Employee Central Payroll: The Payroll Rules Have Changed

Employee Central Payroll: The Payroll Rules Have Changed

in Jun 02, 2017

In early 2004, I received a call from a bright salesman at ADP, trying to convince me that I needed an Application Service Provider Payroll in my global SAP HCM landscape that already included some on-premise SAP payroll as well. And he wasn’t talking about just any payroll, but an SAP Payroll-as-a-service called “Glohria” (later renamed ADP GlobalView). After multiple rounds of negotiation, my employer and I decided that ADP GlobalView sounded like a great way to implement SAP Payroll without having to extend our infrastructure or support teams. We were ADP’s first European customer to go-live in France that year on ADP GlobalView.  In the years that followed, NGA caught up with its EuHReka platform that offered a similar cloud payroll layer on top of SAP’s trustworthy payroll engine.

Now let’s fast forward to 2014 when I first saw Employee Central Payroll (also informally known as ‘ECP’). SAP, as part of its SuccessFactors offerings, realized that payroll in the cloud was the way to go. The goal was to move away from the heavy on-premise infrastructure and replace it with a more nimble cloud infrastructure.

At first it seemed that SAP had simply delivered a copy of ADP and NGA’s products. But after delivering my first 2 ECP implementations, I realize that SAP’s Employee Central Payroll actually has significant advantages.

1. Flexibility

ECP can be rolled out the way you want it. Vendors that require the use of templates limit you to certain choices, but they’re not necessarily the best ones for you. They’re often centered around their own service offering or put restrictions on naming conventions for core objects like company codes, employee groups as they have to serve many customers with the same setup.

2. Seamless Integration

SAP doesn’t have to deal with integration issues that payroll service vendors generally deal with in terms of data ownership and integration. They are focused on providing the best payroll engine rather than the service and limiting. Employee Central Payroll seamlessly integrates with SAP SuccessFactors through SAP’s Point-to-Point (“PTP”) connection and the financial data flows back and forth via ALEs to SAP Financials. Although other vendors use SAP Payroll technology for the processing part, they typically use in-house developed inbound and outbound interfaces to move data between a customer’s SAP HCM or SAP SuccessFactors system, as liability issues or global template issues prevent them from directly integrating in your SAP landscape with the standard connectors.

3. Implementation Cost

Outsourcing vendors offer cloud payroll, but typically only on a per-payslip basis. This means that the cost saved by not having to maintain an on-premise infrastructure gets paid back to these vendors, payslip by payslip. When choosing a payroll vendor, many clients calculate these costs for the 5-year duration of the project and fail to realize that – on average – a relationship with a payroll vendor lasts 10-15 years. So, while payroll outsourcing vendors require a smaller upfront implementation cost and offer a payslip by payslip model once live, ECP offers customers the ability to control the implementation investment upfront and manage the predictable ongoing yearly subscription fee and maintenance costs (for either your internal resources or your support contract with a qualified vendor). Overall, ECP is the cheaper option once calculated over the lifetime of the application, and in many cases the return on investment for ECP is less than three years versus other SAP Payroll service providers.

4. Unexpected Costs

Payslip-by-payslip pricing is a predictable cost until off-cycles, correction runs and other day-to-day payroll activities are factored in. There are many hidden costs and ongoing yearly increases that seem mundane but can lead to a huge increase in total cost of ownership (TCO). Over time, ECP customers may actually experience a reduction in TCO. This is due in part to improvements in efficiency and a reduction in the number of changes being performed as payroll users gain experience.

5. Payroll Control Center vs. Managed Services

While payroll outsourcers offer multiple options in terms of processing, most clients choose them for managed services payroll processing capabilities. The name “managed services” can be deceiving, however, because it is more or less a hybrid service. Payroll may be processed for you by a service center in a low cost area, but to fulfill this you will need to adhere to strict payroll calendars. And, as a client, you will still need to perform all of the pre-validation and post-validation, as well all the payroll validations in between. Additionally, since other solutions won’t integrate as well as SAP can, a lot of additional work is created by monitoring and maintaining custom interfaces between SAP SuccessFactors and a “cloudified” SAP Payroll service and back. As a result of all of this, many of the planned reductions in staffing that were part of the original vendor justification are not realized.

To help customers streamline validation, reporting and business processes, ECP offers the Payroll Control Center. Payroll Control Center can contain your pre-validation rules and can even be scheduled to kick off your payroll at specific times. It can take on the role of the payroll vendor’s payroll processors, but give you more flexibility by allowing you to decide what to do when and whether to automate processes or not. Payroll Control Center provides structure and automation that you control and many of its functions can replace more costly resources who would perform the same tasks at an outsourcer.

6. Vendor Choice

If you select ECP, you can choose which partner you want to use for your implementation. With payroll outsourcers, you’re usually limited to their choice of vendors or available internal resources, but you often have no option to vet consultants and ensure you have the right fit for your organization.

7. Ongoing Support

If you select ECP, you can decide to either take payroll support in house or leave it with a qualified vendor. You define the terms and turnaround times that you feel are feasible for supporting your organization and staff. Payroll outsourcers definitely have the staff to support, but the resources are often thinly spread across multiple clients. As a result, support can sometimes take longer than anticipated. This also means that support items like new wage types, changes in financial setup, etc., often need to be planned far in advance.

Now, when I look back at the major differentiators above, I can see that outsourcing vendors were ahead of the pack with their “cloudified” SAP payroll service offerings for years. However, with all of the capabilities of the latest ECP offering, I think it is fair to rethink your payroll decision making. Is it still worth giving it to someone else or does it make more sense to invest in Employee Central Payroll as part of your SAP SuccessFactors implementation? Having been in both scenarios, I would argue that the case for ECP has never been stronger.