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How to calculate, assess and control the TCO of your payroll
Optimising your payroll process is no luxury in times of economic turmoil. The first step: mapping out the total cost of ownership (TCO) of your payroll. This allows you to make good use of your resources, lend focused support to your team, streamline your operations and generate transparency in complex times. So, what exactly is the TCO of your payroll? Is there room for improvement? And if so, what can you do? Let us help you answer these questions.
Calculating the TCO of your payroll process
How much is your payroll costing you? Sounds easy enough, but it usually isn’t. The TCO comprises all direct and indirect, one-off and recurrent costs of the process. For example, there are plenty of hidden costs, such as system maintenance and indirect labour. A PwC study shows that these costs sometimes represent more than 50% of TCO. In other words, you might be spending more than you think.
To help you master this complex calculation, we’ve selected the key payroll stages:
For every stage, you should map out what you do and how. Don’t forget to include actions that occur outside of your department and also factor in (in)direct system costs.
- Data gathering – Including earnings, deductions, absences, bonuses, compensations, etc.
- Data interpretation – The data often needs to be interpreted and/or checked.
- Data entry – Entering the data into 1 or multiple systems, manually or automated.
- Processing & execution – Performing and processing the actual pay calculations.
- Output – Documents for employees, management and the company.
- Expert payroll processes – Non-monthly tasks, such as holiday pays and end-of-year bonuses.
- Support payroll processes – From maintaining the system(s) to legal support.
Assessing the TCO of your payroll process
This means establishing the added value of your payroll, its quality. To do this, 4 elements are essential. All these aspects need thorough screening. Examples include the ability to quickly respond to the latest changes in laws and regulations, keeping up with technological developments, having adequate back-up for your payroll staff, continuous training, efficient software packages, etc.
Knowing both the costs and quality of your know-how, processes, systems and people at every step of the payroll process, gives you a solid basis for assessment:
Whatever the outcome, it always offers you the opportunity to engage in an open dialogue with your stakeholders. Moreover, a qualified cost-quality picture underscores your current efficiency performance and it draws attention to the opportunities for improvement – which you are clearly anticipating.
Controlling the TCO of your payroll
The third and final phase includes decisions. Is it best for you to administer your payroll process yourself or do you outsource (part of) it? By calculating and benchmarking the payroll process, you now have the required fundamentals to make a business case for outsourcing and to compare it against your own cost-quality model.
When weighing your options, remember that a competent payroll provider can, among other things, offer you these compelling arguments:
- Continuity: staffing shortages and a lack of appropriate profiles are a thing of the past.
- Legal compliance: new regulations and obligations are automatically met.
- Efficiency: your systems and processes get automated, reducing the chance of errors.
- Strategic value: outsourcing your payroll means more time for your core duties.