Market & Sourcing

Payroll costs -
curse and blessing

by Frank Krauß

Payroll accounting is a large cost item for companies. Because of the high volume, however, savings also pay off quickly. A discount of up to 30 per cent is possible if you know the figures and the target.

Most companies have to account for wages and salaries. Depending on the number of employees, large amounts accumulate there - not only in terms of the number of payrolls, but also in terms of costs. And in TCO calculations, additional expenses apply, including the staff who carry out payrolls and answer employees' questions, the IT environment, the time-tracing terminals, and if necessary also for printing, enveloping and mailing or the internal portal.

What does a payroll cost?

According to the Metrics Data Lake, an average payroll costs €5.09 per employee per month. However, the costs strongly depend on the services that are included. For construction payrolls, for example, the financial outlay is significantly higher. But in other sectors, too, companies can be found that pay significantly more than €10 per month and employee for payroll accounting. With 10,000 employees, the additional expense compared to the average adds up to 50,000 € per month - for a similar service without real added value.

Outsourcing the payroll

Specialists in the market can perform this task more cost-effectively. From our data, we know that outsourcing can reduce the cost of payroll by up to 30 per cent. This is not rocket science - the service provider will do everything possible to standardise its processes and procedures. In addition, they have less effort to maintain the systems. For example, updates only have to be applied once so that all customers can use them. Printing and sending statements to employees can also be done more cost-effectively because of the economies of scale.

Optimise payroll accounting

If a company wants to raise savings potentials itself, the following procedure has proven successful: The first step is to compare costs with the market. For this purpose, the provided services are identified and compared with companies that have similar requirements for payroll services. The result is an assessment of the situation, which shows deviations from the market level. Anomalies that come to light during data collection are discussed and evaluated in order to define approaches for improvement.


Payroll - a practical example

Company size: upper medium-sized

Employees on the payroll: approx. 43,000

Noticeable: gaps in time accounting

Solution: unification & standardisation of systems

Savings: € 28,000 in the first, € 56,000 in the second and € 73,000 in the third year

A medium-sized industrial company employs a high proportion of wage earners who are paid by the hour, as well as salary earners who are subject to time recording. This took place in several ways: via time recording terminals (from different manufacturers) in the subsidiaries, via an application in which employees had to enter their times, via Excel spreadsheets and on paper by mail. The recording was done manually at the head office by freelance assistants.

The benchmark project showed an average cost saving over three years of at least €50,000 per year. The client decided to standardise and simplify its structure. For this purpose, end-to-end systems were procured and a standardised time recording system was installed. Time recording now takes place with the employee ID card, all manual recording was discontinued. The savings have materialised over time due to the branch-by-branch transition. In the course of the project, the accounting of flexitime and absence days was also optimised.

Frank Krauß

Frank Krauß

Frank Krauss knows benchmarks in all their facets. Not only in market research, but also at a Tier 1 provider, he has analysed IT services and helped organisations to position themselves for the future.