Payroll’s great cloud migration

SMEs are rushing to outsource payroll services in order to become more focused and productive, and ultimately more prosperous. Kevin Kevany has been scanning the payroll horizon for other new trends and developments too.

The Christmas just past was another ‘season to be jolly’ for most of us. But for those in New Zealand’s (and we should probably make that Australasia’s) highly-competitive payroll industry, most of the companies we interviewed were busy adding two or three new customers each working day, while many were ‘kicking back’ after another tough year.

Comments like “it’s high season,” “the best in a long while”, “I’m sorry, but I’m just too busy to talk right now”, flowed from the red-hot mobiles of the senior executives late in 2011 sensing “the best year-end market in a while”.

The consensus is that SMEs, in particular, are increasingly recognising that they have no option in the current low-growth economy but to become more focused and productive if they are to succeed. And with the high levels of customer service and competitive pricing being facilitated by smarter and smarter technology and software available to the payroll sector, “this is the moment to outsource time and resource distractions like payrolls, and be ready to hit 2012 running,” according to one highly-pressured executive.

The outsourcing of payrolls to a multitude of companies offering a permutation of ‘off-the-peg’ solutions, SaaS and ‘cloud-based’ services has been a major feature of the last decade, as one person’s drudgery became others’ golden opportunity to provide a service which just keeps on growing.

Speaking at a staff celebration at a Taupo resort to celebrate the tenth birthday of New Zealand-owned online payroll provider, iPayroll Ltd, MD and online industry pioneer Martin Gleeson recalled that when he and co-founder Cary Thomson launched the company back in 2001, Amazon, Internet banking and services such as Trade Me and eBay were in their infancy.

“We’ve seen a lot of action in our first ten years as we’ve had to keep innovating and delivering to stay ahead of the curve,” says Gleeson. “As more and more businesses migrate to the ‘cloud’ we have been well-positioned to take advantage of that business model’s development.”

He also drew attention and “took pride in the fact” that ten people, a third of iPayroll’s current employees, had been with the company from the get-go.

“I believe that must be some sort of record for the industry and I would like to think it is a reflection of the dynamism and the solid client relationships we have enjoyed over the period too. That was a highlight for me, as I don’t think many companies in the IT services industry could match that achievement,” Gleeson says, noting they are processing “upwards of $1.5 billion per year”.

“That and the fact that we continue to be the country’s largest PAYE intermediary, with over $6.5 billion in client payrolls processed to date. On the back of that, we decided the time was right to open an office in Melbourne. CloudPayroll Pty Ltd is a fully-owned Australian subsidiary of iPayroll Ltd and has been trading since June.

“In truth, we jumped the gun a little bit, quietly establishing our Australian base earlier this year, so that we could ensure it was up and running successfully by our tenth birthday. I’m particularly pleased to say we already have clients in all the Australian states, and a staff of four, trained in our systems and culture,” says Gleeson.

Interestingly, the company was not intimidated by the move to ‘cross the ditch’.
“Being conservative in our approach in whatever we do, we researched the market thoroughly and found iPayroll was a good four-to-five years ahead of the market, so we’ve slipped in without fuss or raising our profile. Obviously we’ve still got a long way to go before we can say we’ve cracked it,” Gleeson says.

Competitive pricing

The consolidation of ‘cloud’ computing has caused others in the industry to challenge for a piece of the Aussie pie too. And that’s largely good news for local SMEs, with suppliers sharpening their pricing pencils.

Privately-owned iDt Limited, with offices in Auckland, Sydney, Melbourne and Brisbane and employing over 50 staff, describes itself as ‘a leading Australasian provider of time and attendance solutions’ following its acquisition of Australian competitor Bio Recognition Systems (BRS).

“We’ve had our own development team for a long time now,” says MD Geoff Burnett. “However the IP and existing code which came as part of the acquisition will provide a significant leap forward in that we will be able to bring a number of innovations to both the local and Australian markets in the coming months.
“We will be putting major effort into not only bringing new solutions to market, but also changing the way they are delivered,” says Burnett on their plans for ‘cloud-based’ solutions.

2012 challenges

Other than the cost and efficiency benefits which flow from the payroll industry’s move to be Australasian and ‘cloud-based’, what else can local SME owner/managers look forward to in 2012?

MYOB general manager Julian Smith, as you’d expect, is right up with the play. “While 2011 did not see as many significant changes, businesses are still managing regular updates to legislation which have an impact on pay rates and compliance.
“In 2012 several key changes to KiwiSaver established in the 2011 Budget will come into effect, including the removal of the employer superannuation contribution tax (ESCT) exemption threshold, which employers will need to manage.”

The Budget also introduced changes to student loans, including new tax codes and reporting requirements. Employers and employees will have to go through the learning curve and management of student loan repayments based on pay period values, rather than an annual income – this according to PayGlobal COO Stephen Canning. “Groups likely to be affected will be students with student loans working during their holidays and employees in the lower income brackets with more than one job.”

“Paying staff correctly is one of the most important measures for any business, and staff will quickly become dissatisfied – as potentially will the IRD – if their pays are inaccurate or running late. The two key measures of the effectiveness of a payroll system are the time it takes and accuracy,” says MYOB’s Smith.

“Whether businesses elect to manage their payroll in-house or outsource – as is becoming increasingly popular – is a matter of resourcing and control. If SMEs don’t have the experience or time to manage a payroll, then an outsourced bureau can be worth considering. There are a large number of specialist bureau services and accounting practices providing payroll services – often using MYOB Payroll to support their systems,” says Smith, adding that more than two million New Zealand IRD tax returns are filed annually using MYOB.

He believes the big plus of an MYOB solution beyond “its powerful features and ease of use” is that it can take customers from a simple entry payroll through to an enterprise solution. This allows customers to expand their staff numbers or increase the complexity of their pay system, while being supported by an MYOB solution – right through the lifecycle of the business.

In terms of recent developments, we have recently seen the innovation of the Payslip Kiosk, empowering employees to manage their own affairs, and Payroll Giving – a free service for clients and their employees, providing immediate tax credits for employees for donations to 24 registered charities.

So what else is ‘in the works’ or an emerging trend?

Well, extracting more value from your system is perhaps the big one.
Evan Lyon, director of Keylink Payroll Services has been in the payroll business for as long as he can remember.

"This business is really all about the service and backup you provide. At all times, we aim to be ‘0800 Fix me up’; not ‘0800 P…me off’.

“Customers are looking to get more value from their payroll system. One way of doing this is to use the payroll to generate job and/or cost centre ‘costing’ information – to help analyse profitability.

“To facilitate this, time needs to be recorded by employees against jobs and/or cost centres. This can be done by writing down time spent on job cards, or by the use of time clocks that allow employees to record the job they are clocking into when they arrive, and again when they change jobs during the day. The payroll system then processes this data to generate costing reports.

“Using your payroll system in this way can be a very cost-effective method of generating costing information and so allowing businesses to identify where improvement is required, and where time is being lost each day.

“We have offered this on our existing system, and it is very cost-effective in our new payroll system, far more so than deploying a standalone-solution,” says Lyon, noting that the Keylink system remains flexible enough to capture faxed information, which is ‘still very much in demand’.

Where to start?

With so many payroll platforms and options available, what is the best way for an SME to approach the market when considering an upgrade?

“Companies of all sizes need to consider their return on investment by asking how a solution will increase efficiency in their business”, says PayGlobal’s Stephen Canning.

“For example, how many staff carry out manual award interpretation that could be automated in a new system?

“Do you do still do manual timesheet entry and how long does this take – one FTE? Half an FTE? What does this salary equate to versus using a time capture device like a finger scanner or clock cards with an automatic T&A award interpreter?
“How many different awards does your organisation have and are they compliant? And how much wage slippage occurs annually such as overpayments? Could these be reduced with a different system?”

Canning says it’s important to identify your top three areas for process improvements, cost savings and risk mitigation (think business continuity). “Do not select a payroll and workforce management solution based on cost alone. Look at the value that can be added by optimising internal processes and reducing cost and errors. Look at the value that can be found in your payroll and HR data through analytics and business intelligence. Good decisions are made from good quality information.

“Consider your future needs as well as current needs – for example, hosted solutions instead of infrastructure in-house and future markets for your business. You might be expanding into Australia, so perhaps chose a system that is compliant in both countries.”

Evaluate the provider, suggests Canning. Are they reliable and trusted? Do they have strong relationships with payroll professional bodies and government departments and are they used by businesses in your industry?
“Ask for customer reference sites that you can speak to and have a checklist of areas that are important by rank. Not every solution can do everything,” says Canning.

Behind the times?

Attache’s MD, Mike Rich is co-author of the ‘Business Improvement Guide’, which contains 700 tactics to improve your business. The Payroll Efficiency section has more than 140 tactics.

“New Zealand is, I believe, behind the times when it comes to medium-sized-business payrolls (typically $1 million to $50 million annual sales and the biggest future growth and employer sector in the economy).

“The trend elsewhere in this space is to all-in-one systems where financial software – debtors, stock, etc – also includes CRM, dashboards, business intelligence etc, plus payroll in one totally integrated system,” he says. “For example, our Attaché All-In-One.

“We charge a single licence fee; the product is quick and easy to master; ‘one price fits all’ irrespective of the number of employees, and while there is a place for third-party add-ons, that should only be in specialist areas like rostering, electronic time clocks, etc.”

Rich is disappointed that “many of the better New Zealand payroll companies still charge by the number of employees.”

A final thought from Rich: “One of the greatest benefits of intelligent business systems is that staff become more productive, because they have tools which make their job easier, faster and most importantly, more enjoyable.

“This helps increase revenue per employee through increased productivity and improved customer satisfaction.”

Kevin Kevany is an Auckland-based freelance writer. Email kevwrite@xtra.co.nz.

Source http://www.nzbusiness.co.nz/afa.asp?idWebPage=13579&idAdrenalin_Articles=1585&SID=667346895