Choosing between integrated or separate payroll and HR software is one of the most crucial decisions in the procurement process.
Is it better to buy a new integrated HR and payroll system, or use different systems? Or, use different systems, but try to integrate one with the other?
This is a dilemma that any HR manager is likely to face when procuring new payroll software. On the one hand, a single integrated system means only having to maintain one set of data, which cuts duplication and inaccuracies. On the other, there may be cost considerations and legacy issues around existing systems which make a standalone payroll package more attractive.
Efficiency savings of integrated systems
Greater efficiency is considered the main advantage of an integrated system.
The overlap in data used by both HR and payroll is substantial, points out Michael Howard, managing director of Frontier Software, and includes: employee name and number; employment record; birth date; gender; address, sickness record; maternity pay; pension information; plus much more.
“Integration means that relevant data is only entered once, and from a database management aspect, data should only be stored once,” says Howard. “Where this is not achieved, duplication and inaccuracies occur. This will also be the case when the data needs to be changed and updated.”
An integrated system makes reporting and management easier for HR professionals, says Jonathan Legdon, business development director, at NorthgateArinso
“All data about an employee such as their pay, conditions, cost centre, organisation, position and personal information can be simultaneously available,” he explains.
“This has several advantages in terms of processes and workflow. For example, a newly hired employee can be set up in the system by an HR administrator, the employee can add personal data through self service and pay details can be added by a payroll administrator using the same core data. There is no need for cross-referencing or waiting for data to flow through the system.”
The use of just one system can mean fewer overheads. “If you opt for separate HR and payroll software, users will have to be trained across the different systems,” says Frontier’s Howard.
Any company considering use of multiple IT systems from different vendors should consider the wider technical integration implications of such a decision.
Arguments for separation
However, there are reasons why companies may choose not to integrate HR and payroll systems.
Among bigger organisations, there may be a global commitment to another system such as SAP or Oracle, says NorthgateArinso’s Legdon. “If a company has got an existing payroll system that works fine in conjunction with this system, then it may decide to simple upgrade its existing payroll package.”
Familiarity is another consideration. “If people are paid the right amount every week or month and the system is broadly fit for purpose, a company may take the view, ‘if it’s not broken, don’t fix it’,” says Legdon.
“When the same payroll system has been running for some time, it will probably have reached a point of maturity where the team responsible for it feels comfortable, knows it thoroughly and is reluctant to change. Staying with the same system means there is no need to set up new software and its operation will not require staff to be retrained.”
At the SME end of the market, not every company may have an HR need, says Neilson Watts, product manager at Sage. “Our Instant Payroll package, aimed at firms with up to 10 employees, covers all the payroll essentials – payslips, HMRC deductions, pensions – but does not offer wider HR functionality,” he says.
“That’s fine for small business owners, for companies without an HR department where the HR/payroll function may be covered by someone who as a dual role.”
However, while many small firms think they do not require HR functionality, there are certain features, such as absence management, which cut across both HR and payroll that they invariably find useful, says Northgate’s Legdon.
“For example, some firms may want electronic payslips, but would not prefer not to go down the self-service route; that flexibility is available.
“In any case, we don’t ask companies to have every bit of HR functionality; in our ResourceLink package,” he adds. “We turn off the bits they don’t want, and the price is adjusted accordingly.”