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New York University: Payroll Assessment
New York University: Payroll Assessment
Payroll Assessment
Final Report
July 2009
Table of Contents
• Executive Summary
• Findings
• Opportunities
• Appendix
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Executive Summary
• Findings
– Current annual payroll operating cost of $4.7 million offers significant opportunity for
improvement
– Time & Labor process is completely manual
– HR/Payroll system is 30 years old and presents considerable risk of failure
• Recommendations
– Continue to run payroll as an insourced function
– Implement a Time & Labor solution
– Transition payroll into a true Service Center model and optimize payroll operations
– Reengineer key aspects of HR transaction processing to improve speed and efficiency of
transactions which affect payroll
• Financial impact
– Reduce steady state run cost by $2.1 million, a 45% reduction
– Payback: 2.3 years with an NPV of $18 million
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Executive Summary
The to-be Payroll environment at NYU will have the following characteristics:
– Building a fact base of current state data: operating costs, third party services and costs,
transaction types and volumes, service delivery structure, pay processing calendars,
technology applications, etc.
Assessment
Assessment of
of NYU
NYU relative
relative to
to peers
peers
On
On par
par
Lagging
Lagging some
some
Lagging
Lagging significantly
significantly
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Current Cost Structure
Most of the cost of Payroll is outside of the Payroll Unit… Almost 60% of the cost of Payroll is in IT and
the Schools/Units which must dedicate FTE to supporting Time and Labor tracking and Payroll
Facilities
Office Supply Cost 0.3% Other Cost
2.8% 0.2%
Equipment Cost
Shipping & Handling Cost 1.1%
4.3%
IT Labor
15.5%
Field Support (Schools &
Units) Labor
42.9%
Time and Labor - Labor
6.6%
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Cost of Payroll Operations
Significantly higher cost… NYU Payroll operations cost approximately five and a half times the average
payroll operations as measured by cost per check and cost per employee served. Over 50% of cost is driven
by the manual Time and Attendance system
Significantly lower efficiency… The average Payroll operation services approximately three and a half
times more employees per Payroll FTE than NYU. Almost 50% of the NYU payroll labor in this equation is
dedicated to supporting the manual Time and Attendance process
** Payments
Payments Processed
Processed metric
metric is
is skewed
skewed by
by the
the fact
fact that
that aa large
large portion
portion of
of NYUs
NYUs population
population is
is paid
paid monthly.
monthly. IfIf this
this population
population were
were paid
paid semi-monthly, the
NYU
NYU average
average would
would be
be about
about 7,700
7,700 per
per FTE
FTE (about
(about 1/3
1/3 as
as efficient
efficient as
as benchmark)
benchmark)
Copyright © 2009 Accenture All Rights Reserved. External Benchmark: American Payroll Association 12
Payroll Quality Metrics
Late HR Input negatively impacts Payroll: NYU issues over 11,000 off-cycle payments annually (Manual
and off-cycle). Off-cycle payments and retroactive adjustments cause rework for both the Payroll department
and the Payroll support personnel in the schools/units.
Off-Cycle Checks
Retroactive Pay Adjustment Rate
Direct Deposit
Time Error 2%
5% External Benchmark 1.2%
Late Time
6% Late HR NYU Average 6.3%
28%
Bonus
7%
Late HR Transactions by School/Unit
Check
Payroll Error 22%
17% What schools are the “best”
and “worst” performers?
Lowest % of late HR transactions: Courant, VP Public
Public Affairs,
Affairs, Silver,
Silver, General
General Counsel, FAS, School of Law, Tisch, Stern
Highest % of late HR transactions: Gallatin,
Gallatin, ISAW,
ISAW, Vice
Vice Provost
Provost Academic
Academic Affairs,
Affairs, Vice
Vice Provost
Provost Faculty
Faculty Affairs
Affairs
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NYU Operations
Where does Payroll Operations spend time? Manual processes cause NYU Payroll personnel to spend
more time than average managing key processes than average.
NYU 8.0%
Processing Payroll
Benchmark 5.8%
Benchmark
NYU
NYU 28.0%
Processing Time &
Attendance
Benchmark 5.8%
NYU
NYU 30.0%
Customer Service
Benchmark 22.5%
0.0% NYU
Training
NYU is spending the majority of Customer
2.0% Benchmark
Service time resolving errors and not in true,
proactive customer service
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Opportunities – Time & Labor
Description: Implement an automated Time & Labor solution
• Web-based software which automates time entry and approvals, facilitates time entry through multiple
channels (e.g. clocks, online, etc.), entry and tracking of sick/vacation time, and entry of labor/cost
accounting information
• Implementation of updated roles, processes, and procedures for end to end Time & Labor activity
• Managed introduction of the new technology and processes across the university
Supporting Data
• Approximately 50% of Payroll labor and cost is dedicated to time & attendance management. External
benchmark average is 10%
• Manual time capture is an error-prone process. Each timesheet is manually keyed in at least 3 separate
times (sometimes more depending on the school process). Even at a 99% error-free rate, there would
still be 30 keying errors for every 1,000 timesheets
• NYU Payroll is significantly lagging the benchmark in terms of cost and efficiency – in large part driven by
exorbitant time and attendance costs
Impact
• Up to 50% reduction in Payroll T&A personnel (3.5 of 5.5 FTE) - $200K Annual Savings
• Up to 75% reduction in School/Unit Payroll support personnel (26 of 35 FTE) - $1-2M Annual Savings
• APA estimates indicate that an electronic T&A system will produce 1-3% reduction in total hourly payroll
by reducing overpayment errors and over reporting of sick/vacation time - $1.5-3M Annual savings
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Opportunities – Payroll Service Center
and Payroll Optimization
Description: Redesign the work within the central Payroll operation
• Move Payroll towards a true Service Center model with a call center capability, automated tracking of calls and
cases, and better integration with related Benefits and HR activities
• Redesign the Payroll Calendar with the objective of reducing the number of different pay frequencies and reducing
the total number of pay runs within a month
• Move to eliminate the current process of hand delivery of checks
• Implement a payment/chargeback mechanism for exception processing such as off cycle checks and garnishments
• Implement operational metrics reporting to improve operational efficiency
Supporting Data
• A significant portion of the school’s Payroll/T&A FTE is spent on customer service tasks such as fielding questions
on leave balances, payroll deductions and missing time
• Payroll support personnel at the school level do not have direct access to the systems of record and often cannot
answer questions. These questions must be escalated to Payroll resulting in duplicate effort
• The current informal system of raising issues has no tracking or reporting system and, according to our interviews,
issues are often lost and must be raised multiple times
Impact
• Relieving HR/Payroll/T&A personnel at the school level from Payroll customer service responsibilities is essential for
realizing the $1.2M Annual savings from field support FTE noted previously
• Employee satisfaction will increase when they are able to quickly and easily find answers to their questions. The
first person they speak to (Payroll Service Center representative) will have the knowledge and systems access to
address their questions
• Shift customer service inquiries to capable, but newer Payroll employees. Current, informal system places the
heaviest burden for customer service on the most experienced (and most expensive) caseworkers in Payroll who
are the known contacts in the field.
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Components of a Payroll/HR/Benefits
Service Center – Future Vision
Academic, Admin, and Student Employees
Tier
Tier 00 Service
Service
Employee Portal and Online Self Service
(requires implementation of PeopleSoft)
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Opportunities – HR Reengineering
Supporting Data
• Average percentage of late HR actions (PASS) is 74%
• Currently, only one of the schools interviewed has PASS distributed down to the department level, but they
are in the top quartile (internal benchmark) of timely PASS submissions and they perform their duties with
less personnel than average (1:134 ratio vs 1:88)
Impact
• Reduce percentage of late HR actions from 74% to 25%
• Reduce off-cycle paychecks by approximately 50-70% for an estimated annual savings of $100-200K
• Reduce Payroll FTE by 1 for an estimated annual savings of $50K
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Opportunities – Payroll Outsourcing
Description: Outsource the data processing components of payroll to a third party
• Shift responsibility for the data processing of some, or all, of the following components to a third party
processor:
– Gross to Net payroll calculation
– Garnishment processing
– Off cycle check processing
– Check printing and distribution
– Tax reporting and processing and W2 processing
• The two different service models for Payroll Outsourcing are outlined on the next page
Supporting Data:
• Outsourcing of payroll – in the “data processing model” (see next page) would result in an 18% reduction in
the annual run cost
• Outsourcing of payroll – in the “managed service model” (see next page) would result in a 16% increase in
the annual run cost – given the significantly higher third party service cost associated with the “managed
service model”
Impact
• Reduction of the quantity of exceptions, as envisioned in the to-be environment, would be essential in
managing the ongoing run cost of payroll outsourcing
• Portions of Employee Benefits are outsourced to Towers Perrin – requiring some coordination of data flows
and other aspects of service
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Payroll Outsourcing – Service Options
There are two basic service models for Payroll Outsourcing
• Outsourcer takes responsibility for the data • Outsourcer takes responsibility all aspects of
processing associated with payroll, such as payroll operation, including employee service;
Gross to Net, Garnishments, Check printing and this model is more of a true Business Process
distribution, and Tax reporting and processing Outsourcing (BPO) model; it is frequently
marketed as an integrated Payroll/HR/Benefits
• Client retains the responsibility for employee BPO model
service, transmission of data to the outsourcer,
error resolution, overall financial management • Client only retains responsibility for Vendor
and control, payroll accounting, etc. Management
• Market price of this service typically ranges from • Market price of this service typically ranges
$50-80 per employee per year from $150-200 per employee per year
• This is a well established and proven service • This is a relatively new service offering without
model; historically more popular with smaller a strong track record of service
organizations, although a growing number of
large organizations are opting for this service • Market leaders are ADP and Ceridian
Option 1 – Maintain insourced payroll, • Time & Labor solution (presumably Workforce)
automate and reengineer key processes • Payroll "Service Center" and Operations Optimization
• HR Reengineering
Option 2 – Outsource payroll (data • Time & Labor solution (presumably Workforce)
processing model), automate T&L, reengineer • Payroll "Service Center" and Operations Optimization
key processes • HR Reengineering
• Payroll Outsourcing of GTN, Tax, W2, Garnishments
Option 3 – Outsource payroll and T&L (data • Time & Labor Outsourcing
processing model), reengineer key processes • Payroll "Service Center" and Operations Optimization
• HR Reengineering
• Payroll Outsourcing of GTN, Tax, W2, Garnishments
Option 4 – Outsource payroll and T&L • Payroll Outsourcing with full “Managed Service” model;
(managed service model), reengineer key includes Time & Labor capability
processes • HR Reengineering
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Financial Analysis of Options
Option 1 is recommended - This option offers the lowest steady state run cost, and the best
overall financials and rate of return
NOTE: the Payroll Assessment team has validated the Time & Labor implementation estimate with the NYU PMO team
Option 1 delivers the highest annual cost reduction – with the optimal combination of
labor, third party, and other costs
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Key Metrics – Before and After
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Guiding Principles for Implementation
Roadmap and Projects
• The goal of the Implementation Roadmap is to strike the proper balance among multiple
factors:
– Funding and ROI
– Resource availability
– Pace of change
– Timing of benefits realization
– Fit with annual University calendar
– Fit with other large University initiatives
• Each of the projects has been envisioned, with a high level estimate of effort and duration,
with a holistic view of the end-to-end process – considering business process, roles, change
management, etc. in addition to software installation
• Projects have been estimated using three resource types:
– NYU User: functional expert in payroll and payroll-related processes
– NYU IT: technical expert in payroll-related systems
– Contractor: external expert in software, relevant processes, and large scale
project/program management
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Recommended Projects – Summary
(based upon Option 1)
Project Project Components Duration Total NYU User – NYU IT – Contractor – Total –
(mths) Workdays Avg FTEs Avg FTEs Avg FTEs Avg FTEs
Time & Labor • Business process and roles design 14 3200 2.2 4.4 5.1 11.7
• System configuration and customization
• Interfaces and Reports design and development
• End-to-end testing preparation and execution
• Deployment planning and execution
• Change Management and Communications
• Program Management
Payroll Service • Design and implement Service Center model 12 1100 1.5 1.5 1.5 4.5
Center/ • Reengineer Pay Calendars
Optimization • Eliminate hand delivery of checks
• Implement payment/chargeback mechanism for
exceptions (e.g. Off Cycle checks: $30)
• Design and implement Operational Metrics
Reporting
HR • Improve end user access to information 9 600 1.3 0.7 1.3 3.3
Reengineering • Distribute PASS more broadly
• Reduce the number of approvals
• Implement better controls/audits on Onboarding
processes
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Next Steps
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Appendix
• Project Approach
• Inventory of Interviews
• Project Descriptions
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Timeline and Activities
The payroll assessment work was conducted over a 6 week period and included the
following activities and work products
Week Phase 0 1 2 3 4 5 6
Pre-Assessment Conduct Current Benchmark and Conduct Options Analysis Develop Roadmap &
State Assessment Define Next Steps
payroll, business and IT interviews (as and leading practices • Socialize findings and financial analysis of
• Collect and
• Analyze current data needed) (where applicable) incorporate feedback options
Distribute Data • Conduct an options
• Inventory and prioritize • Continue analyzing • Define next steps
• Plan and Prep for
opportunity areas data analysis including • Present final
Assessment costing
• Update inventory assessment
and priority (as • Summarize
needed)
Work Products
Manage Project
Kick-off Status Findings/Q&A Findings Final Report
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Approach
• Analyze current data that will aid in obtaining a deeper understanding of NYU’s
current Payroll environment including systems, processes, issues, level of
Conduct Current complexity, volumes, metrics and current operating costs
State Assessment • Conduct interviews across Payroll and areas that touch payroll and across
business and IT to obtain a further understanding of the current environment,
issues and opportunities for improvement
• Inventory and prioritize opportunity areas
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Inventory of Interviews
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Option 1 – 8 Year Financial Model
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Option 2 – 8 Year Financial Model
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Option 3 – 8 Year Financial Model
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Option 4 – 8 Year Financial Model
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Time & Labor Implementation
Project Summary
Objectives To implement a web-based solution to automate the end to end process associated with Time &
Labor data entry and management, including the management of Sick/Vacation time and the
management of cost accounting information
Scope A Time & Labor solution to enable the NYU Student and Administrative workforces; will also enable
the process within the central Payroll organization to collect, verify, and submit time data into the
payroll process
Key Benefits • Reduces by 70-80% the effort and cost associated with the current manual activity
• Automates the interpretation of raw time data into the proper earnings categories
• Enables systematic tracking of accrual balances (i.e. Sick, Vacation)
• Enables multiple channels for data entry such as clocks, online entry, etc.
Project Components • Business process and roles design
• System configuration and customization
• Interfaces and Reports design and development
• End-to-end testing preparation and execution
• Deployment planning and execution
• Change Management and Communications
• Program Management
Estimated Duration 14 months
Estimated Workdays 3200 workdays
Average Staffing • 2.2 functional/user FTEs
• 4.4 NYU IT FTEs
• 5.1 vendor/contractor FTEs
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Payroll Service Center/Optimization
Project Summary
Objectives To improve the operational efficiency and cost performance of the central Payroll operation; to
improve the effectiveness of customer service to the NYU workforce
Scope The project is focused on all aspects of the Central payroll department’s processes, detailed
procedures, and roles; also included in scope is the interaction between Payroll and the University
on customer service and issue resolution; potentially the new model will be integrated with the
customer service aspects of NYU Employee Benefits and HR services
Key Benefits • Improves payroll processing efficiency and drives down operating costs
• Provides for systematic tracking of employee inquiries and cases
• Provides more seamless, integrated service for employees
Project Components • Payroll Business process. procedure, and roles design
• Operational metrics resport design and development
• Service center tools (e.g. case tool, telephony) configuration and implementation
• Pay calendar reengineering and simplification
• Check distribution simplification
• Chargebacks design and implementation
• Change Management and Communications
• Program Management
Estimated Duration 12 months
Estimated Workdays 1100 workdays
Average Staffing • 1.5 functional/user FTEs
• 1.5 NYU IT FTEs
• 1.5 vendor/contractor FTEs
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HR Reengineering
Project Summary
Objectives To implement a series of process, education, and technology capabilities which will serve to
streamline and accelerate the processing of HR transactions and also improve the quality and
accuracy of the transactions
Scope The scope is focused on the HR transactions that directly affect payroll processing; most of the effort
would be focused on the Schools/Units and how they process transactions
Key Benefits • Reduces cycle time for HR transactions
• Improves quality/accuracy of HR transactions
• Reduces downstream payroll errors/exceptions
Project Components • Design and implement end user support materials (to facilitate timely and accurate processing)
• Design and implement an approach to distribute PASS more broadly across Schools/Units
• Evaluate and design ways to reduce the number of approvals on a given transaction
• Design and implement a quick hit solution (process and/or technology) to prevent new hires from
being “missed” on payroll
• Change Management and Communications
• Program Management
Estimated Duration 9 months
Estimated Workdays 600 workdays
Average Staffing • 1.3 functional/user FTEs
• 0.7 NYU IT FTEs
• 1.3 vendor/contractor FTEs
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