Study: Doing In-House Payroll and HRIS Carries "Substantial" Costs

October 20, 2003 ( - Companies who run their own payroll and HRIS systems may not be doing themselves any favors, a new provider-sponsored study indicates.

The study, commissioned by ADP Employer Services and conducted by PricewaterhouseCoopers (PwC), was designed to measure the Total Cost of Ownership (TCO) for the two HR platforms. PwC attempted to uncover the one-time costs (system installation and upgrades), processing costs (labor and non-labor) and maintenance costs (labor and non-labor) for payroll and HRIS.

According to a news release, some of the “substantial hidden costs” of running payroll systems were related to ongoing platform upgrades, which ADP said are often overlooked in the analyses of payroll processes. The study shows the average TCO per paycheck was $16 per check while nearly 30% of the HR functionality owned by their responding organizations goes unused.

“While companies are looking to cut costs in the current economic environment, the study reveals that hidden costs, such as frequent upgrades, drive in-house TCO much higher than most companies realize,” ADP said in its statement.

Other study findings include:

  • The annual cost of ownership for an in-house HR system is $88 per employee.
  • Only 25% of senior financial executives expect to realize any economic value added (EVA) as a result of upgrading current in-house systems or installing new systems
  • The useful life of in-house systems has declined to four to seven years as firms have opted to replace amortized systems rather than invest in additional upgrades.
  • Larger in-house software solutions appear to redistribute costs across budgets, but do not necessarily offer total cost of ownership advantages.

The survey covered senior financial decision makers at 181 companies with an average of 6,500 employees. For more information, go to . Among its other offerings, ADP’s services include: payroll, tax regulatory management, HRMS and benefits administration.