By AJ Whalen, Vice President and Publisher, SAPinsider
In recent years, SAP SuccessFactors Employee Central adoption numbers have begun to increase as customers look to expand their cloud footprint, rising to 3,400 customers in the third quarter of 2019. As solutions around core human resources (HR) and talent acquisition have driven cloud HR adoption in recent years, SAP SuccessFactors Employee Central Payroll has also begun to see growth, with a 93% increase in customers year-over-year from June 2018 to June 2019. In the March 2020 SAPinsider research report “State of the Market: Payroll and Its Impact on Cloud HR,” 19% of overall respondents indicated that their organization is either currently running or is implementing Employee Central Payroll today.
What’s behind the increases we are seeing in Employee Central Payroll adoption? When asked to identify what is driving their payroll strategies today, 55% of survey respondents said they are driven by pressure to lower costs in their payroll functions. There are plenty of other drivers impacting customers, but the looming 2027 end-of-mainstream maintenance date for on-premise solutions such as SAP ERP HCM and Payroll is also on the minds of many. Less than half (36%) of survey respondents said that the 2027 date is affecting their payroll strategies and causing them to consider moving away from on-premise more quickly. Others are simply looking for ways to realize the same improvements in usability and efficiency that they have seen from their investments in other cloud applications.
Understanding How Employee Central Payroll Might Fit
To learn more about customer trends related to Employee Central Payroll and the ways it differs from on-premise SAP Payroll, SAPinsider interviewed Steve Bogner, Managing Partner at Insight Consulting Partners. Bogner is a recognized expert in SAP Payroll and the host of the SAP HCM Insights Podcast that brings industry experts together to discuss the current trends and topics that are important to SAP and SAP SuccessFactors customers.
During interviews for SAPinsider’s recent research report, several customers indicated that their organization doesn’t fully understand the similarities or differences between on-premise SAP Payroll and Employee Central Payroll. As Steve Bogner points out, while Employee Central Payroll is hosted in SAP’s data centers, it is processed on-site by customers in a similar manner to on-premise payrolls. However, while it may have many similarities to on-premise, maintenance support is one area of difference.
“Employee Central Payroll is not subject to the same end of maintenance restrictions as on-premise solutions. As of now, there is no end of maintenance timeframe for Employee Central Payroll, as opposed to the 2027 (ECC platform) and 2040 (SAP S/4HANA platform) timeframes for on-premise SAP Payroll,” Bogner says.
In the SAPinsider survey, 45% of respondents said complexity of their existing payroll systems was preventing them from considering a new processing platform or technology. In terms of flexibility of configuration, Employee Central Payroll does have a higher level of standardization when compared to on-premise SAP Payroll, but customers are still able to configure their payroll schemas and rules and utilize custom infotypes in the same manner as on-premise.
According to Bogner, SAP customers considering Employee Central Payroll should use their experience implementing their on-premise payroll solutions to help them gauge the effort, resources needed, and complexity of a potential Employee Central Payroll project. He recommends looking into how many resources your on-premise project required, how long it took to stabilize the system, whether you implemented new HR and time management systems at the same time, whether your company has become more or less complex since the on-premise implementation, and what lessons your organization learned from the project, for example. “In my experience, answering these questions often leads to a better estimate of what it will take to implement a new payroll system than a consulting firm can give you in an RFP response,” Bogner says.
In addition to being freed from the end of maintenance concerns associated with on-premise SAP Payroll, customers no longer need to own and run the hardware for ECP since SAP runs it in its data centers. “Customers also benefit from a higher degree of integration between Employee Central and Employee Central Payroll than they would get if they had Employee Central and kept their on-premise SAP Payroll,” Bogner says. This is an important caveat for the 42% of survey respondents who said they have concerns about integrating new payroll technology with other systems or platforms.
Moving to Employee Central Payroll does not exempt customers from the need to own the administration and updates of the system. As Bogner points out, there are still notes to apply, year-end HR support packages to test, and a three-stage Dev/QA/Production environment to manage. He adds, “The data model in Employee Central is not the same as in ECP, so there are transformations that need to happen. Most are simple, but depending on how HR implements Employee Central, some of those transformations can require more effort to manage.”
When it comes to strategies or actions customers are using to address the pressures placed on their payroll processes, 53% of customers said they are taking measures to streamline existing payroll processes or configuration. Bogner advises his clients not to expect much in efficiency gains when replacing payroll systems unless they are coming from an old platform that lacked self-service functionality.
“With ECP, the Payroll Control Center (PCC) offers some efficiency gains when implemented correctly,” Bogner says. PCC is available to both on-premise and ECP customers, but as Bogner points out, PCC in an on-premise SAP Payroll environment has a bit less functionality than when used in ECP. While PCC can improve efficiency of payroll processes, Bogner warns against expecting dramatic improvements. “Meaningful efficiency gains from PCC might be limited though, since it primarily impacts the payroll department and primarily on the days payroll is run.”
What Does This Mean For The SAPinsider Community?
SAPinsider research, combined with Bogner’s feedback, reveals that SAP customers should consider the following key steps when planning to change payroll platforms or when executing their payroll technology strategy.
- Be sure to have a strong vision on how you will manage payroll functions going forward. Many on-premise customers have built their systems and processes on the backbone of an integrated HR, time, benefits, and payroll platform. Moving to ECP changes that. If payroll is going to be in ECP and HR master data in Employee Central, where are your benefits and time management going to be? For larger, multi-country customers, Bogner says it often makes sense to move HR, benefits and time management to new platforms before replacing payroll. Smaller companies might be able to move everything at once if the project has sufficient customer resources.
- Work on standardizing, streamlining and simplifying payroll before going to ECP. As Bogner points out, complexity is the enemy of payroll and it will drive cost and risk for any implementation. For example, if you have three 401(k) plans with different rules for eligible wages or waiting periods, consider streamlining them into one plan. If there are multiple ways of posting to accounting per company, consider one approach to posting accounting for all companies.
- Create a global implementation template for implementing all global payrolls into ECP. While there are many local regulations and requirements, Bogner points out that about 80% of the payroll processes among countries are the same. Standardizing this 80% will ease implementation and ongoing support.
- Work closely with HR to ensure that Employee Central processes support good payroll processes in ECP. Bogner points out that you shouldn’t assume that you can move your current payroll configuration to ECP via an accelerator and have it behave the same as before. Your payroll calculation engine is getting a whole new HR system to feed it, so you should plan for the corresponding changes in your payroll system.
For additional insights on the payroll strategies employed by SAP customers and the actions they are planning to take with their payroll solutions, download the recent SAPinsider benchmark report titled “State of the Market: Payroll and Its Impact on Cloud HR.”