Extending the Services - Bureau Focus

A glance through the journals of the payroll and HR organisations in the USA and Canada quickly creates the impression that payroll bureaux do not exist over there. The word "bureau" is almost nowhere to be found. Instead, the payroll sector is split into two camps, providers of payroll software and providers of payroll services. The former sounds just like our providers of in-house software; the latter just another way of describing our payroll bureaux. The reality, however, is not that clear-cut. Clarifying the distinctions may help us to understand the business directions currently being taken by our traditional bureaux.

In the American markets, payroll is seen to be very much a part of the overall management of people and, to a far greater extent than the UK, the administration of payroll comes within the HR function. This is reflected in the software products and services available to support HR, which include the management and processing of payroll in one form or another.

Another major difference, especially in the USA, is the complexity of the tax system. The existence of different tax rules at local, state and national levels means that, for many businesses, returns have to be sent to hundreds of locations. This has created a payroll service that does not exist in the UK, that of "tax filing", where the submitting of returns is handled by an expert third party. This has naturally become a complementary service to payroll processing, handled by what we have come to know as "payroll bureaux" but which the Americans know as "payroll service providers", because of the broader nature of the services offered.

This is not the limit of the services provided, however. An organisation still needs to manage its employees and, to do this, it must have an in-house HR system to handle recruitment, training, benefits, and so forth. So the payroll service providers supply HR systems as well, complementary to their processing services. As a result, they tend to have a broader portfolio than do their equivalents in the UK, most of whom tend still to call themselves "payroll bureaux".

But this is changing. Many bureaux are now software suppliers in their own right. A good example is Centre-file which, as part of a major payroll services provider in the USA, no longer describes itself as a bureau and, alongside payroll processing and outsourcing, offers stand-alone HR and P11D software. Another example is Moorepay, again with traditional bureau and managed-payroll services, which also supplies in-house software covering personnel, payroll and labour costing. These service providers, and others like them, are competing not just with other bureaux but directly with developers of in-house payroll and HR software.

On-line

The two approaches to payroll processing used by the UK bureaux can be described as "on-line" and "off-line". The on-line service involves a permanent telephone link with the bureau's computer system, wherever that may be. The off-line service means that everything is done on the user's own computer, with a connection being made to the bureau only to transmit the data for processing and receive back the results.

A major supplier of the on-line service is Sceptre. Chris Anderson, Sceptre's sales director, told me that "the on-line approach is ideal for larger companies, probably with 1000 employees or more, that already have well-established data networks, multiple sites and complex payroll requirements. These are customers who expect their systems to operate in "real-time", who require the flexibility to run their payroll when it suits them, and who want to check their payslips on-line before they are printed and, if necessary, run the payroll all over again." These users have live Windows access to the Peterborough Software payroll and HR systems running on Sceptre's mainframe computer and can see their data updated as changes are made. They can write and run their own reports on the mainframe or bring the data down to their PC for further analysis in the office.

About a third of the clients of ICS Computing use the on-line service to SOS Software's personnel and payroll systems running on ICS's computer in Belfast. "In effect, our clients have their own HR and payroll system to use whenever they want", Ken Acheson of ICS told me. "With the speed of modern communications, it doesn't matter to our clients where we are located. As far as the users are concerned, the payroll is in their office." As evidence of this, ICS Computing has just reached agreement with Carpetright plc, their first on-line customer on mainland UK.

Off-line

The providers of the "off-line" service point to the cost of dedicated telephone lines and the power that now lies in the PC as two of the reasons why they believe it is better to use the telephone link only when the payroll is ready to run. Certainly the size of company, the number of large sites it has, and the complexity of its payment rules are issues to be considered in deciding between the two approaches.

The bureaux providing the off-line service have concentrated on supplying their customers with sophisticated HR software for them to run on their own PCs and networks, and which includes a payroll system with everything except the gross-to-net calculation capability.

Among the services offered by CARA is a new integrated payroll and personnel system called Eclipse, aimed at competing directly with integrated packages available from the software houses. It can be used as an HR product by itself, or in conjunction with the payroll module which incorporates everything you would expect from a payroll system other than the payroll calculation process. The payroll system transmits the data to Cara's bureau centre where it is processed and where payslips and reports are printed. The results of the payroll process are then sent back to the customer's PC for queries and analysis.

Because this kind of system does not include gross to net processing, it is not possible to use the employee data held within the system to produce one-off payslips. Cara are aware of this limitation and their solution is to incorporate in a coming version of the system an integrated version of QTAX, the payroll calculator from QTAC Solutions. This is only a partial solution as the data to produce the payslip has to be keyed into the calculator and the results cannot be fed back into the payroll system. CMG provide their customers with PAYFACT2000 for Windows to run in their offices and to link with their own mainframe software for payroll processing. They are resolving the problem of producing one-off payslips by supplying another payroll calculator, Timesaver: Calc for Tax, produced by NMHK. Again, because this does not draw from data held within the customer's PC, it is limited to what can be keyed in at the time the pay calculation is required.

Customers using Centre-file's PayPoint for Windows service have the option of linking it with their HR system Paradigm, a product that also competes directly with HR systems from software houses. The solution planned by Centre-file to the problem of producing one-off payslips is to build in a gross-to-net calculation facility that will use the internal system data held for the employee in question. The intention currently is not to produce the full gross-to-net capability that would enable customers to run the payroll themselves, simply to enable mid-period payslips to be produced conveniently.

Speculation

One the one hand, we have providers of on-line bureau services with products that behave just like in-house software systems but have none of the maintenance and support problems. They have fully integrated payroll and personnel functionality and stand directly in competition with the major in-house system developers. Users have no problem running a one-off payslip; their fully-functional payroll is live and available at any time.

On the other hand, the providers of "off-line" bureau services are, as yet, unable to compete fully with in-house payroll software, although some can certainly compete with their HR offerings. The difficulty in performing payroll calculations at times other than the period pay run, a standard feature in most modern in-house systems, is a limitation that is being only partially resolved. Is it a short step or a mighty leap for these bureaux to go that one stage further and build into their client payroll software the full gross-to-net calculation? Will a bureau that has traditionally obtained its income from providing a processing service be prepared to give clients the ability to do that processing themselves? How might they react?

When the bureaux decided to give their users reporting tools so they could write their own reports rather than be charged by the bureaux for writing the reports for them, what was the outcome? Many companies still prefer to ask the bureaux to write their reports rather than do it themselves

Similarly, most bureau users will stick with the method of processing that they originally chose for sound business reasons. And, if some do decide to defect and use their existing software to run their own payroll under a new maintenance contract, what has the bureau lost?

More to the point are the opportunities that having such flexible software would offer the bureaux. With modern, fully-featured payroll and personnel systems, they would find a brand new market to address, competing head-on with the in-house developers, but with a much broader range of payroll services to offer.

Not only would customers benefit from wider choice, the role of bureaux would grow. Instead of just being payroll "bureaux", they will become payroll "service providers", able to compete across all of the payroll markets.

(Neither the author nor the publishers recommend or endorse any particular products or services. Readers should make their own evaluation in the context of their own circumstances.)