Navigating payroll software end of life

13 September 2024

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When an organisation's payroll software reaches its end of life, it can be a daunting task to decide on the next steps. Yet, it presents a unique opportunity to not only upgrade the core payroll system but also to re-evaluate and optimise the payroll function and operating model including the impact to the overall Hire to Retire process. Organisations must carefully consider and weigh up their options to adopt a long term solution that is fit for purpose, will drive business success, is future focused and compliant.

Here, we outline three options in considering a new payroll software solution; implementing another solution from the existing technology provider, exploring new payroll technology with a different vendor, and considering a change to an outsourced or hybrid payroll model. Each alternative comes with its own set of pros and cons that can help organisations decide their future payroll model.

1. Implementing another solution from the same technology provider

Leveraging established relationships with an existing technology provider and opting for a different product can present a simpler option for employers by ensuring continuity, familiarity and a smoother transition.

Pros	Cons
Familiarity: Transitioning to another solution with the same provider can provide a more seamless experience as there is likely an established familiarity with the existing provider.	Limited innovation: Remaining with the same provider might mean missing out on innovative features that may be offered by other vendors.
Data migration: Having knowledge of an organisation’s data can enable the provider to offer streamlined data migration services, reducing the risk of data loss or errors.	Delivery model enhancements: Continuing with a status quo approach and simply opting for the existing vendor’s new solution may mean employers do not take the opportunity to re-evaluate and improve their payroll delivery model.
Support continuity: The ability to rely on the same customer support team can be highly beneficial if they have an established understanding of the organisation’s business needs. This can take time to replicate and replace if a new provider is being selected.	Compromised account management support: Long term/existing clients can be impacted by ‘sticky client syndrome’ whereby newer accounts/clients are given preference by a vendor as they look to attract and retain them.

2. Moving to a new payroll technology provider

Opting to change an existing vendor can no doubt present some challenges, and with this comes the opportunity to review the status quo such as removing legacy practices that have otherwise been difficult to overcome. It is important to conduct a detailed assessment of the new technology to determine if it can meet the requirements of the organisation. Too often organisations may adopt technologies without sufficient due diligence and find they have to maintain or develop manual work around processes to continue paying employees accurately.

Pros	Cons
Innovation: New payroll technologies often come with advanced features such as better user interfaces to existing hire-to-retire technology and finance systems, data analytics capabilities, AI enabled solutions and improved compliance tools.	Learning curve: Adopting a new system can require significant training and adjustment for your payroll team as well as your workforce more broadly.
Competitive pricing: Exploring new vendors can lead to more competitive pricing and better value for money.	Data migration risks: Migrating data to a new system can be complex and carries the risk of data loss or errors.
Customisation: New solutions may offer better customisation and self service options to fit an organisation’s specific business needs.	Implementation timeline: The need to engage multiple stakeholders, undertaking strong testing protocols and developing sufficient change management programs can make the implementation of a new solution more time consuming.

3. Considering outsourcing your payroll function

Depending on an organisation’s size and maturity, an alternative to managing payroll in-house may be to outsource processing to a third party provider. While an employer can never outsource the ownership of their data accuracy and compliance, enabling a provider to support the compliant processing, payment and regulatory reporting requirements can have its advantages.

Pros	Cons
Focus on core business: Outsourcing payroll allows the existing payroll team to focus on core business activities rather than administrative or transactional payroll activities.	Change in operational control: Outsourcing will likely lead to a change in the roles and responsibilities within a payroll function which some teams can find difficult to manage. For example, this may include changes to existing processes and a need for stricter processing times that organisations may not have been used to in the past.
Expertise: Outsourcing to providers who are experts in payroll and compliance can minimise the risk of errors and penalties and enable regulatory updates to be identified and implemented in a timely manner. This can be particularly attractive for organisations that run multi-country payrolls. Further, it can also remove concerns regarding point person dependency.	Cost: Some outsourced providers will have standard pricing which may not reflect the needs and size of an organisation’s payroll. It is important for organisations to assess the scope of services that are required of the outsourcing provider so that the scope, functionality and costs meet the needs of the organisation.
Scalability: Outsourcing can be more scalable (both up and down), easily accommodating business growth or changes in payroll complexity.	Data security: Sharing sensitive payroll data with a third party can raise concerns about data security and confidentiality. Any decision to proceed down this path should consider in detail the safeguards that can be put in place with your proposed provider to mitigate any potential risks that may arise.

Conclusion

The importance of paying employees accurately and on time is key to a company's employee value proposition so it is critical that any change to a payroll system is planned and executed carefully. With most companies, a payroll solution is an investment that is likely to be in place for more than 10 years. It is crucial to consider all options carefully to ensure that your future solution is fit for purpose and able to adapt and achieve longer term strategic objectives.

Key considerations for senior management to consider when transitioning payroll solutions include:

Payroll software end of life provides a unique opportunity to improve payroll delivery. Take the time to reflect and focus on areas where you can improve your future payroll operating model rather than purely lifting and shifting your existing delivery model. Let technology be an enabler for efficiency and compliance objectives.
When assessing a new payroll solution, a key focus will need to be on how it fits into the organisation's technology ecosystem with ease of integrations to Human Capital Management (HCM), Workforce Management Solutions and Finance Systems being paramount.
Get involved in the process. Don’t leave this transition to your IT and procurement teams who may have limited understanding of your needs. As future owners of the final solution it is important your expertise, requirements and perspectives are included during the RFP process.
Invest resources and time to complete the transition. It can take between 12-18 months to successfully transition to a new payroll solution. Ensure you are setting up an appropriately skilled project team to undertake the program, and include key business stakeholders on the transformation journey. This should include representatives from HR, Finance and IT. Understanding business requirements from all users that are involved in the payroll process is crucial in achieving the most optimal solution.
Consider the impact and change management requirements to support your employees through this process. Changes to delivery can be a significant disruption to how your employees operate day to day and need to be carefully managed to enable a successful implementation.

If you have any questions about any of the above, or if you would like to discuss support that may be required for your own payroll transformation journey, please reach out.