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Business Services, Survey

Payroll Solutions Survey 2016: Issues and Opportunities

August 31, 2016

Payroll: a pivotal aspect of any business and an open door to frustration and confusion for users and providers alike. To understand how payroll software users interact with their solutions, we surveyed 301 payroll administrators about human resources (HR) integration, biggest issues, loyalty, cost, time, and security.

Whether you are looking to change your payroll solution or better serve your payroll customers, it is key to study the biggest drawbacks of current payroll solutions and where the opportunities for improvement lie.

 

Key Findings

  • 39% of payroll users are ‘very’ or ‘somewhat’ likely to discontinue using their current solution within the next 12 months. Experts suggest users are easily swayed by new or enhanced features.
  • Payroll users feel confident in their solutions’ security features. 86% say their solutions are ‘somewhat secure’, and only 7% see poor payroll security as a problem. Experts, however, have noticed that most payroll administrators consider security an "afterthought".
  • There is no clear time-saving benefit to choosing one of the three leading payroll providers over a smaller, niche solution.

 

Recommendations

  • Integration between payroll solutions and other HR systems can save time, money, and resources. Though only 21% of payroll solutions are integrated with major human capital systems, it is worth the search to find a solution with as much integration as possible.
  • Choose between an in-house payroll software and outsourced payroll firm based on the features that will most benefit your company:
    • In-house payroll solutions are beneficial in saving money, implementing complicated pay structures, and insuring timely communication.
    • Outsourcing to dedicated payroll firms allows companies to stay up-to-date with tax legislation, reduces time spent on payroll, and saves users from having to re-train in-house experts. 
  • Time spent on payroll varies significantly among payroll users. To ensure companies are using their payroll solution efficiently, look into company initiatives to reduce wasted time before considering a change to the solution itself.

 

Issues with Payroll Solutions

 

As digital platforms open the door to more streamlined business practices, HR professionals look to their payroll solutions to minimize issues and errors in the often labor-intensive tasks associated with payroll.

However, with 85% of payroll users having encountered at least one problem with their solution, there is still a lot of improvement to be made. The largest percentage of respondents (37%) report that their solution is too time-consuming.

Biggest Issues Encountered with Payroll Solutions

Payroll providers looking to alleviate some of these issues should consider moving toward cloud-based data storage technology. Solutions based in the cloud, rather than downloadable applications, are able to avoid constant software updates, security issues, and most system glitches and errors.

“Constant software updates are an issue mentioned by QuickBooks users, most likely. This will probably go away at some point, as everything moves to cloud-based operations.”
Tyler Winn, Founder & President, Cirrus Payroll 

Increased communication between payroll providers and their customers is the first, easy step to reducing payroll issues. Payroll providers have an opportunity to serve their clients better by making more of an effort to open these lines of communication.

“I wish that providers developed committees and reached out to users more, asking for what specific needs they have. This isn't done enough.”
John Mauck, Human Resources Director, WLR Automotive Group, Inc. 

“Document the issues you have had with your payroll solution and contact them directly to see if there are any immediate fixes.  There are times when certain payroll solutions are open to suggestions for new features and tweaks.”
Brad Stultz, Human Resources Director, Totally Promotional

Tax issues are another area of concern for nearly 1 out of 5 payroll administrators. One of the major benefits of outsourcing to a dedicated payroll firm is their handling of legislation concerning workers’ compensation. Companies that are still experiencing tax issues with an outsourced payroll firm should consider switching.

“If the client knew that the provider was messing up the taxes, that would be a problem. The whole point is to have compliance outsourced, so they don't have to worry about it.”
Tyler Winn, Founder & President, Cirrus Payroll

 

Integrating Payroll Solutions

While payroll has traditionally been considered relatively separate from other HR functions, 31% of payroll users want more integration between the two, and 26% say a lack of HR integration has become an issue for them.

We asked our respondents just how much they currently integrate their payroll solutions with other HR features and found that almost half (47%) bundle payroll with accounting, while only 6% include recruitment management.

Other Systems Integrated with Payroll Solutions

Increasing the integration between HR and payroll systems can cut down on time-consuming annoyances like typos, duplicate data entry, and glitches in data transfer between solutions. Integration becomes an increasingly beneficial feature as a company grows in size.

“Integrating the payroll and HR systems will ensure that names and addresses are the same, while also allowing people to input data in one place without duplicating efforts.”
John Mauck, Human Resources Director, WLR Automotive Group, Inc.

“There are ways to work around [costly mistakes], but it can become immensely cumbersome as your workforce grows in number.”
Brad Stultz, Human Resources Director, Totally Promotional

According to Tyler Winn of Cirrus Payroll, payroll providers have noticed a shift in their customers’ desires. While only a few years ago clients were content with a devoted payroll solution, they have recently become more interested in bundling complex services. Clients see this sort of integration as the easiest and most efficient way to revamp their payroll processes.

Though intimidating for dedicated payroll providers, experts see integration with HR as the future of payroll solutions. Luckily, there are many underutilized areas for future integration and expansion.

Of these features, human capital management is the least utilized. Only 15% of respondents say their payroll is bundled with performance evaluations, and only 6% are bundled with recruitment processes.

 

Loyalty To Current Payroll Solution

Considering that 66% of the payroll market is concentrated around three companies, it is reasonable to assume that the majority of payroll customers rarely shop around for new solutions. Movement between payroll solutions should be minimal because payroll options, upon first glance, seem limited to three solutions.

We asked our respondents to gauge their likelihood of changing payroll solutions within the next 12 months and found 39% of users are at least somewhat likely to shift away from their current solution, despite a reported 85% who are satisfied with their payroll.

Likelihood of Shifting Away from Current Payroll Soltions

There is an important distinction to make between satisfaction and complacency; 85% of payroll users are satisfied but not all have exactly what they desire in a payroll solution. The frustration over changing systems can be enough to deter a “satisfied” customer from finding a solution they would consider perfect.

“We can become entrenched in one system, so we need to look at conversion times. People would like to switch, but they don't want to spend the time in order to do it..”
John Mauck, Human Resources Director, WLR Automotive Group, Inc.

“Satisfaction with a product does not mean that there is no room for improvement.”
Brad Stultz, Human Resources Director, Totally Promotional

“They view change as a painful endeavor, which can be true… They're not ready to leave, but they're also not very happy with the service.”
Tyler Winn, Founder & President, Cirrus Payroll

In fact, upon further inspection, the level of satisfaction payroll users feel toward their solution is unlikely to be linked to their plans to change payroll systems within the next 12 months. Satisfied respondents are slightly more likely (40%) to shift away from their current solutions than dissatisfied clients (34%).

Likelihood of Satisfied and Dissatisfied Shifting Away

These results show that satisfaction is not the leading reason users have for wanting to shift away from their payroll solution. Other possibilities include a desire for more integration with other HR functions and more customizable features.

“Another possibility is that they know that there are services out there that will do more than what their current one is doing.”
Tyler Winn, Founder & President, Cirrus Payroll

“While you could be extremely satisfied with the user experience of an application, that does not mean that it is not lacking in features that could be useful in day-to-day operations.”
Brad Stultz, Human Resources Director, Totally Promotional

For payroll providers looking to expand their client base, these results show that focusing on a client’s general happiness with a solution may not be the best way of gauging their desire to shift away. Instead, providers should work to improve the additional features clients are looking for.

Of the respondents who reported a likelihood of shifting away from their current solution, we asked whether they were more likely to find a new in-house payroll software or outsource to a dedicated accounting firm in the future. We found that a slight majority of respondents (59%) are more likely to switch solutions than outsource.

Likelihood of Either Switching or Outsourcing

Keeping payroll in-house allows companies to retain the intimate knowledge of a firm’s payment structure and businesses processes.

“For us, the most important factor is the intimate knowledge. Having someone on-staff who knows what needs to be done…is something that's lost when outsourcing.”
John Mauck, Human Resources Director, WLR Automotive Group, Inc.

In-house payroll management also tends to be cheaper, though it can overwhelm an already stretched accounting department.

“Usually, if the company's accountant is doing it, it will be cheaper. … Many accounting firms are already handling bookkeeping and taxes, so they simply throw in payroll.”
Tyler Winn, Founder & President, Cirrus Payroll

However, having the knowledge of a payroll system limited to a team of accountants can cause a headache down the road with personnel turnover and the need to take time and resources to train a new employee. Outsourcing can alleviate that burden.

“The pro of outsourcing is that the partner company is responsible for training staff.”
John Mauck, Human Resources Director, WLR Automotive Group, Inc.

Regardless of whether outsourcing or finding a solution, the most important quality to look for is a clear and open lines of communication between companies and payroll providers.

Security and Payroll

The digitization of payroll allows for personal information, like social security numbers, bank accounts, addresses, and emergency contact information, to be accessible from a variety of devices.

While increasing security seemingly would be of highest priority to payroll users, 86% consider their payroll ‘somewhat’ or ‘very secure,’ and only 7% name security as a problem with payroll.

Perceived Level of Security with Payroll

Clients of payroll solutions often trust that their information is secure, although they rarely pose security as a deciding factor when choosing a solution. 

“When talking to a prospect, I will rarely be asked about security. It's simply assumed that it will be there.”
Tyler Winn, Founder & President, Cirrus Payroll

The overwhelming majority (96%) of positive and neutral reactions to payroll security could be due to the lack of understanding of the complexity of the issue. As payroll moves to cloud-based platforms, payroll customers have less control over and understanding of security features.

“There is a big shift to cloud-based programs, which would rely on the security of the site itself.”
Brad Stultz, Human Resources Director, Totally Promotional

Are payroll administrators explicitly trained to focus on security, or is it more of an afterthought?

“Honestly, I think it's an afterthought. We need to do a better job overall with securing our HR and payroll functions. People don't usually consider this issue.”
John Mauck, Human Resources Director, WLR Automotive Group, Inc.

“We have had training and discussions on this topic. But, as far as clients being concerned about it, it's rarely a thought in their mind.”
Tyler Winn, Founder & President, Cirrus Payroll

“I find that it tends to be an afterthought, which is a travesty.  Cyber-attacks and identity theft have risen exponentially over the past few years.  Payroll administrators are entrusted with secure information and should take the trust placed in them very seriously.”
Brad Stultz, Human Resources Director, Totally Promotional

Time and Money Spent on Payroll

One apparent benefit of switching to digital payroll solutions is the opportunity to save time and money on accounting functions. However, time (37%) and cost (22%) are two of the most often cited issues users have with their payroll solutions.

Survey respondents told Clutch how much money and time they spend on payroll, and we found that in both cases, these amounts vary widely.

Time Devoted to Payroll

Money Spent on Payroll

According to experts, the variation among these responses can be explained by the sizes of respondents’ companies.

“[Cost and time] really depend on the size of a business.”
Tyler Winn, Founder & President, Cirrus Payroll

“[Cost and time] really depend on the organization and how they are processing their payroll.”
Brad Stultz, Human Resources Director, Totally Promotional

When considering our survey respondents, there does indeed seem to be a connection between the cost of payroll and the size of the business. The smaller the organization, the less expensive the payroll solution:

  • 61% of companies with 2-10 employees spend $0-$200 per month.
  • 45% of companies with 201-500 employees spend $401 to more than $500 per month.

Money Spent on Payroll by Size

However, the connection between company size and time spent on payroll is less clear. While a majority (57%) of businesses with less than ten employees only spend 1-10 hours a month on payroll, larger companies vary significantly on time spent. The largest companies in our respondent pool are not more likely to spend a greater amount of time a month on payroll.

Time Spent on Payroll by Size

This discrepancy between size and time could be explained by a number of factors. The most obvious is the possibility that payroll solutions are better determinants of time spent per month than size.

We surveyed respondents on the time spent based on their payroll solutions split between the market leaders (Intuit, ADP, and Paychex) and the smaller payroll competitors.

Time Spent on Payroll by Solution

We found that payroll solutions will not necessarily have a direct effect on the amount of time spent on payroll per month.

While our survey was inconclusive as to why exactly companies vary so significantly on time spent on payroll, the most obvious answer is human error and inefficiencies.

 


ABOUT THE SURVEY

The survey included 301 responses from payroll administrators; 98 percent of respondents hold a manager position or higher. Respondents all work at companies with 2-500 employees in the US, with 57 percent coming from companies with 11-200 employees. Data collection was completed in April 2016.

Have questions or feedback about this survey?

Contact Amelia Peacock at [email protected]

Survey Respondents Employment Position

Survey Respondents Company Size