Making payroll pay

Posted on 7 May 2008 by The Manufacturer

Many companies like to stick with the payroll system they know rather than experiment with new flavours. But they may be missing out on useful functionality that integrates with human resources and ERP systems, says Brian Davis

Companies tend to maintain the same payroll system for several years, gaining comfort from the ‘devil they know’. The last major changeover was triggered by concerns about the millennium bug, with a move from dosbased systems to windows-based alternatives.
But there’s another driver today – trying to find that fine balance between labour costs and ever tighter product margins.
Manufacturers are demanding better integration with time and attendance systems, detailed job costing and a more proactive use of HR systems for talent and skills management.
Moreover, larger organisations have to deal with payments in multiple territories, with different legislative requirements and currencies.
Although some ERP vendors offer payroll modules, many firms favour using standalone payroll and time and attendance (T&A) solutions, rather than going for the fully integrated approach. IT industry analyst John Tate reckons: “Manufacturing often has complex requirements for time recording. As a result, mainstream, off the- shelf payroll systems often don’t have all the functionality required by manufacturers.”
Many payroll products are simply designed for people to get paid efficiently, not for job costing, time recording or detailed HR links, while payroll modules within ERP systems are often criticised for lack of functionality or relevance to the UK labour environment. Consequently, third party or bespoke products often have to fill the gaps. And a torrent of tax and legislative changes demand regular updates to keep payroll admin staff up-to-date.
Manufacturers across the spectrum have to focus on what really matters. Take chicken manufacturer Bernard Matthews, which employs 3,000 in plants across East Anglia. Five hundred are salaried but the majority in manufacturing are paid weekly. Matthews operates a closely integrated system based on Infor products for ERP and payroll “because it made good sense”, remarks information systems director Edwin Pearson.
Infor’s Infineum payroll software has been running with regular upgrades for 15 years, alongside Infor’s Prism system for ERP. However, the T&A system comes from Kronos and dates back even earlier. “For many years the HR system was completely paper-based, but we soon recognised the advantage of integrating payroll and HR,” reflects Pearson.
A considerable amount of job costing analysis is carried out in parallel with the T&A system.
“We like to keep control of our payroll, with an eye on shopfloor costs. Previously we outsourced to a bureau on the salary side, but even that has been brought in house.” The benefits are clear to see. “Labour costs are a significant factor and the integrated approach allows us to react more proactively to business pressure and the way we pay people.”
Statutory payments and deductions are made automatically, while payroll costs are posted to a JD Edwards ledger system via a bespoke interface.
Unlike many large manufacturers, Pearson is not eager to take the company down the road to self-service. “With two thirds of our workforce hourly or weekly paid and with no access to computers, this would be a tricky environment to make self-service.”
However, Olympus Keymed, which repairs and services industrial endoscopes as well as manufacturing ancillary equipment, is looking forward to a move to self-service. The 950-strong company employs 90 per cent full-time staff and 10 per cent part-time. “Changeover is underway from Northgate HR PS2000 payroll and HR system to Resourcelink in a six figure investment which will help us introduce self-service with greater flexibility, and improve internal work processes,” says payroll and pensions manager Sally McBrearty.
Nevertheless, there’s still room for improvement. Information from the T&A system is collected manually and fed into management systems to help generate reports. What’s more, there is no integration between payroll and the IFS ERP system. Debbie Gaynor, general manager of personnel administration, suggests: “We may look at introducing a T&A module from Northgate at a later stage. But for the time being Resourcelink will improve our payroll/HR flexibility and grow with the company.”
By contrast, precision engineering company Commatech takes an ERP-centric approach to facilitate job cost efficiencies across five sites in the UK serving aerospace, motorsport and other industries. Over the past decade the company has adopted Syspro 6.0 ERP, originally from McGuffie Brunton, now K3, as the backbone of its enterprise management.
The Leicester plant runs a fully integrated Syspro ERP system for financial management, manufacturing and distribution, linked with an Equator payroll system. “The combination of Equator and Syspro closes the loop,” says Commatech IT manager Paul Hartshorn. “Judging cost effectiveness is one of our biggest jobs, and a system that links payroll to operational costs helps answer that question. Efficiency reports are pulled off daily, with detailed breakdown and projections. We’ve spotted significant efficiencies and it has enabled us to identify exactly how many people we need to do a job.”
Many small- and mid-sized firms favour popular packages like Sage, which take away the headache of complex hourly, weekly and monthly payroll, faced with an ever increasing burden of legislative tasks and changing benefit requests.
Somic, for example, employs 80 in a small plant handling hot-melt coating of fabrics for use in badges, washable labels, emblems, awnings and much else besides. Company secretary Helen Finch recently invested in Sage 50 Payroll to replace Sequel, a dos-based package.
Finch fancied Sage as a well known brand, which was “reliable, accurate, secure and offered longevity.” The company runs production on a traditional batch card system with little sign of automation, and has never taken ERP on board. Its Computime T&A system is run separately.
Within Sage it uses classic payroll features and Sage Financials for accounting, and is looking to adopt Sage sales order processing.
Finch emphasises that the new Sage system is totally compliant with all the statutory reporting, as it is accredited by HMRC. The £965 system is also cost effective for a multiple licence, which includes 12 months’ support. “This is less than I would have paid for 12 months’ support of the old dos-based system,” she says.
Butcher’s Pet Care isn’t a lot larger, with 185 employees. The company looked at several payroll options, both standalone and within ERP systems. “Ease of use was a priority, as well as ability to run alongside ERP. SAP felt too big, whereas IFS was a lot more on our wavelength,” says Vicki Monk, HR and payroll officer. “We managed to tailor the IFS system the way we wanted, and it’s a vast improvement on the old Open Door system from Northgate.”
Butcher’s relies on a standalone T&A system from Blick but ultimately plans to integrate all systems in one. Overtime is worked out on the T&A system as a spreadsheet then transferred as a flat file into IFS. Monk recognises: “It would be easier to set up T&A in IFS but the contract with Blick still has a year to run.”
A number of companies expressed concern about using payroll modules from US-based ERP vendors. Mark Hewson, company secretary at commercial lighting manufacturer Hacel Lighting favoured Epicor Vantage as an ERP solution, but recognised the US payroll module was inoperable here. Consequently he was recommended Cedar Open Accounts as it runs on the same Progress database systems as the ERP system. “We don’t integrate payroll data with ERP in any shape or form,” he confesses.
“People clock in on the payroll clocks via the Cedar T&A system, then log into ERP at their desks or benches. So we can identify labour hours on the shopfloor in real-time and use the ERP system to extract relevant information.”
Finally there is the issue around outsourcing or not. Many organisations with fairly standard payroll requirements feel better off outsourcing or using a managed service. Some argue that it’s only worth keeping payroll in-house if you’re in a niche industry, or if payroll is a source of strategic value – like some financial services.
Furthermore, some products are only available as hosted products.
The UK operation of Otis Lifts handles installation, service and repair, employing 2000 split between 89 per cent full-time and 11 per cent parttime.
Otis analysed several options for payroll including wholly in-sourced, partly-outsourced and fully-outsourced, narrowed it down to three and plumped for a managed service from Midland HR. “Midland HR offered flexibility, strong support, integration with HR, and reporting from payroll into other systems, without the need for custombuilt interfaces,” says Celeste Lees, a senior payroll manager at Otis. The Midland HR payroll software replaces a Capita system called Duet and is fully integrated with the HR system.
Otis engineers use a PDA link to a separate T&A system which feeds a number of systems including payroll and absence with the Midland HR software. Lees sees the key benefits of integration with HR in removal of duplicate input, greater flexibility and reduced cost. The management also generates numerous reports, with costing for the finance, pensions and other departments.
But some complain of the cost of outsourcing. Panasonic Communications manufactures PBX switchboards and implemented Topaz EMS Payroll to eliminate the high costs and stress of meeting tight outsourcing deadlines monthly. “Furthermore, ROI on the Topaz system is within two years,” says Rob Martin, senior payroll officer at Panasonic’s Newport plant.
“Our payroll activities have gained increased control and efficiency, with instant access to data a visibility to monitor all payroll activities,” says Martin. The payroll is integrated with HR interfaces via bespoke interfaces for transfer of information, T&A or payroll purposes. T&A is run on a separate system, from Tensor, and is used by all staff. The accounts department transfers payroll information into SAP on a monthly basis for costing and financial purposes. “Everything is much simpler with Topaz. We eliminated the bureau hassles and deadlines and can now monitor all payroll activities as they happen.”
Like most software adoption, payroll and HR upgrade is an ongoing journey. Employee self service is becoming far more commonplace, though there is still suspicion about using it on the shopfloor as opposed to admin personnel in some firms. Web interfaces also facilitate simpler T&A input and analysis, absence planning and reporting. Workf low functionality is also improving with automated time sheet submission and holiday requests.
Generally, better integration between payroll, HR and ERP promises improved reporting, better analytics and business intelligence, with the ability to slice and dice labour costs and analyse project labour costs in real time.