Total payroll, HR admin costs underestimated by 40 per cent

Balance of costs hidden within organization: Survey
||Last Updated: 03/27/2012

Canadian businesses are underestimating their total payroll and HR administration costs by more than 40 per cent, according to a PricewaterhouseCoopers (PwC) study done in collaboration with ADP Canada.

In looking at the total cost of ownership of four core business functions — payroll, time and attendance management, HR data administration, and health and benefits administration — only 37 per cent of the costs to perform business processing are accounted for by business owners, with the balance hidden within their organization, found the study.

There are costs that are top of mind, such as system installation and direct labour cost, however, there are also hidden costs such as indirect labour and system maintenance, said Exposing the Hidden Costs of Payroll and HR Administration

"The costs associated with payroll and HR administration are like an iceberg, with businesses unaware of what lurks hidden beneath the surface," says David McIninch, vice-president of marketing at ADP Canada. "Tracking total costs, especially across functions, is difficult because related functions are often 'owned' by different departments in the organization including finance, HR and IT, and accounted for separately."

Accordingly, many organizations make decisions about technology and sourcing that work best for an individual function, not taking into account the potential synergies and savings that could be achieved with an enterprise-wide solution, said the study.

To gain a full picture of costs associated with business processing, organizations should consider the following:
•system installation and upgrade costs
•processing costs (direct and indirect labour, overhead, outsourcing)
•system maintenance fees.

Using a service provider to manage the payroll function costs 30 per cent less than performing those functions in-house, according to the survey of 125 employers. And those that move to a service provider for multiple functions see even better savings — up to 43 per cent less than in-house processing.

Initial implementation costs are three times higher when installing an in-house system when compared to using a service provider, said the study.

The study can be found at ADP.

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