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Into the Stratosphere

As more human resource functions move to the cloud, payroll still lags behind.

Friday, September 2, 2011
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Back in 2008, not everyone at NVIDIA Corp. in Santa Clara, Calif., was entirely thrilled about the company's decision to switch from SAP, its existing software vendor, to Ultimate Software, to host its HR and payroll processes. NVIDIA planned on storing its payroll data "in the cloud," or on the vendor's servers. But some IT staff believed that handing over sensitive information to an external vendor was simply asking for trouble.

"We were a SAP shop, so our IT people loved SAP," says Mary Brumm, senior manager of global payroll at NVIDIA, a global visual-computing-technologies company. "There were a couple of people who had supported the SAP system in the HR group and weren't onboard with the [cloud] solution. It's a little bit of a culture change but [most] got over it."

Although they've been around for many years, software applications that use cloud technology -- such as Software-as-a-Service (SaaS) -- have recently been gathering steam, especially among global employers. Many have successfully used the cloud for a wide variety of HR functions, ranging from benefits to recruitment.

But some HR professionals still cringe at the thought of using it for payroll due to security concerns and issues related to the management, control and accessibility of payroll data. Going to the cloud, they fear, could potentially jeopardize the process that is perhaps of utmost importance to employees everywhere.

Sunny Skies

At NVIDIA, a company with 7,500 employees in 15 different countries, HR partners with many payroll vendors, but it lacked a uniform interface. That sometimes created problems, such as when vendors would receive only partial benefits or salary data.

With the cloud, however, the payroll data is stored in one location. In the United States, the cloud is used to process -- via direct deposit -- all employee paychecks. For NVIDIA's overseas employees, the U.S.-based HR operations group uses cloud-based software to prepare payroll data, then sends it to local vendors in different countries to process paychecks.

So far, so good, says Brumm. To access payroll data, HR only has to log on once to the system. The company now spends more resources on its core business because less IT staff, hardware and software are needed for payroll.

Some IT employees were shifted to other support areas such as travel or expense-report systems. No one was laid off.

Yet another benefit the company's realized is cost-savings through reduced payroll-processing fees. Instead of paying separate fees for every transaction, such as daily equity transactions or payroll, says Brumm, HR now pays a monthly fee for each employee, regardless of the number of transactions.

Going to the cloud hasn't solved all the problems, says Brumm. Because the company supports a handful of employees in different European countries, processing payroll in each region is complicated. Each country observes its own laws, work rules, currency and language. By the end of this year, however, she hopes Ultimate Software will be able to provide a direct feed to a single European payroll vendor, which can then access data from the cloud to process payroll.

Greenwich, Conn.-based Blyth Inc. also moved payroll to Ultimate Software's cloud in order to focus on growing its core business.

Since 2004, the global company has been using the cloud to store payroll data and process paychecks for its 1,900 employees in 18 different countries throughout Europe and North America, says Michelle Tassinari, HRMS and payroll manager at Blyth, which makes candles, air fresheners and home-d├ęcor and healthcare products.

"Anything we can do to continue to add value to our business, we look at and take advantage of," she says.

Each of the company's business units uses the cloud differently, says Tassinari, ranging from storing payroll data to importing data, processing it and printing its own paychecks.

Instead of mailing spreadsheets back and forth, as it did in the past, HR uses the technology to communicate globally with its various units in real time. When hiccups occur, the cloud vendor fixes them rather than Blyth's in-house IT department, which is now focused on income-generating projects.

Because cloud vendors maintain the system's hardware and support a team of security experts, Tassinari adds, HR also doesn't need to worry about system hackers or housing on-site servers in designated rooms at special temperatures.

In the near future, Tassinari says, other HR systems such as compensation management may be housed on the cloud as well.

Scattered Showers

According to a recent survey by Towers Watson, more than half of the 440 companies surveyed are either using SaaS or considering it, says Tom Keebler, global practice leader for the HR service delivery and HR technology practices at the New York-based professional-services firm.

"It is absolutely a trend that we're seeing increase year over year," he says, adding that companies are interested in accelerating the benefits of technology while reducing costs. "It's still very much on the increase for HR in general."

However, payroll is the function that's probably lagging the furthest behind, says Keebler. One reason is the limited customization available from most cloud-based systems. SaaS vendors tend to focus more on configuration and less on customization, says Keebler. The more a system is tweaked for one company, the less compatible it becomes with other companies. He says many HR professionals "draw tremendous comfort" from knowing they can create technology to fit their business processes, versus changing their processes to fit the technology.

Other objections to using the cloud for payroll include data security issues, fears of IT layoffs and the potential loss of control and ownership over payroll data. Some companies are simply philosophically opposed to sharing proprietary information, says Keebler.

Because the cloud is in its infancy, he says, the market is still testing employer interest in a pure SaaS model for payroll. As a result, the number of vendors that offer a pure cloud approach for payroll is limited, for now.

Another problem is that a SaaS-based payroll approach may not be available in certain countries. Some global companies have adopted a blended approach, using the cloud for data warehousing and multiple payroll vendors worldwide to feed payroll data into the cloud and process local payrolls.

While adoption of the cloud for payroll has been slow, that's going to change over the next several years, says Scott Bolman, a partner at New York-based Mercer. A good example is Time Warner Inc., which switched to the cloud in June. It now uses one system -- Pleasanton, Calif.-based Workday's Human Capital Management and Payroll -- to organize its employee data and payroll information.

But in order for the technology to gain ground, cloud vendors may need to do a better job convincing HR executives about data security.

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"There's still a feeling in the marketplace that if [data] is behind your own firewall, on your own premises, it's more secure," says Bolman. "It's more a perception of a lack of security than a reality."

According to security experts, employees -- not outside hackers -- pose the greatest threat to IT systems, committing as much as 80 percent of all security breaches. To combat the misperception, he says, cloud vendors have heavily invested in security features and services, ensuring they can at least go "toe-to-toe" with almost any company's IT department.

There's yet another reason why cloud-based technology for payroll is slowly gathering support among the IT community.

"Usually, HR and payroll are not the kinds of areas [IT] wants to focus on," Bolman says. "They would rather be on the front end of the business -- marketing or sales. So it's not as much of an issue as it might be in other areas."

One way companies are increasing their comfort level with the cloud is by first testing it with other systems, such as employee training or succession planning. If successful, then payroll may be next in line to go online with the cloud, he says.

Over the Rainbow

The one question that's on everyone's mind is cost. Will the cloud save your company money?

For most organizations, Bolman says, it's too soon to tell. Although he suspects there might be some savings, the real value is in cloud-based systems generally operating faster than in-house systems, partially because vendors tend to rely on the latest technology -- not something every company can afford.

But even companies that can afford the latest technology are choosing to go with the cloud. For the past decade, Hopkinton, Mass.-based EMC Corp. has used ADP as its cloud vendor for payroll, benefits enrollment and flexible spending accounts, says Kevin Close, vice president for global compensation, benefits and HRIS at EMC, which supports an estimated 50,000 employees in 50 countries. The infrastructure-technology company transmits time-and-attendance records and other data to ADP, which then processes employee payroll and prepares payroll reports.

Although EMC has not formally assessed the ROI, Close says, it's seen positive returns when factoring in reduced technology infrastructure and IT staffing, increased resources for core business areas, more-accurate reports, access to the latest data security and privacy software and easy employee access to payroll information via ADP's iPay interface, which then routes them to ADP's cloud.

"We convinced ourselves [that] the growing complexity in managing the regulatory environment was not a core competency of a technology company," Close says. "It was either make considerable investments in our finance and payroll organization so we could sustain it and ensure a level of compliance, or outsource and be able to use our capital to invest in other [core] areas. It was a pure business decision."

At EMC, employees have access to the cloud to review up to five years of their pay histories and W-2 reports. He compares the value to that of online banking.

Despite the cloud's virtues, there's still room for growth.

"There's always opportunity for further integration of different sources of information our employees may reference," says Close. "Cloud or SaaS also gives employers the flexibility to choose best in breed, best in class applications. That drives a higher level of innovation in the marketplace. We expect our partners to continue to innovate."

See this chart on the benefits -- and concerns -- about SaaS.

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