Yesterday, NelsonHall published its “Targeting Payroll Outsourcing” report for our clients, so I thought it would be appropriate to briefly touch on some of the findings. The global payroll outsourcing market was estimated to be $12bn in 2010. Currently, the mid-market (50%) combined with the national segment makes up ~90%, while large multi-nationals make up the remainder.
While the mid-market segment is quite large, majority of growth is expected from the large multi-national market because of the increase in demand for multi-country payroll across all regions. In fact, the desire for multi-country standardization has been reflected in NelsonHall’s HR Outsourcing Confidence Index (HROCI) for some time now. We are seeing a shift from multi-country standardization on a global level to more of a regional level.
The drivers for payroll outsourcing have remained the same overall, but the rankings have changed. The number one reason for outsourcing payroll continues to be cost reduction with ~85% of all buyers citing this objective. Moving up one notch is the desire to have a multi-country platform managed by a single vendor to obtain global visibility of cost and aggregated reporting of data. Finally, the third most important driver cited for outsourcing payroll is to ensure compliance and manage risk due to continual changes in tax laws including Sarbanes-Oxley in the U.S., and labor contracts.
Another interesting change worth noting is the shift that has occurred with who is leading the discussion to outsource payroll. In 2009, HR spent the largest proportion of time discussing the decision at 83%, with the CFO / finance department allocating ~70% to it. This year, the CFO / finance department is spending the biggest proportion of time on discussions at 86%, while HR is spending ~80%. Two main reasons explain why the CFO is spending the most time leading discussions. First, payroll often falls under finance departments in Europe, and second, the CFO is involved when cost is the primary driver.
One final thing I’d like to point out now is the 3% global increase since 2009 in self-service and electronic statements that are resulting in less time, money, and paper consumed, along with the increasing popularity of paycards as an alternative to paper payroll checks. Paycards save employers >50% of the cost of issuing a check. An estimated 2.5% of employees in the U.S. are paid via paycards with HRO providers such as ADP and Ceridian offering paycards on a standalone basis.
The payroll report goes into greater depth on these topics and others including market size and growth estimates, technology platforms utilized, and estimated vendor revenues and market shares to name a few.
Amy L. Gurchensky, Research Analyst, HRO, NelsonHall
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