The 2003 PwC study found that in-house systems are more expensive and less strategic than many buyers may have originally thought. Hidden costs, such as upgrade expenses, IT resources, and non-payroll department time collection activities drive the average system cost per paycheck to $16 and the average annual HRIS cost to approximately $500,000. PwC's 2004 study showed that companies with more than 1,000 employees who choose to outsource payroll to ADP average a 35 percent lower TCO per paycheck than their in-house counterparts. In addition, companies of this size that outsource HRIS to ADP average a 50 percent lower HRIS TCO per employee.
"This follow-up study was developed in response to customer requests for direct comparative data on cost savings achieved through outsourcing versus in-house," said Jay C. Rising, President, ADP National Account Services. "The results of this year's study reinforce the 2003 findings by demonstrating the strategic benefits and lower TCO realized through outsourcing with ADP."
Another key finding from the two studies is that the cost of upgrading in-house systems is substantial when compared to outsourced solutions. The 2003 study found that 75 percent of executives do not expect to decrease costs or add value as a result of system upgrades. However, companies continue to upgrade every 18 months (with an average cost of $470,000 for the larger systems) in an effort to not "fall behind" on the technology treadmill and risk non-compliance. These upgrades often involve implementing more functionality than needed, with as much as 30 percent of the purchased modules going unused.
The 2004 PwC study found that the average one-time system costs (initial installation and major upgrades) for outsourced payroll services were 91 percent less than in-house costs. By hosting and maintaining clients' payroll and HR solutions, ADP clients experience much lower initial systems cost and virtually no upgrade costs.
The two studies also compare key issues such as what factors should be included in Total Cost of Ownership calculations and how company size affects TCO. In response to client inquiries, PwC also uncovered cost-saving synergies gained by clients that integrate ADP payroll and automated time and labor management (TLM) systems.
Senior financial decision makers at over 225 companies participated in the 2003 and 2004 studies. These companies represented a broad range of industries, and had an average of 6,700 employees. PwC developed and administered the Web-based surveys to calculate costs for major components of TCO: initial system installation costs, last significant upgrade costs, payroll process labor and non-labor costs (including overhead and facilities costs), ongoing ADP processing fees, system maintenance costs and non-payroll department time collection activities. More than 600 emails and phone calls were made to clarify responses and ensure that these studies provide an accurate comparison of TCO across populations.
Added Rising, "The 2003 PwC study provided strong evidence that in-house systems are more expensive and less strategic than many buyers realize. In going the next step, the 2004 study shows that outsourcing with ADP offers an average 35 to 50 percent improvement in TCO compared to in-house, in addition to many other benefits. When looking at the two studies together, it is apparent that partnering with ADP offers a better value proposition."
Additional survey results and a PwC white paper on the TCO study entitled, "The Total Cost of Ownership: Comparative Cost Benefits of ADP Outsourcing vs. In-House Payroll and HRIS" are available at http://tco.nas.adp.com.
Automatic Data Processing, Inc. (NYSE:ADP), with over $7.8 billion in revenues and approximately 550,000 clients, is one of the largest independent computing services firms in the world. ADP Employer Services (ES), a division of ADP, Inc., is a leading provider of integrated business administrative solutions that help its over 475,000 clients efficiently manage their internal processes, allowing them to focus on core competencies. ADP Employer Services' offerings include both traditional and Web-based outsourcing products and services, giving clients the ability to select from ADP's comprehensive range of World Class Service solutions. Services include: payroll, tax regulatory management, HRMS, benefit administration, time and labor management, retirement plan services, online recruiting, PEO services, and employment screening and selection. For more information about ADP Employer Services, or to contact a local ADP sales office, reach us at 1.800.225.5237 or visit the company's Web site at www.adp.com.