Hidden Costs in In-House TCO for Payroll

Are you accounting for all of your expenses or only the most obvious?

 
Did you know that the average payroll TCO per paycheck for in-house systems is now over $16, which averages out to $459 per employee, per year? Why do many organizations believe that their payroll TCO is around $4 per paycheck when it is actually so much higher? It's simple - hidden costs. The 2003 PwC study found that hidden costs (such as non-payroll department time collection activities, processing overhead, and IT-related expenses) are substantial, amounting to nearly 60% of TCO.

The 2004 PwC study showed that the average payroll TCO per paycheck for ADP clients is $10, or 35% less than the $16 per paycheck cost for in-house systems. Why? Because ADP removes many of the costs associated with IT labor, systems, and maintenance while reducing the burden on payroll staff. In addition, the study found that while in-house operations fail to take into account the many "hidden costs", outsourcing to ADP increases the transparency of the entire payroll cost structure.

To give firms a comprehensive view of in-house TCO, PwC also measured TCO for HR Information Systems (HRIS). The results indicate that the average annual HR systems cost for in-house systems is $88 per employee per year, and may cost as much as $2M depending on firm size. The costs measured were again those that might not be considered in an annual expenditure analysis - hidden costs such as IT labor, upgrade and maintenance expenses.

The PwC results also indicate that the annual HRIS TCO for ADP Clients is $40 per employee. The more than 50% cost savings reflect ADP's ability to remove virtually all one-time and on-going HRIS maintenance and upgrade costs. Since ADP develops, maintains and manages the system technology, ADP clients enjoy substantial savings and insulation from technological obsolescence.

  • The average TCO for in-house payroll is now over $16 per paycheck.
  • Annual systems costs for in-house HRIS are $88 per employee.
  • Annual systems costs for ADP HRIS are $40 per employee.

What are the most common hidden costs?

For more information on this please request the PwC White Paper here