Payroll Implementation Changes in Business Process Final Report -- December 2000

Summary

Decentralized entry of time and leave usage

• Distribution of time and leave usage to the units is being successfully phased in across campus.  The anticipated completion of the transition is March 30, 2001.
• To increase the accuracy of the time reports and eliminate "anticipated pay" (i.e., reporting hours before they are actually worked, as is currently necessary for work done on the last Friday or Saturday of any biweekly pay period), the pay period end date will be moved to Thursday beginning with the pay period of 12/31/00-01/11/01 (pay date 1/19/01).  Monies already budgeted for this year's wages will be used to cover workdays affected by the transition, so that no employees will lose pay in their 1/19/01 pay check.

• Electronic direct deposit of pay will be a condition of employment for all new employees, beginning 1/1/01. The university is working with local credit unions and banks to provide a wide range of choices for the this service, especially for student employees who may not have existing accounts with banks or credit unions.
• About 65% of current employees use direct deposit already.  Because of the university's savings in time and money, all current employees will be encouraged to convert to direct deposit.  Incentives for change will be provided by the university in cooperation with local banks and credit unions.
• The university will phase in online access to pay stubs for all employees with direct deposit.  Access and training issues remain to be resolved, and in the first months of the transition, online access will be optional.

• Detailed analysis of the proposal to move all employees to a uniform biweekly pay cycle indicates that the annual costs exceed the benefit gained from the proposed change.  The existing pay cycle structure (classified staff paid biweekly on Friday; professional/administrative staff and faculty paid monthly on the 30th) will remain in place.

Current process: The university pay process is generally based on exception reporting: the system is programmed for normal work hours, earnings, and leave accruals of regular employees. Positive time entry is required for temporary and student employees. Each pay period includes one or more days when time and leave must be reported before hours are actually worked (anticipated pay). UBMs use preprinted timesheets to submit time and leave usage to the Payroll Office for centralized data entry.

New process: Timesheets will be distributed to the UBMs, who will enter time and/or leave usage directly to the database for processing. All data entry must be completed before audit processes can be run.

Advantages

• Reduces occasions for clerical error by having UBMs enter data.
• Brings data management closer to the source of the data.
• Eliminates a redundant centralized clerical process.
• Reduces pay adjustments by eliminating "anticipated pay"
• UBMs will know several days in advance of pay date if an employee will not be receiving a paycheck.

• Changes the end of the pay period from Saturday to Thursday to eliminate anticipated pay, with a resulting reduction in days paid for the initial pay period for hourly-paid employees.  Solution: Monies already budgeted for this year's wages will be used to cover workdays affected by the transition, so that no employees will lose pay in their first pay check under the new schedule (1/19/01).

• May require departments to re-engineer their business processes to accommodate the associated schedule changes.

An estimated net savings of $25,880 in saved processing time will result from this change. This saved time can be redirected to provide new or improved services in the affected departments.

Potential Savings

Save $36,000 in saved data entry time by Payroll office staff (80 hrs per bi-weekly and 20 hours per monthly)
Save $4,560 in saved processing time by eliminating distribution and collection of pay sheets (4 hours per pay cycle).

Costs of $14,680 in additional time for auditing tasks by Payroll office staff.

• Pilot project: October-December 2000
• University-wide training and phased implementation: January-March 2001

These related but independent proposals will reduce costs for paycheck and advice printing and distribution.

a. Direct deposit of pay by electronic funds transfers

Current status: About 65% of employees now choose to have their pay electronically deposited to a bank or credit union account.

New approach: Encourage current employees to elect EFT pay. Require EFT participation as a condition of employment for new and  rehired employees effective January 1, 2001.

b. Electronic distribution of pay advices

Current process: The University distributes a printed pay stub to every employee, including the 65% of employees whose pay is directly deposited into an account.

New process: Pay stub information for direct-deposit paychecks will be available via secure web server access.

Advantages

• Reduces Payroll Office manual sorting of pay advices for distribution.
• Reduces cost of check-grade printing.
• Eliminates manual distribution of pay advices in the departments.
• Prior-period pay-stubs will be available via secure web access.
• Provides paystub information via web access for employees unable to be on campus.

• May add to UBM workload in those units where individual access to computer facilities is not universal.
• Distributes printing costs to the units where computers and printers are located.

• Requires systematic, university-wide training, access to web browsers, and additional security administration.

An estimated net savings of $25,000 in real dollars and an additional $19,500 in saved processing time will result from this change. This saved time can be redirected to provide new or improved services in the affected departments.

Potential Savings

• The current cost of sorting pay advices is estimated at 24 staff hours for each pay date. This staff time will be available for other assignments. Eliminating the labor for processing pay advices for those employees currently using direct deposit would save almost $15,000 per year in labor costs.
• Eliminating the cost of centrally printed pay advices for those employees currently using direct deposit will save at least $25,000 per year. This savings increases in direct proportion to increases in the number of those electing direct deposit.
• Current effort to re-print prior period pay stubs is estimated at .25 FTE, or $7,500 annually.

• The administrative costs of resetting passwords is approximately .10 FTE, or $3,000 annually.

• First month:  Both paper and online pay advice formats available. EFT incentive program begins.
• Second month:   Online advices will be available campus-wide.  Paper advices will be printed but not distributed.
• Third month:  Pay advices will be available in online format only.

Uniform biweekly pay period for all employees

Based on the following analysis, the proposal for biweekly pay to all employees is rejected.  The University will continue to pay classified staff biweekly on Friday (about 4,100 employees, 26 pay periods per year) and P&A staff, faculty and administrators monthly on the 30th (about 4500 employees, 12 pay periods per year).

Analysis of proposed change

Advantages

• Reduces by one-third the number of regular pay cycles per year.
• Consolidates pay processing into consistent two-week cycles for more efficient planning.
• Reduces by 12 the frequency and associated costs of transfers to the general ledger.
• Provides more accurate leave balances because of shorter reporting intervals for P&A staff.
• Simplifies processing cycles during holiday periods.
• Increased opportunities to get new monthly employees their first check.
• First pay for GTAs, PTLs and house staff will be made about two weeks earlier than at present.

• Increases the total number of pays made annually by more than doubling the number of pays to employees now paid monthly.
• Concentrates payees into a single biweekly group, increasing the number of pay records to be processed in each period.
• Adds to UBM workload by increasing (from 12 to 26) the number of times that leave accrual and usage data must be entered for approximately 1200 employees.
• Short-term or one-time: changes the structure of the university’s tax liabilities and benefits payments for monthly employees
• May affect EFT and other automatic withdrawals by monthly employees
• Employees will have to evaluate pay period general deductions for possible adjustment.

• The current practice creates a cultural distinction between classified employees (biweekly pay) and P&A/faculty/administrator employees (monthly).  Any change to standardize pay cycles will alter this cultural distinction.
• Each pay period, regardless of the number of payees, has associated costs for the transfer of pay information to the university’s accounting system and for reports to retirement carriers, as well as for the manual processing and distribution of pay information through checks and advices. By eliminating 12 pay period cycles and the associated processing, efficiencies will be realized throughout the university. For instance, the monthly and biweekly pay cycles now have variable periods of coincidence (i.e., biweekly pay day is always Friday, but monthly pay day varies month by month, so that the work pattern in the Payroll Office is highly variable from month to month).

Cost Analysis – Net Costs

An estimated annual net cost of $227,000 in real dollars may result from this change.

Approximately $70,000 in saved time by eliminating 12 payroll-processing cycles.

• Loss of interest normally received (the "float," estimated at more than $227K per year) on monies held an additional two weeks before payments to monthly employees. The health, life, and AD&D deductions for monthly employees will be less than the monthly premium due at the end of the first month. The University will have to cover one-half of that premium until the second month.
• The actual number of paychecks will increase from 12 to 26 for those employees now paid monthly who still receive a printed check.