New research finds majority of small to medium-sized organisations yet to realise integration benefits of HR and payroll management systems

January 2008

Nottingham 19 December 2007 - The benefits of integrating human resources and payroll functions have yet to be realised by the majority of small to medium-sized organisations in the UK, according to an independent survey conducted by research firm Spectrum Consulting, on behalf of MidlandHR.

Based on responses from 101 organisations in the public and private sectors, the survey -- HR and Payroll Management within SMEs -- found that only around one-third of those with up to 1000 employees had integrated HR with payroll. And those with more than 1001 employees fare little better with less than half (48%) saying their systems are integrated.

In light of this, perhaps it should come as no surprise to learn that monitoring sickness, keeping up with legislation and compliance, dealing with employee pensions, tracking employee development, training, recruitment, managing change and keeping good people are all causing HR management headaches.

Monitoring sickness, for example, was cited as a problem by half of respondents in the 201 to 1000 employee range and by nearly 60% with more than 1000 employees. This was less of a problem for those with 200 employees and less, where just 12% said monitoring was an issue. At this level, of course, absence is much more visible.

As might be expected in view of the constant barrage of new employment regulation, all respondents cited problems with keeping up to date with HR legislation. And the bigger the organisation is, the greater the difficulty of maintaining personnel records. This was quoted by 42% of those with more than 1000 employees; 35% in the 201 to 1000 range; and just under 20% for those with up to 200 employees.

Turning to payroll management, all respondents said they had problems to some degree with complying with tax and NI requirements, costs, employee pensions, administration, and managing payroll systems and software.

Those with less than 200 employees ranked dealing with employee pensions as their biggest headache, followed by cost of payroll management, complying with tax and NI requirements, managing payroll systems and software and administration -- eased perhaps by having to deal with fewer employees.

Cost of payroll management was the top concern for the largest respondents (40%) then managing payroll systems and software, employee pensions, administration and last, complying with tax and NI requirements.

The majority of HR and payroll services are provided in-house, though payroll appears to be outsourced more commonly by organisations with up to 200 employees -- just under half at 49% -- and by 30% in the 201 to 1000 employee range; and a quarter (25%) at the top-end with 1001plus people.

Outsourced payroll service providers are generally specialists in their fields, though the smaller organisations (14%) look to external accountancy firms to handle payroll.

The report found that in the top two bands (201 to 1000 and 1001 plus people) 85% and 82% respectively employed a dedicated HR manager with a support team. This percentage drops to 30% for smaller organisations. Interestingly, perhaps reflecting the nature of the small business, HR is handled by managers with additional responsibilities to HR (22%) while a dedicated HR manager without a support team is the norm for 19% of respondents.

Payroll responsibility sits with a dedicated payroll manager with a team for nearly three-quarters (73%) of organisations with over 1001 employees; 35% for mid-sized and just 8% for smaller companies. In 46% of cases, payroll in smaller companies is dealt with by a manager with additional responsibilities.

Commenting on the survey, Lawrence Knowles, Managing Director of MidlandHR said: "Integrated HR and payroll systems not only reduce administrative costs, they also help deal with applying legislative changes, enforce compliance and generally, improve service to employees. In addition, the ability to monitor and report back on attendance, track training and development, and streamline processes frees up time for provision of valuable strategic advice to senior and line managers. Equally importantly, such integrated systems can give HR and payroll professionals a holistic view of the workforce and the contribution it is making to the organisation."

Copies of the report HR and Payroll Management within SMEs can be viewed at http://www.midlandhr.com/news/sme_research_dec_07.html

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