Medium and large companies usually get to a point when there is a need to outsource payroll tasks or to re-evaluate already outsourced processes.
When it is justified to outsource the payroll processes to an external service provider?
+ In case of missing competencies within the organization or increased need for more serious expert support.
+ In case the headcount grows above 100 employees and the company becomes a Social Security Pay Office.
+ Due to market conditions, fluctuation.
+ Due to quality issues with the current service provider
+ For optimizing costs
+ To eliminate risks and separate liabilities.
+ Due to regional decision.
+ Due to internal purchase policy which says that the market must be investigated in every 1 or 2 years.
+ For process and technology development purposes, which can result in a more cost-effective solution in case using the licenses of an outsourced payroll service provider.
+ Or as part of the BCP plan, because we feel more confident if the management of HR and payroll processes are in the hands of a complete team of experts rather than rely on our payroll accountant clerk without replacement.
What are the most important points which should be considered regarding payroll RFP? Download the RFP checklist and read on for the details.
How to prepare an RFQ for a payroll tender? What is the basis for choosing a payroll provider?
The selection of the right payroll service provider and the development of really effective cooperation starts with the carefully prepared tender. It is important to think through the tasks and explain the expectations in detail, so the applications will be comparable.
Based on the experiences of the last 10 years, we have collected the most important points which should be considered and shared with the participants during a payroll tender.
As a starting step – and this is our tip nr 0. -, it is definitely important to gather all the stakeholders within the company whose field may be involved in the process and discuss the needs and opportunities together. Examples include HR, IT, and finance.
1. What are the exact payroll and HR administration tasks that we would like to outsource?
The range of tasks to be outsourced is highly depends on the available resources and competencies within the company. At least the company will need 1 dedicated person (like HR manager, finance manager, or HR administrator) in-house who will be the daily contact for the payroll provider. This person will collect the payroll information and documents, manage the employee declarations, and gather the questions from the employees.
If the company does not have the appropriate resources or competence, it is advisable to request a quote for labor and HR administration tasks as well, with special emphasis on whether these tasks are to be performed on-site at the company’s seat. If we can also estimate how often the on-site presence will be required, it is worth providing information about this as well. Payroll outsourcing providers are generally able to provide more favorable hourly rates if the on-site service is predictable, regular, and required for a longer-term.
2. HR reporting – What information and how often do we need from the payroll?
The frequency, the required content, and the form of the HR reports (including payroll results, employee master data, tendencies, and changes) have a big effect on the pricing, the implementation plan, and the agreed deadlines. It makes a difference if you simply work with standard reports available in the payroll system, or require complex, customized HR reports, or you may need to generate BI reports that are displayed in real-time and in a user-friendly way. The level of automatism of booking payroll transactions and requirements related to the GL files should be defined as well, therefore it worth including already in the RFQ the name of the accounting software and the required GL file format description.
3. System environment and expectations – Technological opportunities, payroll process development
It is important to review the currently used payroll software and the digital maturity of the company. What is the integration level of the systems? What system integration do I expect after outsourcing?
We suggest no to sticking to the current payroll software at all costs. Moreover, we prefer to seize the opportunity and see outsourcing or, where appropriate, change of providers as an opportunity for process development, efficiency improvement, and digitization. Always ask potential service providers about their technology solutions!
The more we describe our current system environment and the degree of integrations, the more we put a tool in the hands of the service provider to develop the optimal software architecture and service model, thus providing the most accurate quotation during the tender.
Regarding system requirements the following information worth to be included in the RFQ:
+ Currently used the system and its ownership structure.
+ To which system should this system be connected?
+ Do you need T&A or cafeteria system? Be sure to specify your expectations for the system and be open to alternative solutions! (Indicate if you optionally request a proposal for a different system than the current one, so you can compare the cost implications of both solutions.)
+ Is there a need for digital document management (DMS – Document Management System) and digital HR/payroll workflow management system (ECMS – Enterprise Content Management System)?
+ Where are employee master data primarily maintained? (Does it happen in the payroll system or in an ERP?) This has a significant effect on system connections and interfaces.
+ Please also indicate if you use an internal system, own development!
4. GDPR – it is recommended to highlight the requirements in connection with a GDPR proof communication channel. If our internal policies specify the functional requirements related to it, it is advisable to list them in the RFQ. Ask the service providers how they ensure that GDPR requirements are met.
5. Expected go-live date and parallel payroll run
If the change of service provider is tied to a deadline, we will definitely need to communicate the expected “go live” date!
The length of the implementation is highly influenced by the already mentioned special reporting needs, data migration, and system parameterization issues. Based on our experience, the selection process often takes a long time, so it is advisable to start the process in time.
In the event that we are not tied to a deadline, it may still be useful to request for a schedule to get an idea of the provider’s readiness and understanding of the processes, whether they have any alternative solutions for the service model and software environment.
However, always keep in mind that in the case of a complex structure, the takeover and design of the processes can be a time-consuming task, do not base your decision solely on the attractively short implementation time promised by the service provider!
It’s not sure that the proposal of the service provider promising the fastest implementation is the best.
Parallel payroll run – it is relatively rare that processing a parallel payroll run is indeed justified. Such a case can be, for example, when a larger company makes a mid-year change, needs special BI reporting, process automation, and the development of interfaces and APIs.
The aim of this process is to build in a checkpoint in the implementation process, see if the parameters of the payroll system are set up correctly, and interfaces are running smoothly, the communication channels are working as expected and the accounting and payroll reports are prepared with the pre-defined content and structure.
However, it must be taken into account that this is double work for the client as well, because information, input, and workflows need to be operated with both the current and the new service provider.
6. Pricing needs
In order to get comparable offers, insist on transaction-based pricing. For this reason, it worth including in the RFQ some details regarding the number of the transactions, like headcount data, fluctuation, special payroll methods, number of social security payments per month, number of temporary workers. For this latter one always ask for a separate price, because the service provider has less work with temporary staff.
If there are still hourly rate items in the offer, we can ask for a theoretical fee calculation, which will make these items more understandable and predictable.
7. Contracting needs
As a customer, you may insist on signing your own terms and conditions. This can be a very important factor for the service provider, let’s indicate this at the latest during the 2nd round negotiations!
8. Archiving/document storage – You may not be able to store larger amounts of paper-based documents in the company’s office. If this is necessary, we must include the storage of the documents also in the RFQ!
9. IT policy – Indicate if special IT certification – like ISO 27001 – is requested from the service provider. Ask for the existence of the provider’s IT policy, data security solutions, and BCP plan.
10. Consultancy services – Indicate in the RFQ if above the payroll and HR administration tasks also labour or tax consultancy is needed from the provider. This is important because not all service providers undertake such tasks, and if this becomes apparent at a later stage, it may be necessary to involve another service provider, which may result in additional costs for the company.
It is worthwhile to look carefully at what some service providers mean by consultancy, what are the limits of basic “client care” services and what is charged on an hourly rate. Unfortunately, in addition to basic payroll tasks, many providers define even the interpretation of changing legislation and the provision of informative details to support/increase decision-making as an extra service, although this should be the most natural part of HR and payroll outsourcing services.
+1 Be sure to ask the service provider for a declaration about professional liability insurance and its details!
To summarize the main points: always think through the requirements in detail and define them precisely during the preparation of the tender RFQ. If we take the time to do this, we will make the decision much easier, as we will be able to compare the proposals of the potential new service providers.
Another question is how to select potential payroll service providers to whom we send our call for tenders at all. We can also provide some practical ideas for this in our blog: Payroll Outsourcing in CEE // Things to consider.