By Scott Fitzgerald
Mid-sized organizations tend to underestimate the true expense (the total cost of ownership, or TCO) of processing payroll, administering employee health and welfare benefits and managing other key HR systems and functions.
Each employee requires some $2,000 in administrative costs in the final annual tally.
If you”™re like many companies, your HR department may have one or two people handling health, payroll and other tasks in-house across a number of different systems or spreadsheets with very little or no unification. But what most companies don”™t know is that there are significant “hidden costs” eating away at your bottom line. Shining a light on them reveals:
Ӣ Direct Labor Cost: the salary plus benefits of HR staff handling administration;
Ӣ Direct Nonlabor Costs: cost of consultants, vendor fees and facilities, G&A (general and administrative);
Ӣ Indirect Labor Costs: includes supervisors or managers supporting administration (collecting hours, answering benefits questions, auditing data); and
Ӣ Tech System Costs: including installation, upgrades and maintenance.
When you put it all together average midsize business is spending $2,000 per employee per year. That means if you have 200 people, your total cost of ownership for handling those administrative functions in-house across multiple systems is $400,000 per year.
There are three steps an organization can take to reduce that number before it hits your P&L (profit and loss):
Ӣ outsource payroll and HR administration (companies that outsource reduce their total ownership cost or TOC by 18 percent);
Ӣ utilize a common vendor or solution to manage multiple functions (companies that outsourced multiple functions to a single vendor reduce their TOC by 32 percent); and
Ӣ spend more time focusing on strategic efforts (including things such as employee engagement and training).
Scott Fitzgerald is a human capital management consultant with Milford-based ADP. Currently he works with regional mid-sized businesses through deployment of outsourced human capital management strategies, process and technology. He can be reached at scott.fitzgerald@adp.com.
