department Reduced by 75 Percent
Name: Todhunter International
Headquarters: West Palm Beach, Florida
Type of organization: Alcohol producer and contract bottler
Number of employees: 400
LARGE COMPANY
Empowering Employees Online
Name: GKN Automotive
Headquarters (U.S.): Roxboro, North Carolina
Type of organization: Supplier of components and systems to auto
manufacturers
Number of employees: 2,500
COPYRIGHT 2002 ACC Communications Inc.
COPYRIGHT 2002 Gale Group