ADP's annual global payroll customer event took place in London recently, bringing together 224 decision-makers from some of the world's largest companies, representing ~20m employees. The event featured a global economic update, ADP's strategic vision, and product development updates. The event also included a "round the world" experience sharing insights into local payroll nuances and topics.  

Key highlights

Highlights from the event include:

• ADP Assist (announcement here), ADP’s GenAI solution, built by domain, clearly demonstrated how productivity gains can be made; e.g. a scenario where nudges indicate higher than normal levels of overtime and prompting emails to be sent to all relevant supervisors to validate overtime levels, with options to chose a tone of language that is casual, formal  or shorter and more direct
• ADP Roll (announcement here), ADP's newest payroll product with chat-only features, demonstrated how work is changing, where only 3% of its users leverage a desktop and a whopping 97% process their payroll through mobile only
• ADP is enabling a workbook configuration within the ADP Global Payroll software
• Requirements for pay/gender (DEI legislation) and pay transparency are growing, and ADP DataCloud is looking to support these needs globally
• The buyer needs of a global payroll mobile app vary, but there were examples of how it is being used across Pay and Time in multiple countries; for instance, ADP client Principal uses the app to punch in/out through the etime product as well as being able to see payslips.

CEO Maria Black took the stage to share her priorities after one year in office. This is a milestone year as ADP celebrates 75 years in the industry and has been led by only seven CEOs. She shared how she sees the organization balancing its long history of stability alongside ongoing innovation. Maria focuses on the importance of "listening" to help drive the investments of products and services. For example, she has a practice of placing an empty chair in every room to represent the client in every meeting.

The ADP client base has a huge demand for new services and high expectations of ADP. Helping navigate global payroll needs in the complex global environment takes maturity, skill and a lot of listening. ADP is taking purposeful steps in its design decisions and looks to build lasting and innovative solutions.

What to look forward to from ADP's global payroll

Expect to see the following payroll developments from ADP:

• Marketplace developments will be growing on an international scale
• Variance check improvements
• Unified practitioner experience (ADP GlobalView and Celergo)
• ADP Integration Hub will be expanded to include both in and out activities, all in one place
• GlobalView and ADP Workforce Management will be integrated in 2024
• Benchmarking and payroll efficiency are coming
• ADP Roll will be expanded to Europe in 2024; this product is one to watch being one of the first GenAi- built and chat-only payroll products on the market
• An increase in the adoption of the ADP app across its customer base. With the addition of intelligent self-service prompts within the app, it will bring an elevated payroll experience, helping catch anomalies at source and once the ADP marketplace is expanded through the app, HR and payroll functions will be able to drive greater innovation and flexibility to support their workforces.

As we move into another year where salaries are not growing at the rates seen in previous years, payroll is becoming increasingly important for organizations. My point of view is that organizations should be looking to ensure their employees receive the best payroll experiences possible and should include this in how they measure employee experiences.

Last month, NelsonHall participated in the SD Worx Analyst Day, which included an update on key milestones since Kobe Verdonck took the reins as CEO in September 2019. The last three years have seen SD Worx supercharge its European growth and intensify its focus through achieving:

• Geographic expansion from 10 to 23 countries in Europe, where it utilizes its own IP in 17 of these
• Revenue growth from €768m to ~€1bn in gross revenue
• Customer growth from 70k to ~82k customers.

SD Worx has shared its vision for the next 5 years, keeping its course for pan-European growth through further targeting:

• Geographic expansion from 23 to 30 countries in Europe
• Revenue growth from ~€1bn to ~€2bn in gross revenue
• Customer growth from 82k to 100k customers.

To achieve this growth, SD Worx is looking to focus on the following key areas of differentiation:

• Integrated end-to-end HR solutions using the SD Worx, Gro, Flo or Pro service models
• SD Worx payroll software and subject matter expertise as the core method of delivery rather than using in-country partners
• Bringing local expertise, whereby in-country presence is core to its delivery model
• Consistent user experience, as all employees will have the same experience irrelevant of underlying software
• Aiming for a top 3 position in countries with a population >10m
• Being an employer of reference to attract talent.

SD Worx will look to support customers of all sizes and in all industries, locally and internationally.

However, as SD Worx actively drives payroll consolidation across the European HR and payroll market, one of its main challenges will be to establish the SD Worx brand and operational frameworks in its new markets.

Its aim of driving one experience across all platforms is ambitious, but with the client scale it is looking to achieve and through ongoing investments and acquisitions to support scale, this vision has strong promise. We can expect further acquisitions over the next five years to support its growth targets, in particular in Eastern and Southern Europe. This builds on recent acquisitions supporting the company’s expansion, including Integrho (Spain), Intelligo (Ireland), and HRPRO (The Balkans).

Last week marked Neeyamo's Payroll Beyond Borders' virtual global payroll industry event. The keynotes were delivered by payroll industry leaders Dan Maddux, Executive Director, American Payroll Association, and Ken Pullar, CEO, CIPP. The event had around 1,200 participants from around the world and was the first global coming together of global payroll industry experts since the start of the pandemic. As well as looking at the impact of the pandemic on payroll operations, there was also attention paid to how global payroll and agility is increasing in importance, reflecting changing priorities and the need to "meet the employee" where they want to work.

New Payroll Complexities Created by the Pandemic

The pandemic and related regulations or government subsidies meant new levels of complexity were introduced to payroll operations, complexities that needed to be handled without any delays. Payroll leaders highlight that payroll teams, both outsourced and in-house teams, should receive recognition for their efforts. The migration of staff to work-from-home locations put additional strains on payroll departments, both because of the associated risks and also the challenges in managing employment taxes in alternative payroll jurisdictions. Employees don't always feel the need to tell their employers where they are located if they are working remotely. Over the next year, some organizations may be facing the tax impact of changed employee locations retrospectively. The business continuity plans that were activated were not designed or expected to remain in place for months on end as lockdowns were extended. 

The pandemic and the general ensuing migration to WFH has helped shift the employee/employer power dynamic in favor of the employee. Employers will increasingly need to meet their employees' requirements as to where they want to work and how they want to work if they are to keep talent. Payroll systems need to be agile to support additional payroll jurisdictions, and payroll managers should consider adding new processes to enable employees to include remote locations for recording their place of work.

Employers are advised to re-evaluate business continuity plans and payroll controls. This is a time to upgrade and improve business continuity by investing in more robust digital processes to enable payroll to continue flexibly. The pandemic has exposed significant manual processes based on outdated systems that need to be re-evaluated to keep the payroll running during times of crisis.

On-Demand Payroll Increasing in Significance

There has been a growth in on-demand payroll offerings, otherwise known as ESAS (employer salary advancement schemes), particularly in the U.S. and the U.K., which are the primary markets currently. The pandemic has helped accelerate this growth: in the last two years, more workers have had to contend with financial stresses caused by a combination of limited or zero savings, reduced income, and unforeseen emergencies. And as the cost of living continues to rise in most markets, this isn't going to get better any time soon. Even amongst workers with above median, secure incomes and a decent level of savings, a growing proportion has been facing problems with their financial budgeting, perhaps due to timing mismatches between income and major outgoings. The household debt-to-income ratio has been rising for years, and in the U.S. and U.K. is over 100. With the current war for talent, there has been an increased focus by organizations on employee retention and the employee experience – and this includes improving employees' financial wellbeing. It should go without saying that employees that are financially stressed are not going to be the most productive, healthy, safe, or loyal members of the workforce.

But there are major considerations to be taken into account by employers when considering introducing on-demand pay systems, among these:

• The potential impact on company cash flow, though this is not an issue for organizations that work with third-party ODP providers
• Providing employee education on the principle that having access to a proportion of their pay on an on-demand basis does not automatically lead to financial wellness. Placing restrictions on the frequency with which an employee can apply for on-demand pay might help employees in their debt management and/or financial budgeting to an extent
• The risks of exposing employee data to financial services companies who might push other loan products.

So which types of employees are more likely to be interested in on-demand pay solutions?

• Younger employees with little or no savings, who are also facing large one-off outgoings, and who are new to financial budgeting
• Part-time and temporary employees, who will continue to represent a growing proportion of the overall workforce in all geographies
• Industries like hospitality and industries that have a high proportion of hourly-paid workers, especially industries with significant amounts of overtime (not having to wait to the end of the month when you have done a lot of overtime and have an immediate financial need is a significant benefit)
• The public, healthcare, and education sectors, which are major employers.

There were some concerns about on-demand payroll expressed by payroll leaders at the event. Among these was a concern that, given many companies have spent decades moving employees away from weekly pay cycles to monthly (U.K.) or two-weekly (U.S.) cycles, and thereby reducing operational payroll costs, is going on-demand a backward move for both employer and employee? However, from the employee's perspective, having access to on-demand pay is likely to be an attractive element in a benefits package.

The pandemic has changed organizations' priorities in terms of their people and operations. And it has thoroughly tested the robust nature of payroll operations, to unprecedented levels. There was a general consensus at the event that there is a continuing need to prioritize agility and automation in global payroll operations.

Nobody should underestimate how essential payroll is, though putting money into the bank accounts of employees in an accurate and timely way is often a thankless task. Payroll processes need to be robust if they are to support new ways of working, and Neeyamo's event was a valuable way to discuss and test thought leadership ideas.

This past week, CloudPay announced the launch of CloudPay NOW, its latest offering focused on modernizing the way workers are paid globally.

The employer-integrated Earned Wage Access (EWA) solution is a key addition to CloudPay’s offering that pairs its unified database and technology-enabled operating model, with its deep global treasury capability to offer one of the most comprehensive end-to-end global pay solutions available in the marketplace.

How CloudPay NOW Works

CloudPay has enabled CloudPay NOW by leveraging a strategic acquisition it made very quietly in 2019 to boost its mobile payment technology. The solution integrates with CloudPay’s unified global payroll database, including workflow based on client payroll calendars, mobile technology, and its highly adopted global payroll treasury offering. The new offering can support EWA in 130+ countries and 168 global currencies. It further enables digital payments globally and in real-time leveraging established global payment RAILS.

The CloudPay NOW user experience is enabled through apps for both iOS and Android and provides employees with real-time access to earned wages for on-demand pay capability across the countries where CloudPay offers treasury support. Users are offered in-app support with chatbot and live chat options.

The benefit is cost-free for employees (employers are charged on a per employee per month basis) and provides them with early earned wage access, and real-time debit/credit card-based transfers to third parties, including person-to-person and person-to-entity. Because CloudPay NOW leverages a combination of credit and ACH RAILS, withdrawals can be performed in less than one hour, including on weekends, a much faster option than traditional bill payment solutions can provide. Transactions can also be scheduled for future dated payments and transfers based on automated target thresholds.

Further, the solution has been enabled with curated insights, guidance, and tools to support employee financial empowerment and wellbeing. Employers define set “business rules” within CloudPay NOW to guard and control employee access and withdrawals to ensure healthy usage of the capability. Employees can also adjust preferences (within client business rules) to support personal thresholds and limits.

The impact of CloudPay NOW

For employers, a globally unified payroll solution that goes beyond gross-to-net calculation to payroll funding and payment fulfillment offers real value for multinational firms supporting a global workforce. Traditional payroll solutions stop short of global payments, leaving employers to sort time-consuming money movement and foreign exchange complexities, often extending the pay cycle and timeframes for payments to reach employees.

With payroll at the heart of the employee experience, employers across sectors seek more ways to compete for top talent by providing differentiated experiences. On-demand pay breaks down lengthy pay cycles, and empowers employees to control the timing of their pay, boosts financial wellness, and offers them personalization to meet their unique financial needs (e.g., remittance to family members) and aspirations. Early adopters of employer-integrated EWA have seen measurable and impactful results beyond simply driving up direct deposit and digital payment adoption, with positive impacts on talent attraction, hiring, retention, and engagement resulting from deploying the benefit. 

To date, EWA solutions have been most available and adopted amongst U.S.-based employers and employees, with limited solution options internationally. With CloudPay NOW, multinational employers can offer the benefit of an on-demand payment solution to all of their employees globally, something other EWA solutions have failed to provide, as they are often enabled for a single country, or a few at most.

It empowers employees with control to determine how and, more importantly, when their earned wages are distributed. Payroll processing has long favored the employer with lengthy pay cycles, forcing employees to wait as much as a month for their earned pay. Meanwhile, their lives and financial needs are occurring in real-time, often leaving workers to tap risky alternatives to address unplanned expenses. 

CloudPay NOW provides employees with a tool that converges their pay with day-to-day life in real-time and provides tools to support money access and transfers, with insights to make more informed decisions with their earnings to reduce debt, advance savings, or navigate financial challenges as and when they occur.

The future for CloudPay NOW

The launch of CloudPay NOW is well-timed, given the groundswell of momentum building around digital payment solutions and their adoption. With digital payment adoption rising globally and mobile-first experiences fueling consumer expectations for on-demand experiences, the convergence of payroll with these factors has made employer-integrated earned wage access a standard element in modern payroll solutions. Further, in the environment of COVID-19, many firms learned just how challenging yet vital and impactful the ability to move earned wages to employees in a timely fashion can be – particularly those operating with multi-country footprints. Building resilient global payroll operations will require adopting modern digital capabilities like CloudPay NOW and its underlying treasury capability.

With clients now more commonly looking for their payroll vendors to provide treasury services as part of their managed payroll services arrangements, but not all vendors actively offering global treasury support, CloudPay is particularly well positioned to leverage its offerings synergies to boost adoption; its treasury service alone has been adopted by ~90% of its client base and continues to see similar uptake in new deals.

Looking ahead, CloudPay plans to add a digital wallet capability, including a branded pay card solution and is actively advancing its employee wellness support with expanded budgeting and planning tools. The solution is also enabled for (and has a selection of) non-profit relationships (which it continues to curate) for enabling philanthropic donations by users through their earned wages. It is also in-flight with FCA certification, which it expects to complete next year.

CloudPay will also seek to leverage CloudPay NOW to drive additional recurring revenues.  Longer-term, it sees CloudPay NOW as a standalone offering that could begin popping up in vendor marketplaces through integrated partnerships and white label opportunities for reselling the offering. Its in-country payroll partner network will be engaged first, with broader market providers in focus next.

CloudPay NOW already has a sizeable, multinational brand/employer piloting the capability to support 6k employees across 24 entities and 15 countries by the end of summer. The solution is expected to be well adopted by its client base, particularly those firms operating in challenging sectors with high hourly worker populations. 

The addition of CloudPay NOW to CloudPay’s global payroll offering provides a unique synergy to drive adoption for its complete offering amongst new buyers. Additionally, it elevates its value proposition considerably amongst buyers of global payroll services, providing it with a differentiated, end-to-end offering that pairs payroll technology and services, global treasury, and global payments within a single vendor solution.  

This is the final part of a three-part blog series covering my perspectives on the payroll market based on NelsonHall’s latest annual market analysis, Payroll Services: Globalization and Digitalization. Part One features the payroll buyer perspective, with Part Two looking at the managed payroll service providers currently pushing the pace of innovation. Here I focus on the outlook for the managed payroll services market and what to expect as we move forward.

Managed payroll services adoption

The appetite for managed payroll services remains healthy, and the market looks to rebound to its pre-COVID growth rates over the next three to five years, as digital payroll transformation projects are accelerating and firms seek to modernize this critical process for greater continuity, resiliency, and strategic value. And this is particularly true as payroll buyers more commonly require support from managed service providers in undertaking large-scale payroll transformation initiatives. 

The mid-market buyer will remain the largest adopter of managed payroll services globally, while large/enterprise-sized, late adopters of cloud-based core HR platforms will increasingly seek to extend cloud investments with integrated modern global payroll solutions. Small market firms are more commonly seeking payroll services as a core component in broader HCM technology and services solutions and are increasingly finding their footprints creeping to new international markets and require support for multi-country payrolls.

While single country adoption is steady, multi-country service adoption will continue to outpace single country deals by as much as 5x, as firms of all sizes and sectors will continue to see their footprints pulled to new countries of operation, particularly as 'work from anywhere' continues to trend upward, and talent is sourced from new locations. With providers now capable of supporting >150 countries through a single platform, UX, and a tightly integrated operating model – and with the need to modernize and consolidate multi-country payrolls – achieving global payroll transformation through a single vendor solution is more possible than ever.

From a scope perspective, fully managed payroll service adoption will continue to outpace partial services as firms seek to tap into the digital technology vendors have been proliferating in recent years, urging buyers to focus on payroll resiliency (cloud platforms, mobile-first design, on-demand payroll capability, predictive analytics, and dynamic, real-time integrations to bring it together seamlessly).

Additionally, firms operating in fully managed payroll services models during the pandemic had much-needed help in quickly accessing reliable data, interpreting, responding to compliance directives and government support programs, and fundamentally fared better in navigating the unforeseen challenges – further reinforcing the value in managed payroll service engagements. With compliance intensifying and payroll complexity escalating, buyers are keen to adopt fully managed payroll solutions to access best-in-class operating models, vendor advisory in de-risking the critical process, and supporting future growth and scale as requirements change.

Service offerings

The renewed focus, investment, and emphasis on payroll as a critical and core element in the employee experience have created a boom of opportunity for payroll solution providers.  Recent years have seen more new technology-driven entrants and pulled some (e.g., HCM tech providers) deeper into the payroll space, crowding the market with many options. 

Thus, vendors are commonly differentiating their solutions through the employee and client experiences, providing a modern UI/UX, mobile-first design, augmented and personalized support through AI/ML, and analytic insights – all of which is underpinned by a high-touch client experience that focuses on increasing client value by enabling improved payroll outcomes and driving long-term recurring revenue retention.

With buyers focused on cost containment and often varying in their maturity to digest and manage change programs globally, vendors are creating more flexibility for buyers by unpacking solutions to enable more standalone service levels and tiered service options – thus enabling incremental service adoption to accommodate unique buyer requirements, budget constraints, and appetite for change within the organization.

Vendors are also increasingly offering pre-configured, platform-based software and services solutions for smaller/midsized multi-national firms seeking modern, compliant 'core' payroll and HR capabilities to support long-tail footprints, enabling a turnkey multi-country core HR and payroll solution that can be rapidly deployed. 

Lastly, service offerings are expanding to include add-on services to meet buyer requirements and drive increased revenue retention; the top three service additions include treasury and funding services, HR compliance support, and global mobility support and advisory.

Enabling technology

With buyers keenly focused on the employee experience and seeking to align and integrate payroll with their broader HCM tech investments and tap into modern payroll solutions, vendors are focused on advancing and differentiating their UI/UX with roadmaps focused on deeper digital capabilities, including mobile-first design, predictive analytics, and intelligent automation. Modern payroll platforms are now providing practitioners with a single, globally consolidated, real-time view of payroll processing, providing deep transparency, insights, and control over their payroll operations globally.

Providers are also focused on touchless and autonomous payroll enablement – advancing platform automation through RPA, AI/ML/NLP to remove manual, repetitive tasks, detect and address anomalies and data errors in real-time, producing more reliable payroll outcomes (timely, accurate, compliant) while enabling payroll practitioners to focus on value-added analysis and strategic projects and tasks. With payroll holding some of the richest and least utilized data sets in the organization, accessing and leveraging reliable, real-time, globally consolidated payroll insights will be key to payroll pivoting from simple processor to strategic COE and business advisor. Thus vendors are advancing payroll reporting capabilities through real-time analytic reporting, benchmarking, and guided, predictive insights.

Lastly, payroll vendors are increasingly advancing their partnerships to supplement offerings and capabilities, fill white spaces, and offer clients solutions to meet their unique needs through integrated third-party solutions. While formal payroll marketplaces are still somewhat emerging and primarily existent within the HCM technology space, they will become a standard longer-term offering with certified, pre-built integrations to leading HCM technology platforms and a broad range of complementing third-party solutions.   

Key integrated third-party solutions increasing in demand and adoption include certified HCM technology integration and partnerships, as firms seek to tightly integrate payroll (globally) with their core HR investments, followed by earned wage access (on-demand payroll) and integrated workforce management.

Although on-demand payroll solutions are largely trending and adopted most by North American-based firms and workers (due to various social and economic factors), demand is gradually increasing globally and will be a standard offering requirement longer term. While most payroll providers have partnered with fintech firms to offer the capability, look for more payroll providers to enable native on-demand pay solutions as we move ahead.

You can read the rest of this blog series here: Part One, Part Two.

NelsonHall has published its annual payroll services market analysis, Payroll Services: Globalization and Digitalization. The report includes an analysis of two dozen payroll vendors, their offerings, and their buyers' perspectives. The project provided 'behind the curtain' access to many of the major payroll solutions enabling the market today and shaping its path forward.

This blog is a three-part series of my observations from the project and thoughts on what to expect for the payroll services space as we move ahead. Part One features the payroll buyer perspective, including the buyer view of the impact of innovation available today. Part Two continues with a look at the managed payroll service providers pushing the pace of innovation. Finally, Part Three will focus on my perspective on the managed payroll services market's outlook and what to expect as we move forward.

Managed payroll services: buyer perspectives

The past year has seen a renewed interest in payroll as a key transformational area of opportunity for firms across sectors. While many have focused investments and initiatives in recent years toward cloud HR adoption and advancing talent management capabilities, payroll remained somewhat overlooked.

Fast forward to 2021 and payroll is squarely at the heart of the employee experience, with firms realizing that payroll is far more complex, vulnerable, and desperately in need of modern tools to increase efficiency, resiliency and enable the critical process to better support the strategic direction of the business.

85% of buyers interviewed confirmed that payroll transformation was either underway or planned over the next two years for their organizations, with nearly all citing the need for support from managed service providers as they lacked the ability to undertake the transformation alone. With payroll transformation and digitalization in focus and front of mind for buyers, vendor selection criteria (amongst single and multi-country adopters), centered on vendors that can offer proven expertise and qualifications for the countries in scope and enable digital payroll transformation through an affordable platform-based offering.

What has gone well

Collectively, buyers pointed to positive overall satisfaction for their managed payroll services and vendor relationships and further indicated a positive outlook for their solutions to meet their strategic needs over the coming three to five years. 

With the marketplace crowded and differentiation often coming by way of the user and client experience, vendors are underpinning offerings with a high-touch, localized expertise that focuses on enabling value for the client and driving long-term recurring revenue retention.   Buyers showed high satisfaction with their vendors, specifically pointing to the strength of partnership, flexibility, and caliber of personnel as the top aspects of their relationships. 

Further, in recent years, vendors have loosened adoption requirements, unpacking offerings to provide more incremental service options, and filling gaps through integrated partner solutions to meet the unique needs of buyers across sectors and sizes – with buyers pointing to a positive outlook and confidence that their solutions can still meet their strategic needs longer-term.

What can be improved

Despite the innovations of recent years and the work both buyers and providers have done, there is room for improvement. Most notable this year was the appetite for digital enablers to transform payroll, yet commonly buyers were somewhat unclear as to what their provider offered in this regard.

With AI/ML still maturing in the payroll space, many solutions still lack an intelligent technology infusion, with the highest maturity and satisfaction seen amongst the HCM tech platform providers offering managed payroll services. However, buyers commonly lacked understanding of how intelligent technology (AI/ML) can help them automate the complex process, as buyers were often unsure if it was present in their solutions or even offered by their vendors.   

Further, two critical components required of modern payroll operations that are surprisingly lacking in meeting buyer expectations center on integration and reporting. Like many aspects of managed payroll solutions, not all integration capability is equal and must be thoroughly vetted and tested – deploying any solution lacking seamless integration (both in-platform and to/from the platform) will negatively impact the user experience and reporting, as it prevents data from flowing freely across the operating model, and amongst key systems. Specifically:

• Integrations: 40% of buyers indicated not using, not needing, or didn't know if their vendor offered integrations to third-party platforms, with about half of those respondents indicating a need to integrate those systems in the future, including core HR in select cases (often a decision by the business to hold off on core HR integration for undisclosed reasons)
• Reporting: Overall, a mixed satisfaction levels; lower-scoring satisfaction was driven by a lack of maturity in the offering or capability, e.g., only offering Excel-based reports or "basic functionality" lacking in analytic insights, visualizations, or graphical representation. In select cases, buyers choose to conduct payroll reporting outside of vendor solutions, likely leveraging third-party reporting tools or platforms to supplement the lack of vendor capability.

Further, buyers pointed to a clear opportunity for vendors to support them with process reimagination of payroll service and processes. Those citing lower satisfaction pointed to a lack of proactive engagement by their vendors for continuous process improvement. While technology innovation has undoubtedly helped, more can be done to engage buyers with new solutions, tools, and methods for addressing their unique requirements. As with the feedback on digital enablers, there is also a gap in buyer understanding of what vendors can offer and what is possible in terms of payroll transformation and process reimagination.

Vendor opportunities

Buyer lack of strategy or change management plan

In reviewing feedback from both vendors and buyers, there is a clear gap in payroll transformation strategy that puts both parties in a poor position from the start, particularly for multinational firms seeking to enable global payroll transformation. Buyers are often setting out to transform payroll with a limited or no strategic plan, assuming that adopting a particular solution or vendor model will instantly transform payroll.  While this can certainly move the payroll operating model forward, it must be accompanied by a clear strategic path and underpinned by a comprehensive change management plan. I often see buyers deploy the latest solutions (across HR towers) without doing the uncomfortable work of shifting habits and adopting the solution's full potential, only to find that they didn't transform after all.

While payroll vendors have expanded offerings in recent years to include front-end advisory and business case support, change management is often a key element lacking and generally isn't a core competency or service offered by payroll providers. This is an area I think vendors have to do better in supporting buyers, as it benefits both parties over the long term.

Process reimagination and innovation

A key area of opportunity that resonated across buyers and was evident amongst vendors across geographies and solutions was the absence of ongoing, proactive process improvement and service reimagination. Buyers commonly pointed to an appetite for deeper proactive engagement and consultation by their vendor post go-live. Capabilities like design thinking and proactive outreach to introduce and incorporate new innovations and tools into client programs are lacking. Many buyers simply didn't understand what their vendors could offer or how it could be leveraged to meet their specific needs and maximize the value of the relationship.

Payroll service providers can look to HCM technology providers as a model for how this can be improved. The HCM technology firms do an excellent job of staying closely and deeply engaged with their user community, assessing their engagement, satisfaction, and monitoring usage of their systems to proactively help clients maximize the value of their investments and drive the transformation they seek. 

They also do a great job of enabling communication channels between vendor and client as well as client to client. This open collaboration leads to the platform community driving its future through steady user feedback, thereby shaping significant portions of the roadmap and enabling direct impact for users for the challenges they face daily; further solidifying the partnership; boosting the investment in the success of the platform for all parties; and driving long-term recurring revenues.

Part Two continues with a look at the managed payroll service providers pushing the pace of innovation.

Part 1 by Pete Tiliakos & Liz Rennie

This is Part 1 of a 2-part blog presenting an analysis of key trends from NelsonHall's HR Technology & Services team. Part 1 looks at the key outsourcing trends around core HR functions, including cloud HR transformation, payroll, and benefits administration services.

Cloud HR Transformation Services

The drive to digital has kept many cloud HR transformation projects on track, despite some large enterprise signings being delayed. The 2020+ HR challenges look different from those in 2019, with organizational challenges related to workforce safety, workforce productivity, security, cost containment alongside deepening cost pressures, and a need to ensure all processes are digital. Pivotal to success is the agility of HR organizations to drive restructures supporting significant market upheavals across so many industries. Adapting to rapidly changing and compliance needs will also be a challenge.

Cloud HR transformation services are adjusting to a FluidWorkLife era, defined by greater people engagement to support fluid, individual work and homelife needs in a consumer-like way – while addressing higher-speed digital deployment through improved use of automation and technology to better manage the pace of business change and industry consolidation.

Outlook:

Key themes and drivers expected from the Cloud HR Transformation Services market in 2021+ include:

• Managing workforce restructuring and HR & payroll compliance: with unprecedented layoffs and furloughs, in contrast to significant growth in industries such as online shipping, couriers, and communications, HR has played a key role in supporting the business through change. Ensuring timely, accurate, compliant payroll was the top operational priority in 2020 and will remain critical moving ahead
• Workplace tools to support workplace change: with employees working from home, a greater focus on worker tracking to support a safe return to work, enabling touchless workplace services, monitoring social distancing interactions, and supporting contact tracing
• Effective employee engagement is table stakes: employees will have diverse needs and individual personal demands, requiring greater HR flexibility, including where employee solutions might need to be co-created. Enabling tools such as HR chat to support improved engagement will increase in importance, plus more regular employee surveys or pulse-checks
• Security is increasingly important, with more cyber-attacks evident during 2020
• Greater resilience through cost improvements, digital processes, and agility are also key to HR delivery models. Priorities are expected to focus on solutions that help make workforces more resilient, including employee health, voluntary benefits, risk, and cost.  Companies will be looking for greater agility for changing business needs. In the light of COVID-related revenue and cash flow challenges across many industries, it is expected there will be a greater focus on delivering longer-term cost improvements.

Payroll Services

This past year has been a stark wake-up call for many organizations and their payroll operations. The effects of the pandemic strained and exposed operating models up and down market, leaving many firms across sectors realizing investments to futureproof payroll operations for greater resiliency can no longer wait.

At the same time, 2020 has been payroll's 'time to shine', with practitioners stepping up to answer the call and keeping workers around the globe paid on time and accurately during arguably one of the most challenging times in recent history, despite the shortfalls in capability.  

On the managed services front, the shift to work from home enabled payroll providers to put their digital technologies to the test, proving out the very solutions they had been proliferating in recent years and urging buyers to focus on: cloud platform adoption, mobile-first design, on-demand payroll capability, predictive analytics, and dynamic integrations that bring it all together seamlessly. Additionally, firms operating in managed payroll services arrangements had much-needed help in quickly accessing reliable data, interpreting and responding to compliance directives and government support programs, and they fundamentally fared better in navigating the unforeseen challenges, reinforcing the value in managed payroll services.

Outlook:

While payroll service provider revenues were negatively impacted by the global economic downturn and subsequent job losses, and buying decisions were put on hold, the appetite for digital payroll solutions and managed services is quite healthy and is escalating as we move into 2021. 

With payroll a critical, core element in the employee experience, global footprints creeping, and compliance risks rapidly intensifying, buyers are keenly focused on payroll as a key area of investment moving ahead, and thus service provider pipelines are healthy, signaling a gradual return to the growth levels experienced before the pandemic. 

Five key themes and drivers expected from the managed payroll services market in 2021+ include:

• Compliance is THE priority: quite possibly the leading driver for managed payroll services adoption today and one that will intensify as we move forward;  buyers will focus on tapping into the tools, localizations, expertise, and global capability that vendors can offer at scale in removing risk and ensuring complete and timely compliance as statutory requirements evolve
• Digitalization up and down the process: no process in the employee lifecycle has been historically more neglected or overlooked than payroll.  Vendors will continue leveraging cloud platforms as the launchpad to enabling deeper digital capabilities with a heavy emphasis on automating the highly manual process through RPA, AI, and ML infusion, inching toward eventual fully autonomous processing. With payroll sitting squarely at the heart of the employee experience and wellness, look for deeper mobile capabilities, expanded use cases for AI/ML, and NLP-enabled virtual assistants that augment users and personalize experiences with guided, predictive insights to drive best practice and data-driven decision making
• On-demand earned wage access will be a game-changer for payroll: if the pandemic taught us anything, it's just how vital and impactful the ability to move earned wages to employees in a timely fashion can be. With the employee experience, engagement, and wellness top of mind for HR leaders, on-demand payroll capability helps with each by empowering employees with greater control and insight over their earnings. Look for the solution to continue its hypergrowth trajectory with adoption led by the U.S. and Canada, but increasing slowly internationally
• Payroll becomes a strategic partner: payroll has long been viewed as a simple processor and cost center, often overlooked in key HR decision-making or strategic decisions. Yet payroll controls one of the most critical processes in the employee lifecycle and houses some of the most underutilized and generally misunderstood data sets in the entire organization. With the continued proliferation and criticality of globally consolidated predictive analytics, and benchmarking capabilities, pared with the advancements in digitalization, payroll has the opportunity to truly shift its focus toward becoming a strategic advisor to the business
• Multi-country deals will escalate: with many MNCs operating on legacy, disparate, and often poorly integrated payroll solutions globally, the appetite for consolidating and modernizing global payroll remains strong, particularly with many firms finding their global operating models ill-equipped to handle the next major disruption. With multi-country payroll solutions able to support 100+ countries on average, look for buyers to tap into vendor offerings that can consolidate, digitalize, and automate payroll globally through a single solution.

Benefits Administration Services

Benefits administration providers have continued to focus on expanding benefits offerings to tailor to specific needs, while also minimizing administration by improving processes and technology. Significant changes in the way of working have also impacted the industry. Over 2020, benefits fairs were managed online, a first for many. As a result of the pandemic, technology is the driving force to innovation, with greater focus on homegrown platforms or through managed acquisition and tighter partnerships to support ongoing changing needs and client needs for greater visibility of data.  

Buyers of benefits programs continue to expect greater flexibility to support change, greater automation, customizations of communications, and improved process efficiencies. 

As government relief packages introduced by most major governments greatly impacted health provision and benefits rules, operations had to adapt quickly to apply these changes. As a result, 2020 was a year of increased operational costs for many benefits administrators.

Outlook:

Key themes and drivers expected from the Benefits Administration Services market in 2021+ include:

• Automation and integration: benefits operations will become more streamlined with greater integrations, minimizing risk and manual interventions
• Health costs are increasing in the medium to long term: costs might have reduced in 2020 due to a lower number of medical claims; a high-cost spike is expected in 2021 due to pent up demand for health services
• Keeping up with relief legislation has been challenging, and more changes are expected in 2021: The dynamic nature of the benefits markets will mean more buyers will look to expert providers for guidance and support and bringing greater agility to support compliance
• Compliance, security, and risk management will have growing importance: especially while more processes moved online and electronically, and as companies capture more data about their employees
• Personalization through AI will grow alongside company ethics and brand as it relates to benefits design. AI will increasingly support benefit recommendation engines; personalization will also increase through more fine-tuned communication tools
• Benefit design will have a growing importance in promoting diversity in workplaces and representing the company brand
• Benefits professionals’ roles will change to become more marketeers to communicate benefit programs and be less about interface/error management and processing
• Industrializing and institutionalizing analytics: increasing use of data to support and evaluate program success, employee engagement, cost management, and drive more informed decision making.

In Part 2, Nikki Edwards will look at trends and the outlook for talent management services, including recruitment and learning services.

Like many HR service providers, SD Worx has been supporting its clients over the last six months by continually making updates to the changing legislation and dealing with client queries and operational challenges. SD Worx also launched a study to better understand changing market needs, the findings of which have just been published. The SD Worx study was one of the most extensive European HR COVID impact surveys, across 20 industries and 3,000 companies from 11 European countries, and it found that the highest HR priorities in 2020 are operational, administrative tasks. As part of its thought leadership white papers, SD Worx has also set out a new vision for HR, to enable clients to balance “Stability” and “Fluidity”.

Key study findings

The study confirms HR’s top priority in 2020 was payroll. When asked, “What priorities or projects do you have (or plan to have) within payroll and HR?” the option “To ensure smooth, efficient payroll calculation and payment” scored the highest (#1 priority for 8 out of 11 countries) across 19 different options covering all aspects of HR. Payroll has never been more valued than in times of crisis; payroll administrators are “essential workers”.

So, when will things get back to normal? Nearly half of European companies surveyed were convinced that COVID-19 would have a lasting impact on their business. We will have to radically change the way we work (together) after the crisis. However, the HR study finds that HR directors rate their level of digital maturity as low: only 37% of surveyed organizations claim to have reached a high level of digital HR maturity. So, as many lives and business models have been disrupted, HR agility has never been more important.

The SD Worx study showed that the top three areas companies look at to leverage external specialists and outsource service providers are:

1. HR process automation
2. Regulation expertise
3. Digital transformation.

Other insights from the study demonstrate that besides payroll and HR services and performance, many European country priorities were as diverse as they are homogenous, something seasoned European HR directors are not unfamiliar with. As well as reflecting cultural priorities that might result in different priorities, NelsonHall expect the variations also be partially due to the timing of the different countries' COVID responses. The study was conducted over the month of June 2020 and during this month, many European countries were at a different stage of their COVID19 responses. The impact of the crisis was just starting to be understood and realized. According to most countries surveyed, the three areas that were the lowest priority were HR policy, reward, and contingent workforce.

Employee experience has been a common theme of many HR strategies over the last few years, and many still aim to optimize the employee experience better. With so many employees now working remotely, the employee experience and employee engagement are more critical than ever before and require modern technology to keep employees connected while ensuring timely, accurate, real-time information, and facilitating reliable outcomes throughout the HR delivery model. The SD Worx study showed ~60% of employers are still actively trying to improve the employee experience, either with existing projects or projects planned over the next 12 months. SD Worx defines employee experience as the digital workplace experience and cultural & inter-personal engagement as well as the physical work environment. SD Worx recognizes a trend towards more personalization in HR, with almost half of companies having “flex reward projects” in progress or planned within the next 12 months.

SD Worx response

In response to the HR study, to meet European countries' needs across such a wide range of industries, SD Worx set out its HR service vision. Its vision is to bring stability to HR services alongside a fluid offering, enabling each company to find its own optimal balance.​ The concepts of stability and fluidity are outlined below as well as some examples of how SD Worx addresses these:

Stability is defined by SD Worx as:

• Future-proof HR tech: SD Worx offers cloud-based HR/payroll technology offerings in the core markets of the U.K., Ireland, Benelux, France, Germany, Austria, and Switzerland

• Efficient HR processes; SD Worx recently developed its HR SME digital services platform “SD Worx Buddy”, piloted in Q2 2020 in Belgium. Frictionless tools: SD Worx launched its mySDWorx app for absence, expenses, payslip, internal communications, and a FAQ for HR. It has over 160K installations It uses machine learning to determine the ten most asked questions and is tailored to the client's database. It supports conversations designed for the employees (not for the process). Over 2019 it has rolled out an onboarding assistant to capture more employee data; now released in Belgium and UK, and the next country onboarding to be developed is Germany.

Fluidity is defined by SD Worx as:

• Personalization: SD Worx enables personalized remuneration packages through its reward cloud platform. This lets employees tailor their reward components with voluntary elements. Helping employees to value their rewards can not only boost motivation but also complement a cost-efficient overall reward policy
• Empowerment: SD Worx empowers organizations to be proactive and adapt to fluctuations in the workloads through its workforce planning offerings. It takes each employee’s qualifications, availability, seniority and other requirements into account which could be fulfilled by permanent or flexible staff, through the SD Worx Flexible Staffing solutions
• Autonomy: SD Worx solutions support personalized training trajectories, enabling organizations to boost employee engagement, performance and giving them greater autonomy.

For those who want to get more in depth insights on the research, SD Worx is creating a series of publications that will be published on the SD Worx platform (link). These are the first:

• Payroll: highly valued, hardly optimized
• HR, fluid as Hula-Hoop shaking (publication end of October, webinar at Unleash)

Also foreseen are ebooks on Workforce management and on Digital HR and Employee Experience.

The themes of SD Worx’s vision align well with the benefits Cloud HR transformation buyers look to achieve, according to NelsonHall’s Cloud HR Transformation Services market analysis report. According to the NelsonHall report, the top three were improved compliance, simplified and modernized technology, and improved employee experience. In 2020 and following the pandemic, it is evident that improving employee experience as an HR objective is not disappearing. Its definition and the height of the bar is being raised, moving beyond the realm of just a mobile app offering,  as vendors strive to deliver more frictionless and efficient offerings.

Since its IPO in early 2018, Ceridian has remained focused on reaching its goal of achieving $1bn in revenues. A key pillar of its growth strategy toward achieving that goal is the continued adoption of its Dayforce HCM platform by large multi-national buyers across key verticals, and expanding its adoption globally by enabling and offering integrated core HR, workforce management, payroll, and talent management to targeted countries, particularly the U.K. and Australia (which both helped it achieve 150% y/y growth outside of North America in FY’19).

To that end, Ceridian set out to expand its native global payroll capability, targeting ~20 countries over the next few years, and has quickly enabled Dayforce to support seven countries: U.S., Canada, U.K., Ireland, Australia, New Zealand, and Mauritius. Today, it supports nearly 4m users across >60 countries and this is growing rapidly. 

Ceridian’s global payroll capability received a huge boost last month when it announced it would acquire Singapore-based Excelity Global, a leading APJ-focused HCM technology and managed services provider producing ~1.2m pay-slips monthly. The move now positions Ceridian as one of the largest and most capable HCM technology and services providers in the APJ region.

Further, with its September 2019 acquisition of APJ-based workforce management solution provider RITEQ, Ceridian now has a highly competitive, combined core HR, WFM, payroll, and talent offering, specifically localized for the APJ region. 

Excelity’s impact on Ceridian’s capability

Not only does Excelity bring with it a proprietary cloud technology localized across 13 major countries in APJ, but it also brings a strong managed service offering, expertise, and delivery presence in the region supported by six primary centers, a key differentiator over other firms Ceridian evaluated. 

From a technology perspective, Excelity has cultivated a strong proprietary native payroll capability and recently launched an HCM technology offering in 2019, including:

• EPay: PaaS payroll solution targeted to employers with >500 employees and configured for gross-to-net calculation in 13 countries (Australia, China, India, Indonesia, Japan, Hong Kong, South Korea, Philippines, Malaysia, New Zealand, Singapore, Thailand, and Taiwan)
• Ezpayroll: SaaS payroll solution targeted to employers with <500 employees and configured for gross-to-net calculation in 12 APJ countries (Australia, China, India, Indonesia, Japan, Philippines, Malaysia, New Zealand, Singapore, Thailand, Taiwan, and Vietnam). As well as an integrated third-party digital wallet through its GCash partnership in the Philippines
• Excelity HCM: cloud-based integrated HCM platform technology.

It also brings a well-adopted managed payroll services offering that currently supports >300 clients with operations in multiple countries across the APJ region, including several notable brands such as Forbes, Volvo, Uber, and Mondelez, enabled by an in-region delivery footprint and capability that spans five countries (India, China, Singapore, Malaysia, and the Philippines), a key factor in supporting Dayforce’s continued adoption in the APJ region, and boosting Ceridian’s global presence.

The combined organization’s global footprint significantly enhances Ceridian’s “follow the sun” capability in support of service delivery, as well as its further development and innovation of future HCM technology.

Ceridian’s outlook

With the Excelity deal now closed, Ceridian has begun the process of merging and integrating the two organizations and capabilities, which is always the top challenge to any acquisition, particularly with two organizations at opposite ends of the globe.

While Ceridian doesn’t have a deep history of acquiring its capabilities, the complementary nature of the Dayforce HCM platform, combined with the strength of Excelity’s APJ experience and capability, should fit nicely, boosting its product offering, targeting, and adoption by firms in the region, as well as among North American and European based multi-national firms with operations in the APJ region.

A key decision for Ceridian will be deciding how to best leverage the additional technology Excelity brings. Will it be necessary to keep both Epay and Ezpayroll? And what becomes of Excelity HCM now that Dayforce is the parent flagship HCM platform (particularly as it seeks to shift Excelity’s client base to Dayforce)?

Ceridian plans to immediately leverage its global connectors to bring the Dayforce HCM platform and Excelity’s payroll technology together, en route to an eventual full integration. It further intends to enable Dayforce with localizations aligning to the set of countries covered by Excelity, with more expected to come longer-term through its roadmap.

While APJ is well in focus and adoption increasing, Ceridian has its sights set on deepening its global presence and capability. Late in June, it launched localization for Mauritius, with its first client, (IBL Group, a large multi-national firm with ~27k employees in 22 countries), as well as Germany, and Mexico planned by the end of 2021. It further supplements local payroll through its partner network to support broader EMEA and LATAM, and provide payroll coverage for 157 countries.

With Dayforce maturing steadily through its roadmap, including recent capabilities like Dayforce Wallet (U.S. only, with Canada set to launch in 2021), Dayforce Intelligence, Dayforce Safety Monitor, and deeper talent management capability (e.g. AI-driven recruiting), Ceridian is well positioned to gain continued adoption, particularly from strategic-minded, multi-national firms seeking next-generation HCM capabilities.

Earlier in the month on the NelsonHall HR Quarterly Buyer Market Round-Up session, many buyers agreed that compliance is going to be a bigger issue in 2020 and beyond than it was before.  Before it was just table stakes, now it is about survival, and with the new WFH (Work from Home) structures, the risks are higher.

I had this in mind when I joined ADP’s Analyst Day last week. ADP shared how HR priorities are changing and how, as one of the largest HR and payroll providers, they have responded to the many shifting priorities and also staying close to clients to support their changing needs. Here are a few takeaways from the ADP Analyst event, through the lens of Liz Rennie.  I consider these to be the most significant as they relate to HR in the pandemic recovery world:

• HR has been focusing on employee safety as the number one priority like never before – this we all recognize and is not news
• 10 years of job growth in the U.S. got wiped out in one single month – and an impact is job insecurity is heightened. HR teams know employee health and wellness, as a result, can indirectly affect productivity
• Employees working on the front line in COVID-19 crisis response industries do not need the extra stress of not being paid on time
• Compliance is now more than table stakes – navigating the relief opportunities offered by the governments in a timely way has meant the difference between a small business surviving or folding.

And just in case you didn’t appreciate your payroll provider enough, this is a glimpse of how ADP responded over the last months and how they are planning to help clients in the near term:

• ADP saw a 50% increase in clients reaching out to ADP the first few weeks of the pandemic compared to normal call volumes
• Implemented 1.4k feature changes from 2k legislative articles across 60 countries
• Responded within three days of the CARES Act passing to support small businesses with the implementation of its Paycheck Protection Program (PPP)
• Enabled 400k clients to run 2m SBA loan application reports, representing a value of $115bn
• Over $600m tax credits processed for 473k employees across 38k clients
• Partnered with Volunteer Surge. ADP’s Workmarket product helped onboard 1k volunteer health workers across 45 states within two weeks
• Offered free trial access of Employee Assistance Programs to clients through LifeCare to support workplace stress - 550 clients signed up in the last two months.

Three clients joined the ADP Analyst Day session to share their experiences of living through the pandemic using ADP services. All were very complimentary of how they had full confidence in the service. They also shared that ADP offered extended support, to the extent that if the client struggled to run a payroll internally, ADP offered to step in and run the payrolls on the client's behalf in the short term if that was needed.

Finally, it is great to see many wider initiatives to help the industry. ADP is assisting the industry through the following methods, which, if you’re not an ADP client, you can also benefit from:

• ADP Research Institute Labor Market Summit 2020:  you can still register here
• COVID-19 microsite with employer tools launched 19 June 2020: www.adp.com/Forward
• Collaborated in key research such as The U.S. Labor Market during the Beginning of the Pandemic Recession see: https://www.nber.org/papers/w27159
• Creating thought leadership through the Marcus Buckingham Company with The Feedback Fallacy, Harvard Business Review’s most downloaded article in 2019
• ADP research Institute headed up by Dr. Ahu Yildirmaz produces some powerful insights, my favorite is this one: ADP Workforce Vitality Report – subscribe here

So what’s next for ADP? Don Weinstein, CVP Global Product and Technology, shared the ADP Workplace toolkit to help get employees back to office spaces. So what is good about this?

• Employees that state they are ready to go back can register as such through a survey
• HR organizations can accordingly plan, communicate and prepare the offices for specific workplace returns–  allocating employees to different days of the week to enable staggered and rotational returns of different employee groupings
• COVID-19 health surveys regularly sent before returns to support attestation and screenings
• Touchless ADP mobile apps supporting entry on site
• ADP DataCloud  to enable reporting and analytics and if needed, contact tracing based on attendance on site

With regulations regarding workplace safety around the world changing all the time, compliance now has a whole new meaning. Corporate manslaughter is an area that no clients want to have to face, but staying out of touch and out of the offices for long periods is also likely to bring its own compliance issues. 

One caution, otherwise I wouldn’t be an analyst. The much anticipated new ADP product Next-Gen HCM developments might be somewhat delayed given all of the above, but I won’t hold this against ADP.

As independent analysts, we need to keep things factual. However, in the spirit of showing empathy in these unprecedented times, I want to extend a big thank you to ADP and all the other payroll and HR providers for helping clients, ensuring the livelihood of many employees during the crisis (which fundamentally includes paying people on time and assisting many businesses to get the relief they needed to survive) and also for supporting the wider industry in providing valuable insights into the impact COVID-19 has had on people, which has helped shape relief efforts and responses.

NelsonHall recently published a new U.S. SMB Payroll Services marketing analysis specifically focused on how HR service and technology providers are meeting the increasing demand for technology-based payroll and HR solutions from emerging small-mid sized businesses (<250 employees).

The SMB picture

Payroll services adoption remains steady amongst buyers of all sizes and still primarily driven by the need to improve the tactical elements of payroll execution (timely, accurate, compliant). And like larger middle-market and enterprise buyers, small businesses are commonly seeking out advanced, modern cloud platforms and services that can deliver the digital HR capabilities necessary to compete for top talent, address the ‘future of work', and enable compliant, scalable HR operations to support future growth.

The demand amongst small businesses for modern technology and digital enablers that can mature the organization's HR practices and enhance the employee experience is rapidly increasing; and the increasing demand for digital HR capability has shaped the vendor landscape, such that competition in the payroll services space is no longer limited to traditional payroll service providers alone. Technology providers have more recently pushed into the market; for example, Namely adding payroll services to its offering in the fall of 2017 and Kronos acquiring Louisville-based Advanced Payroll Systems in 2018. 

Small market buyers in the U.S. now have more options, with payroll services commonly offered through three core vendor types, including traditional managed payroll services providers, HCM technology providers with payroll services capability, as well as full HRO engagements through co-employment models offered by PEO providers.

Payroll as a gateway to broader services

Historically, payroll services were positioned as 'bureau-style processing services,' focused mostly on simple processing and compliance, which has mostly been replaced in favor of 'technology-enabled managed services' and extended by complementary HCM solutions. Managed service providers are increasingly positioning payroll service offerings as a core component in broader human capital management platform-based solutions, seeking to enable a 'one-stop shopping' ecosystem for end-to-end HCM capabilities that go well beyond payroll.

As a result, all major payroll providers are now heavily emphasizing their technology investments, capability, and digital HR/payroll innovation when positioning their offerings (up and down market). A good example is ADP’s recent 'Always Designing for People' rebranding effort, to emphasize its HCM innovation focus and investments. Additionally, payroll providers are expanding their offerings well beyond traditional managed payroll-only services to offer comprehensive HCM solutions.

With this HCM focus, payroll is more commonly being positioned with SMBs as a single, but core, component to broader HCM technology and services; buyers are most often seeking and buying a bundle of core HR, payroll, time, and benefits together as an entry point, and increasingly adding talent management capabilities next, most commonly onboarding, recruiting, performance management, and learning.

A growing trend in SMB service offerings is the addition of HR compliance support capability, to provide clients with access to live HR experts for day-to-day compliance advisory and guidance. Offerings include on-demand HR advisory and support through dedicated SMEs, handbook creation, HR knowledgebase and tools, employee surveys, analytics, and benchmarking capability across company size, region, and sector. Examples include Paycor’s HR COE, Namely’s Comply, Advice, Action offering enabled through partner integration with ThinkHR, and Zenefits’ HR Advisory offering.

Integrated partner solutions

Vendors are also rapidly expanding their HCM offerings through the development of formal and informal 'marketplaces' to offer integrated partner solutions (enabled through advanced APIs), which address white spaces in vendor offerings and allow buyers to enable custom HR solutions to fit their unique needs. Larger, more mature payroll providers and HCM technology providers are gradually working their offerings toward 'open platform' approaches, which will enable clients and third parties to develop integrated solutions for connecting to vendor platform technology, aiming to further enable clients to derive 'custom' HCM solutions leveraging modern technology with bidirectional integrations.

The top five focus areas for integration partner additions by SMB payroll providers are:

• On-demand payroll capability (e.g. DailyPay, PayActive, Rapid!)
• Global payroll partners (e.g. CloudPay, Safeguard Global, activpayroll)
• Time and attendance (generally for more advanced capabilities beyond basic time and attendance tracking, e.g. advanced scheduling)
• Talent management capability, most commonly at the SMB level (onboarding, recruiting, compensation, performance, and learning)
• Analytic reporting capability.

In speaking to vendors, a key trend is the growing demand for multi-country payroll by SMBs (key countries in focus include the U.K., France, Germany, and ANZ). While native multi-country payroll capability is limited amongst most SMB payroll providers, many are now commonly partnering with providers that can offer integrated multi-country payroll capability.

SMB investments and roadmap

Much like upmarket solutions, SMB payroll-enabling technology is being differentiated through features focused on enhancing the user interface (UI) and user experience (UX) to be more personalized and guided, expanding digital enablers to offer modern capabilities like a mobile-first design, embedded AI/ML/NLP, deep workflow and process automation, IoT connectivity, geofencing capability, biometric and facial recognition, and visual dashboards with real-time analytic reporting.

Top investment and roadmap focus areas across SMB payroll providers for the coming 12 to 18 months include:

• Enhancing the UX/UI to provide a consumer-grade experience that is engaging, simplified, intuitive, personal, and guided  
• Advancing toward a mobile-first/only capability to enable full platform functionality on mobile devices for both administrators and employees
• Enabling on-demand payroll and digital payment solutions
• Expanding offerings beyond payroll with new product offerings; top focus areas: HR advisory and compliance support, analytic reporting, talent management (most adopted: recruiting, performance, learning)
• Infusing AI, ML, and NLP across the platform to drive 'extreme' personalization, guided experiences, and enable predictive and prescriptive insights in context
• Opening platforms and developing formal/informal marketplaces for third-party integrations and extended HCM solutions
• Expanding partnerships and integrations with global payroll providers to support multi-country payroll requirements.

The outlook for the SMB payroll services market

The outlook for small business payroll services in 2020 and beyond is both exciting and concerning. While the market is healthy, thriving, and growing, the recent challenges of COVID-19 have wreaked havoc on small businesses in the U.S. and will continue to do so for the foreseeable future.

Payroll vendors have done a tremendous job supporting and sustaining 'business as usual' for their clients, providing an overwhelming amount of support, tools, training, guidance, and advisory in helping clients navigate the challenge, assess options and interpret government directives for workforce impacts. With providers increasingly positioning themselves as 'trusted business partners' and differentiating through the user and client experience, service providers have an opportunity to truly prove their value and solidify their partnership commitment, which will drive client retention long-term. 

There is no doubt SMB payrolls will shrink across hard-hit sectors (hospitality, travel, retail), which will reduce or slow overall vendor revenue growth for 2020, particularly if the economy shifts into a deep recession and buyers pull back on decision making or shopping for services. Vendors with sizable SMB populations will take the biggest hit from headcount and payroll shrinkage.

However, with payroll a critical process all businesses must execute flawlessly regardless of global concerns, combined with the learnings from COVID-19's impact, this should support net positive growth with payroll services adoption in 2020 as buyers of all sizes seek to de-risk and futureproof payroll operations, particularly those lacking a modern cloud infrastructure and sound BCP/DR capability to operate in unpredictable times.

This past week the payroll services market experienced yet another consolidation of major vendors, with Alight Solutions (‘Alight’) announcing its intent to acquire multi-country payroll specialist NGA HR.

Although the deal terms were not disclosed, once approved (expected by Q4, possibly Q1 2020 at the latest), the acquisition will bring together two leading HR BPaaS providers with highly complementary capabilities and footprints. Once combined, the new Alight organization will have around 14.5k employees, and provide a range of health, wealth, and HR services to >3k clients and ~50m lives globally.

NGA’s impact on Alight’s HR services offering

Currently, Alight has a comprehensive HR services capability, supporting clients with consulting, deployment, and ongoing support for HR platforms and services, including a managed payroll services offering which processes >24m checks annually.

Alight's payroll services experience dates back to 2004 when it entered the multi-process HR outsourcing space through its acquisition of Exult. Since then, Alight has developed deep expertise in delivering payroll administration services to large, complex organizations leveraging leading HCM platforms, including Workday, SAP, and PeopleSoft. But its payroll capability has geographically focused on North America and the U.K. and it has lacked multi-country payroll capability.  

With NGA HR, Alight will gain major multi-country capability, expanding its presence and delivery capability, particularly in Europe and Asia Pacific, and notably in Latin America where Alight lacks a local delivery center. Additionally, NGA HR brings its euHReka and hrX platform technology.

While the crown jewel from the NGA HR acquisition is certainly its global payroll capability, it also brings to Alight a very complementary HR BPaaS offering, with an aligning consult-to-operate model designed around major cloud HCM platforms including Workday and SuccessFactors. 

While both organizations currently maintain partnerships and support clients on these cloud platforms, Alight’s expertise and client base has slanted heavily toward Workday. Alight has a partnership with SAP SuccessFactors, but has historically not taken on deployments of the HCM platform, choosing to focus only on post-deployment services instead.

Conversely, NGA HR brings to Alight experience in deploying and operating on the SuccessFactors platform. NGA HR is also a partner with Workday and supports several clients on the platform, but does not currently take on Workday deployments.  

A win-win for both organizations

In NGA HR, Alight fills some key capability gaps, gaining very extensive multi-county payroll capability, expanding its global footprint and presence, and further enhancing its cloud HCM consulting and deployment practice.

With the addition of NGA HR’s SuccessFactors practice, Alight will be able to target and support a much wider set of cloud HCM buyers seeking broader HR transformation, and offer multi-national organizations a truly end-to-end HR BPaaS solution that can support a multi-country payroll spanning 188 countries.

The acquisition likely helps the case for Alight’s eventual IPO, which its owner Blackstone announced it would pursue in late 2018, but placed on hold in March of this year. Although the timeline for revisiting an IPO has not been disclosed, we expect the addition of NGA HR will only serve to boost Alight’s long-term value, particularly once the organizations have fully integrated and are leveraging their combined capabilities.

While Alight is gaining a solid capability boost, NGA HR may be the bigger winner in the deal.  As part of Alight, NGA HR will be finally breaking away from over ten years of private equity ownership, gaining a parent company that operates in and understands the HR technology and services industry, and that will invest in and cultivate its capabilities for the long term.

Once the deal is confirmed, the challenge of integrating the two organizations will begin. Both sides are M&A veterans in this space, having navigated mergers and acquisitions multiple times throughout their histories. This, combined with the highly complementary nature of each provider’s portfolio of services and existing footprints, should enable a successful transition.

While the two organizations will operate as separate brands for the foreseeable future, re-branding for NGA HR is likely in the longer term, though with a strong brand recognition in key regions such as Europe, it’s more likely we will see a co-branded offering longer term.

Overall, this is a win-win acquisition for both organizations, and combined, Alight and NGA HR create a very competitive, globally capable HR BPaaS offering for companies seeking digital HR transformation through a single vendor solution.

This past week I had the opportunity to attend a private event hosted by Safeguard Global at Crewe Hall in the U.K., where the company celebrated its continued success in the global payroll space and made a major announcement that aims to fuel the company’s continued growth and support its vision for enabling simplified, compliant global expansion for multinational businesses.  

Safeguard announced it has secured funding from private equity partners Accel-KKR (AKKR) which invests and manages a portfolio of innovative mid-market software and tech-enabled services companies. The investment is for a minority stake in Safeguard Global and will provide Safeguard with the funding and support needed to fuel investments in its platform and expanding capability to drive future growth.

With this new funding, Safeguard has acquired Workfor, a Pan-European based provider of technology-enabled human capital management services, including employer of record solutions (EOR) and managed payroll capability.  

Background to the acquisition

The two companies are no strangers to each other, having partnered since 2013, with Workfor supporting Safeguard as an in-country partner for its Global Employment Outsourcing (GEO) offering through Workfor’s EOR solution.

Workfor brings a portfolio of technology enabled HR services that is specifically designed around country domain experience for both local payroll and the employer of record model. Their regional footprint enables them to provide pay and expansion solutions, including managing registration, payment, and compliance in eight European countries where it has a local presence.

It also brings to the table a proprietary platform technology called AdminMe. The AdminMe platform is a SaaS solution capable of supporting payroll, employer of record, and time for all of the regions they support. A key capability for the platform is native gross to net payroll engine functionally for five of the eight countries it operates in, with plans to expand this to more countries in the coming 12-24 months, with France due later this year. Additionally, through the AdminMe platform, Safeguard also gains time and attendance functionality – a capability that other global employer of record providers currently lack as part of their payroll technology solutions.

Last, and possibly most impactful in the short term, Workfor brings with it valuable in-country presence, with ten offices in eight major EMEA countries: Switzerland, France, Spain, Portugal, Moldova, Greece, Italy, and Romania.

What this means for Safeguard

The investment by AKKR is a vote of confidence for Safeguard, its leadership, and the solution it has brought to market. During his speech to the Safeguard team, CEO and founder Bjorn Reynolds cited Safeguard’s legacy of innovation and disruption in the global payroll space, stating “…the next phase of Safeguard Global is going to be ambitious…”. The investment gives Safeguard the resources to double down on advancing its technology and building out its highly successful GEO capabilities and delivery model.

The AKKR investment also comes with leadership and guidance (including board representation) from a PE firm that is no stranger to the HR services and technology market, with a history of investing and owning similar firms. This brings both an outside advisory perspective on the industry, but also the potential opportunity to partner with these providers in the longer term.

While Workfor’s EOR installed client base is similar in size to Safeguard’s (with some overlap due to the partnership), the acquisition is by no means a simple ‘fold-in’ to boost client numbers or market share. The addition of Workfor’s EOR capabilities immediately compliments and expands Safeguard’s existing GEO offering to include candidate sourcing and time and attendance to provide a holistic, turnkey compliance model for enabling agile global expansion.  

The addition of AdminMe to the portfolio is possibly the big win here for Safeguard, which gains platform capability that compliments its own Unity platform, adding gross to net payroll capability in select countries, but also a strong time and attendance capability that Safeguard can now incorporate into its offering. While the platforms are currently connected, the first challenge will be fully integrating these two solutions to maximize their capability.  Safeguard also plans to build out the AdminMe capabilities through continued investments.

The expanded in-country presence and resources in several major EMEA countries is also a nice add for Safeguard.  By gaining these in-country resources, Safeguard can reduce its dependence on third-party ICPs within its payroll delivery model, increasing its control over its payroll processing in these countries, which can increase its speed of delivery, reduce its operating costs, and improve its margins as a result.

Lastly, Safeguard gains the ability to create more flexibility in its offering, and engage a wider range of buyers, by being able to engage them with point services and solutions vs. an all-in managed services arrangement. This could include standalone services, and the potential to license its platform for use by clients in-house.

Overall, I like this move by Safeguard, as I think it complements them well and creates plenty of new opportunities to grow and build on the momentum of its GEO offering. It also comes at a perfect time – NelsonHall’s recently published Next Generation Payroll Services report finds that a key trend driving global payroll outsourcing adoption is that managing payroll compliance is more complex than ever, and more commonly organizations of all sizes are being pulled in to new international markets, creating significant risk if not executed properly and within compliance. The ability to tap into a turnkey HR solution for global expansion is very compelling when you consider the alternatives.

Safeguard has enjoyed rapid growth and adoption for GEO to date. However, the solution and even the concept is still somewhat overlooked by uninformed buyers. While I expect this strong adoption to continue given the current state of the market and the results GEO is delivering, Safeguard could benefit from more aggressive marketing of the GEO solution to inform the market of its successes and potential.  As one of only a handful of vendors offering this capability, and solid investments to support its roadmap, Safeguard is well positioned for growth.

(For a deeper dive on Safeguard’s GEO model see: SGWI’s GEO Employment Model: Enabling Agile Global Expansion (May, 2018).

This past month, NelsonHall published its annual Next Generation Payroll Services report, which found that buyers and clients of managed payroll services are keenly focused on engaging ‘next generation’ technologies that can enable payroll operating model transformation. Thus, organizations are increasingly seeking out managed payroll services providers that can provide access to these modern technologies and optimized operating models.

New technologies are making a real impact on payroll. Modern cloud platforms, seamlessly connected by advanced APIs enabled with AI, and robust analytic reporting capabilities are collectively transforming the way payroll operates from kickoff to close. And more importantly, they are providing deep insights into some of the richest yet underutilized data sets in the organization. This data is where the real story lies and where the real impact can be made for payroll transformation, assuming the data is reliable and interpreted appropriately.

While managed service providers and the payroll practitioners they support are gaining access to powerful reporting tools and robust data sets, many continue to take a very legacy approach to how they measure payroll, often focusing mostly on timeliness, accuracy, and various other ‘surface level’ metrics alone. 

However, CloudPay, a leading provider of payroll services globally, is aiming to disrupt the way practitioners, and the industry at large, view payroll performance by launching a new Payroll Efficiency Index (PEI).

CloudPay’s Payroll Efficiency Index (PEI)

With the PEI, CloudPay is seeking to help practitioners push much deeper into payroll performance analysis, to truly understand how payroll is performing globally – overall, but more importantly at the macro level, to identify the core failures and opportunities at the source.

The PEI is based on five core Key Performance Indicators (KPIs):

1. First Time Approvals: % of gross-to-net calculations approved upon initial review
2. Data Input Issues: % of data errors caused by incorrect or incomplete input of employee data
3. Issues per 1k Pay-slips: Number of data issues identified for every 1k pay-slips processed
4. Calendar Length: Number of days required to complete payroll processing (lock to approval)
5. Supplemental Impact: % of payroll runs completed as supplemental runs.

CloudPay has enabled the PEI benchmarking capability by way of its unified data model and standardized workflows and leverages a rich global payroll data set derived from across ~2.5k global entities and >1m pay-slips processed on the CloudPay platform (all anonymized, of course). The PEI provides benchmarking data against the five KPIs, including country-level performance details for over 130 countries where CloudPay operates and supports its client base. Most importantly, clients can make an “apples to apples” comparison to benchmark within their industry, size, and global footprint to truly benchmark their performance.

CloudPay plans to launch the first iteration of the PEI report as part of global payroll week (week of April 29^th) which will provide data derived from calendar year 2018. Moving ahead, the complimentary report will be published each year in Q1 for the prior year. Additionally, CloudPay plans to launch quarterly versions of the report throughout the year, which will focus on deeper dives and analysis into specific geographies and regions.

Clients of CloudPay are already benefiting from the PEI as an embedded methodology within their managed services programs. Every CloudPay client has access to a full suite of analytics tools that help them understand their payroll data – including predictive, descriptive, and diagnostic data combined with the same benchmarking capabilities leveraged to derive the PEI. 

Clients can customize their payroll diagnostic dashboard to include the five KPIs and other metrics, including the ability to drill deeper into each one for valuable insights into the process performance globally. Further, CloudPay is incorporating these same five KPIs into every client contract and engages each client (monthly) to address key opportunities based on the KPIs – a practice CloudPay has seen high client adoption for since the launch of its benchmarking capability in Q1 2019.

Putting CloudPay’s PEI into Context

Historically speaking, payroll has struggled to truly leverage and engage the totality of the data it produces, and at no fault to the practitioners that operate in the space. Too many legacy solutions have been derived from disparate systems that lacked integration, automation, and the advanced reporting capabilities we see today. 

However, despite the payroll services market making massive leaps forward, not all solutions are delivering the transformation desired. NelsonHall’s Payroll Services Client Perspective Report (publishing soon) finds that a leading area of dissatisfaction for payroll services buyers is the lack of overall innovation to drive process improvements from their providers.

CloudPay has addressed this issue by developing a next-generation payroll technology ecosystem (one that incorporates a modern cloud platform, with seamless APIs that move data in and out of payroll), and paired that with standardized workflows, embedded analytics, and processes augmented by RPA, to enable reliable global payroll reporting and KPIs on demand. This technology ecosystem, purpose-built for global payroll, is CloudPay’s differentiator, and its benchmarking capability and the PEI output is a direct derivative of that ecosystem.

CloudPay’s transparency around the PEI report is certainly unusual. While the initial data points are mostly slanted toward client-derived issues, I can’t recall a payroll vendor that has ever released this level of insight into its operations, which I believe demonstrates the confidence CloudPay has in its solution and further validates its effectiveness in delivering payroll transformation to its clients.

Further, I believe the PEI is a step in the right direction to helping the industry begin to think differently about how payroll effectiveness is measured and viewed – helping shift the mindset away from surface level metrics and SLAs and starting to leverage modern technology to question and analyze a deeper set of KPIs that digs further into why payroll performs the way it does, and supplies practitioners with the insights they need to take transformative action. 

ADP held its 26^th annual Meeting of the Minds (MOTM) client conference recently, celebrating its 70 years in business. ADP is helping change the way employees work by continuously introducing new and enhanced products and services, and here I focus on three key areas: mobile, how pay is accessed, and recruiting.

ADP Mobile: growth & new developments

ADP has 20 million registered mobile users, with an average growth rate of 500,000 new users per month. Users use the mobile app on average ~10 times per month. There are 413,000 clients globally, with 20m notifications pushed to the mobile app per month, and in Google Pay it has a satisfaction rating of 88% (4.4 out of 5) with 500k 5-star ratings. ADP Mobile is available in 46 countries, in 27 languages.

ADP Mobile usage includes the ability to view and print pay and W2 statements and categorized pay reports, set up direct deposit of checks, view balances, and clock in and out (which is the most widely used feature).

Recently released features include:

• ADP Watch was released in November 2018, and has had 688k app sessions. Notifications can be received on a smart watch, and soon workers will have the ability to punch in and out with their watch
• Siri shortcuts, including ‘show me my pay and benefits’
• Managing notifications by grouping them however you would like
• Mobile federated single sign-on for users to use their own company credentials, so they don’t have to remember new login information
• Employees and manager dashboards to access lists of responsibilities of all the things they need to do. 95k policy approvals were made within 2 weeks of release
• Direct deposit check image capture – the ability to take a picture of your check to make a deposit so you don’t have to go to a bank
• Profile updating, including view/edit business title, preferred name, pay information
• Ability to do group texting to your team
• Wage garnishments and receipt of email notifications, reducing call center calls by 50%
• Viewing benefits, opening enrollment, updating life events, and uploading documents pertaining to your benefits
• Paycard self-enrollment and the ability to transfer money between cards
• Employee scheduling and the ability to swap work shifts via the requestor to the receiver and approval by the manager
• Via ADP DataCloud managers can obtain absence rate information, pin-point where problems are, and act right away by sending an email with a visual depicting data to be discussed.

Future enhancements will include:

• Notification where OT is highest
• Pay on ADP Watch
• Notifications sent to workers forgetting to clock in
• Chat feature, beginning with wage garnishments and benefits
• Learning, including courses you need to take
• Electronic signatures.

In sum, mobile is a game changer as it improves employee satisfaction via ease of use. As evidence, I sat in on several client presentations of ADP products, e.g. Vantage, and three clients specifically stated that adoption of mobile was much easier than deployment of equivalent desktop applications. The clients said that initial adoption was ~70%, 87% and 90% respectively.

New mobile features are released every three weeks by ADP.

Accessing pay

How workers want to get paid is changing, including lower income workers who may require more immediate access to pay. Thus, ADP is offering quicker access and more flexible choices to receive wages.

In May 2018, ADP Launched Wisely Pay following its acquisition of Global Cash Card. Wisely Pay provides individuals with multiple ways to receive, spend and manage money, including fully electronic options such as peer-to-peer transfers, instant pay, and mobile digital wallets by Apple Pay, Samsung Pay, and Android Pay.

In addition to Wisely Pay, employees can receive pay via options including direct deposit, Venmo digital wallet, Amazon, and Walmart money card. Employees can watch a short video to view the different options and benefits of each. Employees can split their choices of how they want to be paid across all options available with any percentage split. Employees can also track spending patterns and receive alerts on how much they spend and save. Employees can also have early access to pay for the current pay period. If they are short on available money to pay a bill, they can click on the amount needed from their current pay period and deposit into their account. Emergency funds can also be set up.

ADP recruiting (RPO)

This will be a big growth area for both standalone RPO clients and multi-process HR clients, as currently ~10% of its newest clients are existing ADP clients and there are thousands of current clients that can be targeted. A couple of immediate areas that will benefit clients are:

• Use of ADP DataCloud, including via mobile, to obtain insights on flight risks to retain talent
• Candidate chat. Since I have been involved in recruiting for ~25 years, candidates consistently complain about the time and difficulty to submit for jobs and then not hearing back on status, with a historic ~70% dissatisfaction rate across all companies/industries. Candidate chat will allow candidates to answer a few basic questions via chat that contain knockout questions; and if the candidate is qualified, they will receive immediate feedback and be able to continue job submission.

As I wrote this blog, I happened to see ADP’s latest TV ad, with a voiceover that says ‘At ADP, we’re designing a better way to work so you can achieve what you’re working for’, which is a neat summary of the ADP approach. Competitors will be sure to follow suit with similar initiatives, but by continuously innovating and improving its products and services, ADP is laying the groundwork for its next 70 years in business.

With the digital economy pushing businesses to pivot and reimagine the way they operate, HR is under considerable pressure to support new business models and shifts in strategic direction.  Further, the workplace and the way we work is rapidly evolving, adding to the complexities and challenges HR must navigate to compete for today's top talent. As a result, organizations of all sizes are embarking on HR transformation journeys that will ‘futureproof’ their operating models, enabled by emerging digital tools and technologies.

The growing need for HR transformation has created a significant opportunity for HR service providers to deliver the innovation required to help organizations address critical challenges in human capital management today. Thus, HR service providers are investing heavily in digital capabilities that will provide the next wave of innovation and enablers to support the future workplace.

One such example is Singapore-based Excelity Global, a leading APAC-focused HR services and technology provider. While Excelity’s heritage is deeply rooted in multi-country payroll delivery for the APAC region, it has gradually built itself into a multi-process HR services and technology provider, supporting a range of HR processes including payroll, workforce administration, benefits administration, and extended talent management.

Excelity has cultivated its entire portfolio of HR solutions to be ‘digital by design', steadily investing (~20% of revenues in 2018) in bringing to market HR capabilities that can enable the digital transformation organizations are seeking and require to remain competitive. Below I highlight some of the digital solutions Excelity plans to launch in 2019.

Excelity HCM

Central to Excelity’s offering is its proprietary technology which it leverages exclusively in the delivery of its managed services. In May 2018, it expanded its technology offering by launching Excelity HCM, a cloud-based HCM platform (also available as a PaaS offering) targeted to small and middle market APAC buyers. Since launching Excelity HCM, the platform is now capable of supporting core HR, compensation, benefits, recruiting, onboarding, performance management, and learning administration, as well as integration to Excelity’s workforce management (WFM) platforms for time and attendance, leaves, and payroll.

While Excelity HCM has over 20 clients live on its HCM platform, (most with <1k employees), it is already seeing those volumes steadily increase. Its largest client user has ~5k employees operating on the platform (which it expects to scale to ~20k longer term), and it is in progress with an implementation for a large organization which will support ~12k employees once live later in 2019.

To support its steady adoption, and differentiate the solution, Excelity has enabled a rapid deployment approach, cutting deployment times down to weeks vs. months, allowing buyers to capture ROI much sooner. By leveraging its investments in RPA, Excelity can bring its HCM platform live for a client with ~20k employees in under four weeks compared to more traditional platforms and methods which can typically bring ~1k employees live in about six months.

Over the next 12 months, Excelity expects to continue expanding its HCM capability, with its roadmap focused on further enhancing its existing modules, deepening its mobile capability, embedding AI, ML, and NLP into the platform and expanding its analytic reporting capability, including a report builder tool. Additionally, it plans to launch (Q1 2019) a workflow-as-a-service option, whereby clients can configure (drag and drop) the HCM workflow rules and functionality specifically for their organizations, including access to workflow design tools and chatbot capability. 

Excelity also plans to launch an HCM marketplace offering in 2019, to provide clients with a range of add-on, connected solutions through APIs. Through its HCM marketplace, Excelity expects to enable the expansions of its service offerings through integrations with key partners and providers.

Excelity’s Digital Marketplace: PaySure & Payroll to PayOut (P2P) Platform

Building on its managed payroll and benefits service capability and offering, Excelity will launch a new digital benefits marketplace branded PaySure in Q2 2019. The PaySure offering provides clients and their employees a centralized marketplace for purchasing both insured and non-insured voluntary benefit and wellness products (including the ability to view and manage policy documents, submit and track claims, etc.). The digital marketplace provides prebuilt APIs for integration to benefit carriers and providers and can be configured for clients’ unique requirements within about two weeks.

Further, in collaboration with leading digital wallet providers across the APAC region, Excelity will also introduce a ‘digital wallet’ solution called Payroll to Payout (P2P), offering its clients and their employees alternative mobile payment capability for receiving payroll disbursements. The P2P solution leverages the combined technology of Excelity and that of its digital wallet partners to enable a seamlessly integrated UX for employees to manage their compensation and spending through the digital wallet marketplace, while providing employers with greater flexibility in supporting the growing demand for digital payment solutions.  

PaySure is currently being piloted with clients in Singapore and the Philippines, with plans to expand availability across its APAC country scope in the coming 12 to 18 months.  

Daily Pay

To round out its digital marketplace offering offering, Excelity will introduce (Q2 2019) an on-demand payroll functionality branded as Daily Pay. The Daily Pay solution, which is integrated into Excelity's payroll platform, provides clients with the ability to support and offer on-demand payroll capability. In particular, the capability aims to support the growing gig worker populations in APAC, allowing for payment requests to be submitted, processed, and paid as and when work occurs.

Outlook

With a well-established workforce management (WFM) capability which includes technology and services to support payroll, time, and benefits, coupled with the launch of an integrated HCM platform offering, Excelity is now able to provide a holistic, cloud-based HR solution to the emerging small and middle market APAC buyer. While I expect Excelity to continue to drive new business by leaning on its strength and brand awareness in the payroll space, the ability to now engage buyers with both enabling technology and services creates an attractive option for emerging APAC businesses seeking to advance their HR capability. 

Since its launch in 2018, Excelity HCM adoption has been primarily by small market buyers; however, Excelity is already seeing its client sizes gradually increase with middle market buyers.  The addition of new digital solutions like PaySure, P2P, and Daily Pay, creates further opportunity for Excelity to engage larger, more sophisticated buyers, particularly those seeking to enable more ‘future of work’ capabilities. 

Excelity remains focused on advancing its offering to deliver more digital HR solutions and capability to its clients in the coming year, with a roadmap that places heavy emphasis on maturing its HCM functionality, advancing its platform integrations, and further enhancing and supporting new digital HR offerings. 

This past week I had the opportunity to attend ADP rethink, its global HCM client event in Berlin, where the theme was "Transforming the Way the World Works." With many organizations undergoing massive change and transformation brought on by digitalization, the selection of Berlin as the backdrop seemed fitting given the deep history and massive change the city has experienced in past decades.

Celergo acquisition highlighted

For the past two years, ADP’s rethink event has highlighted key acquisitions: first in 2017 with its acquisition of The Marcus Buckingham Company (ADP Standout employee engagement solution), and then in 2018 with the addition of WorkMarket (Freelance Management Systems, FMS). Both of these are now integrated into ADP’s HCM solutions and are beginning to make an impact on clients adopting the solutions in concert with ADP’s wider HR services offering.

This year’s rethink wasn’t without its own acquisition buzz, as Celergo, which ADP acquired this past August, took center stage. Its founder, Michele Honomichl, gave an enthusiastic presentation on the company's history and path to ADP, but more importantly, conveyed their commitment to continued innovation in global payroll by combining its capability with the scale of ADP to deliver a unified global solution.

Both offer very different payroll delivery models. Celergo operates more as a consolidator and payroll manager globally, where ADP Streamline is more of a traditional payroll outsourcing solution supported partly by ADP in concert with in-country providers where it doesn’t operate or have capability. What Celergo brings to ADP is a single cloud solution that can integrate and consolidate payroll for over 140 countries. 

The key here is integration capability (a fundamentally critical element to global payroll transformation and data movement), something ADP was slow out of the gate with. The last few years we saw presentations (and success stories) on Global Cloud Connect (GCC) – but with the Celergo addition, ADP gains a leading cloud payroll aggregator platform, and more importantly, critical integration capability needed to grow its global payroll service adoption. Plus, it also gains a global mobility/EXPAT capability it doesn’t offer today, a service which is increasingly in demand.

While ADP hasn’t communicated specifically how Celergo and ADP Streamline will coexist and become a truly unified solution, it is certain that, once combined, it will represent one of the most capable, scalable (140 countries) global payroll solutions on the market, complemented and supported by one of the most comprehensive HR offerings and recognizable HCM brands globally.

The marriage between ADP and Celergo is already producing success stories (likely originated separately before the acquisition) that shows what is possible with their combined capabilities. Examples showcased included:

• Microsoft: ~116k employee in 109 countries; consolidating >50 vendors to two and maturing its payroll operating model and performance, with plans to expand into deeper digital transformation next (e.g. RPA, AI, etc.)
• FirstData: ~24k employees in 118 countries; consolidating 53 systems for time and payroll to a single solution, drastically transforming its delivery model to improve on key KPIs (e.g. 30% reduction in payroll discrepancies, ~57% decrease in manual checks), and saving ~$7.5m in payroll operating costs, ranging from accuracy, labor, and PTO leakage efficiency gains. Most critically, FirstData gained global visibility into its payroll and the ability to derive analytic reports, a process that took a month to complete manually before conversion.

Global payroll the real star

But the buzz wasn't just for the shiny new toy at ADP. Instead, there was a deliberate and genuine focus this year on global payroll, and more importantly, global payroll transformation. I spent much of my time observing the various demo booths, which covered global time, HCM, talent management, payroll, and more, all showcasing ADP’s “next-generation” global HCM offering. What stood out to me is how many clients swarmed the global payroll booths – both Celergo and Globalview (ADP’s global payroll solution) for demos.

Throughout the event, I spoke to senior HR leaders from multiple multinational organizations who are among the most recognizable brands in the world, and all of them seemed challenged by what do to about their global payroll operating models. Most are on, or have completed, a cloud HR journey and are now targeting payroll next, seeking to transform the operating model and landscape in the near term. What is surprising is how many have yet to make a decision, and for some, it is a significant concern. With the leading ERP platform providers expiring support for legacy on-premise solutions in the coming years, the clock is most certainly ticking, and these organizations are likely feeling the pressure to find a future proof payroll solution.

While payroll took center stage, ADP certainly showcased its next-generation HCM capabilities and new features designed to support the evolution of work, including:

• Supporting agile team structures, complemented by TMBC insights
• Integration with WorkMarket for total workforce visibility to eliminate what it calls “HR shadows” (lost visibility to non-employee workers due to transitional gaps in HCM capability)
• Real-time pay capability, driven by its new next-generation payroll engine and complemented by Wisely/Global Cash Card
• ADP data cloud for analytic insights and benchmarking (also complemented by TMBC engagement data).

Outlook

Looking ahead, the challenge for ADP will be integrating two highly capable, well-established global payroll solutions into one unified, integrated offering – a challenge it will need to carefully execute to make the Celergo addition a success – and determining a brand for its new addition (history tells me it will likely be something including both names).

ADP will begin steadily rolling out its next-generation payroll engine in 2019. It has one client live on the new engine already, which is being rolled out to Workforce Now clients in the U.S. Its rollout plan for the payroll engine includes supporting ~100 clients by the end of 2019. The solution will be rolled out to pilot clients in Australia and Canada in 2020, with future expansion countries likely to come from Europe, APAC and LATAM.

ADP also remains committed to HCM platform technology innovation, advancing its solutions to compete with and rival the leading HCM platforms in the space, and engage clients with the next-generation tools needed to navigate the rapidly evolving workplace. Complemented by its growing ADP Marketplace (now with >280 third-party applications and supporting 4.6m API calls weekly), and breadth of HRO services, ADP can offer a genuinely comprehensive HR transformation solution that can support clients of any size, complexity, or location.

ADP's innovation investments in its next-generation solutions over the past three years (~$450m in innovation-oriented R&D spend in FY 2017 alone), combined with its strategic acquisitions in TMBC, WorkMarket, and Celergo are steadily paying off. ADP buyers and clients I speak to are seeing and experiencing the deeper HR transformation capability and options ADP can deliver, well beyond its traditionally payroll-centric heritage, and now more globally capable than ever. 

As organizations of all sizes continue to re-evaluate and address legacy HR and payroll systems and processes en route to enhanced digital operating models, cloud-based applications are increasingly being selected as the vehicle for HR transformation. With the introduction and increasing prevalence of advanced APIs, buyers are being afforded the ability to leverage a “best of class” mix of platforms and solutions that meet their unique technology needs, while offering a tightly integrated, unified cloud landscape.

Regardless of the HR technology selected, a critical factor and component in successful global payroll transformation today is the ability of HR and payroll applications to integrate and exchange data seamlessly, in real-time. However, NelsonHall’s recent Payroll Services Client Expectation Analysis report found that while payroll buyers are most often operating on newer cloud systems, only about 40% of those surveyed currently have an integrated HR and payroll solution in place. The absence of this deep integration commonly results in a poor user experience, an inability to derive complete HR/payroll data and, more importantly, reliable analytic insights globally. As a result, this leaves payroll continuing to manage data manually and in an outdated way.

However, this is where APIs with dynamic integration paired with automation are truly transforming global payroll delivery – by fundamentally changing the way payroll data is gathered, processed, and handled by payroll operations. Thus, payroll providers are investing in and building these dynamic integrations to connect their solutions to leading cloud platforms and the various systems leveraged by HR today. An example of this is CloudPay’s Connect 2.0.

Legacy file-based payroll integration

Historically, payroll has been a very file-based operation, with legacy client HR technology ecosystems leveraging multiple file types, shuttled by SFTP servers with limited automation capability – requiring payroll teams to constantly manage multiple inbound and outbound interfaces to move critical data to and from the payroll system with each pay cycle.

More specifically, payroll has long relied on various Excel file types as the preferred vehicle for delivering the critical data required for payroll processing, with inbound payroll files often containing thousands of lines of data for processing (depending on the organization’s size and complexity). 

In the past, legacy methods processed and treated these files as if they were a single data point, meaning regardless of the number of lines of accurate data present amongst the thousands, any anomaly or failure meant the payroll team had to correct the data, reproduce the file, load, and process until no errors were detected. This manual process often adds days to payroll processing cycle times and magnifies the risk to on-time and accurate results.  

Next generation payroll integration with Connect 2.0

Last year, CloudPay introduced Connect 2.0, dynamic integration enabled with asynchronous syncing and intelligent automation, that leaves legacy file-based processing behind in favor of a record-based processing approach and provides clients with greater flexibility, visibility, and control over how their payroll data is processed.

Connect 2.0 offers an advanced integration that acts like a database for moving payroll data to and from CloudPay’s global payroll platform. As data files are submitted for processing, the data points are extracted from each source and housed in integration stores, where they are validated automatically.  Employee-level errors are isolated for resolution, allowing all other correct data to process while payroll resolves the invalid data on an exception basis, vs. reproducing and reprocessing full files.

Clients can customize their validation parameters to suit their unique needs, and leverage custom validations at the business, country, and individual payroll level. More importantly, it allows them to send data to CloudPay in the format of their choosing, e.g. API, XML, CSV, XLS, etc. With payroll historically leveraging Excel file formats in their daily operations (which have forced legacy file-based data movement), Connect 2.0 overcomes this by converting legacy files to enable record-based processing capability. In turn, this enables future improvement opportunities through payroll automation.

CloudPay is focused on reducing the payroll cycle times and improving data validation results for its clients and continues to roll out the capability to its client base with strong results. In one example, Connect 2.0 enabled a Fortune 500 global financial services firm to automate its payroll data input and validation processes, reducing its payroll cycle time by 20% while reducing post-processing (gross to net) errors by 90%.

The outlook for Connect 2.0

Connect 2.0 has become standard for new payrolls onboarded to CloudPay’s payroll solution and will continue to be rolled out for existing clients when they are ready to make the switch based on their unique technology landscapes and needs.

Connect 2.0 strengthens CloudPay’s value proposition, particularly against traditional payroll vendor aggregator models which often rely on legacy middleware and connectors to stitch together a global payroll landscape. By offering a dynamically integrated, unified, cloud-based payroll solution enabled to cover over 100 countries, including certified APIs to leading cloud HCM platforms such as Workday and SuccessFactors (with others in progress), CloudPay is well positioned for growth, particularly with multinational corporations seeking next generation global payroll capability and solutions.

As part of NelsonHall’s recent Next Generation Payroll Services market analysis, in addition to interviewing 20 of the leading payroll services providers globally, our research extended to a survey of the vendors’ clients. We met clients of different sizes, from a variety of geographies and industries, and covering a range of services in-scope and levels of payroll sourcing maturity. The interviews enabled us to gain a comprehensive understanding of the attitudes, perspectives, and satisfaction levels of current payroll services clients. Here I present an overview of some of the findings.

Overall client satisfaction with current payroll processing services is positive (with an average vendor rating of 4.1 out of 5), due to simplified, compliant, and reliable service delivery results. And clients show similar confidence in their vendors’ ability to meet their future needs, and are highly likely to recommend them, resulting in an overall average vendor NPS of +24.   

However, clients cite concerns in three key areas that are central to driving payroll transformation: 

• Technology integration
• Process improvement
• Overall vendor innovation.

Technology integration gap

Clients’ critical future requirements center on technology improvements: they desire a simpler HR/payroll infrastructure landscape as they drive standardization and improvements to UX, integration, reporting, overall ease of use, stakeholder engagement, and the ability to scale to support the business (e.g. by M&A, organic growth).

Technology and platform features are the top vendor selection criteria, as clients are focused on enablers to payroll transformation. Clients indicate that technology is the leading priority for their payroll operations, while many are seeking more robust capabilities (e.g. mobile, self-service, additional HR modules). However, while ~95% of clients leverage cloud platforms with positive satisfaction ratings, clients are less satisfied with the level of integration achieved to date.

Clients point to a lack of integration across the HR/payroll landscape, which negatively impacts reporting and the user experience. Less than half of participants have an integrated HR and payroll solution, and of those that do, most feel that integration is adequate (or did not know enough about it to comment). Those recording lower scores indicated that integration was in place but was not ideal; e.g. employees may be unaware, but behind the scenes connections are lacking, or integration was seen as positive initially, but ongoing vendor support for the integration is poor.  

Clients expressed the need to gain access to their entire workforce, across all regions and countries. However, overall benefit delivery is lacking, as vendors are not delivering the consolidated reporting promised. This can be partly attributed to the integration inconsistencies which clients cited, plus vendor capabilities not aligning to expectations set in the contracting phase (overselling and underdelivering).

Process improvements are not progressing fast enough

Clients indicate that process change management and overall digitalization of the payroll process are critical in terms of future importance. However, most feel that while their vendor supported these initiatives strongly at the start of the relationship, during implementation, they are not always keeping up momentum in delivering process improvements.

Another area where vendors are falling short of client expectations is collaboration. Clients want to see vendors more engaged and collaborative when it comes to maintaining service levels, but more importantly, in improving the process going forward. Clients are seeking vendor guidance on how to help them move closer to an optimized delivery model, through consultation and best practice sharing. They also want to see more “next generation” features rolled out more quickly.

Clients are seeking automation to drive out manual processes and improve efficiency overall. However, they still feel there is a higher than expected level of manual effort in the vendor process, limiting transformation progress. Nearly all clients see automation as an opportunity to improve processes, but most have no idea of vendor automation programs or how they are being used now or planned to be used in the future. On the up-side, the clients who do have visibility of vendor automation programs, though in the minority, feel optimistic that they will be deployed and will deliver process benefits.

Mechanisms for innovation are seen as reactive

Clients feel that vendors are mostly reactive in this area, and that innovation approaches are largely informal. Clients want vendors to be more proactive in bringing innovation initiatives to the table, and feel that vendors are not keeping them abreast of market changes, including how they are handling new solutions, and how the client could benefit from them.

Clients find vendors’ mechanisms for delivering innovation to be primarily centered on regular monthly/quarterly/yearly strategic meetings with account leadership. However, clients indicate that these calls are generally not focused on innovation. Few clients cite the existence of customer advisory boards, vendor conferences, and portals for feedback. Clients often indicate that their suggestions are not acted upon or documented. Approximately 12% are unaware if any innovation mechanisms are in place.

Example vendor initiatives

With buyers keenly focused on innovative managed services and no longer accepting of a simple bureau-style offering, payroll providers clearly have some work to do in delivering on the promise of global payroll transformation. That said, I speak to and track the leading global payroll and HRO providers on a regular basis and I see them investing heavily to deliver innovation that will execute on that promise. In closing, below are examples of innovations that are making an impact, addressing some of the concerns identified in the client survey:

• “Dynamic” integrations with payroll that allow open formatting or “data your way”, and automatically validate results, identify errors, isolate them for resolution (communicated through a chatbot), and continue processing (e.g. CloudPay’s Cloud Connect 2.0)
• Advanced analytic payroll reporting that provides global payroll insights; benchmarking across a wide variety of industries, sizes, and complexity; executive- and manager-level insights and drill-downs; alerts based on thresholds being exceeded, with push notifications; historical and trend information with graphical views; AI and ML to deliver prescriptive guidance to users (e.g. ADP DataCloud)
• In terms of process improvement, HRO vendors, including payroll providers, are investing in and pioneering the use of RPA and AI in HR. They are looking to improve HR and payroll outcomes and drive the innovation buyers seek in the process model. And payroll providers are focused on automating what has historically been a complex and manually intensive process, to the largest extent possible – with vendors like NGA HR seeking to achieve a fully autonomous payroll process in the near future.

Subscribers can access the report ‘Payroll Services – Client Expectations Analysis’ here. To find out more, contact Guy Saunders.

In September, NelsonHall will begin research on the next annual ‘Next Generation Payroll’ market analysis, which will be published in Q1 2019.

As businesses today are increasingly operating at a global level, they face inherent complexity and compliance hurdles. Indeed, a recurring finding in NelsonHall’s annual payroll market analysis is that compliance is a key driver for organizations outsourcing payroll. And new regulatory directives such as GDPR are placing yet more compliance pressure on the HR and payroll leaders of multinational organizations.

While traditional payroll outsourcing arrangements have enabled businesses to plug in to a compliant global delivery model, what they do not provide is the front-end due diligence and legal structuring required to establish a business presence in a new country. Yet this is a critical first step to compliant global expansion, one that is often ignored by new entrants, and is commonly a cause for deterring new market entry altogether.

SafeGuard World International (SGWI) has developed an offering called GEO (Global Employment Outsourcing) in recognition of the needs of growing multinational organizations. The aim is to provide compliant payroll solutions that can scale and pivot as the business expands, to support non-traditional employment arrangements, and to reduce barriers to entry.

How GEO works

Similar to a PEO (Professional Employer Organization) co-employment model in the U.S., businesses can use GEO to tap into a near turnkey HR delivery offering which combines elements of a co-employment model with global payroll outsourcing services and a traditional staffing arrangement. Leveraging its extensive global payroll infrastructure, SGWI is able to provide GEO clients with end-to-end HR support for workers in over 175 countries. 

Take the example of a U.S.-headquartered organization that wants to expand operations to Europe by establishing a small team of workers in France.  Once the client has sourced its talent in France, SGWI assigns a local delivery team and a dedicated HR expert to the client to begin supporting its in-country HR and payroll needs. This begins with SGWI preparing an employment contract between client and worker, which ensures compliance with local employment laws, and also transfers the worker (legally speaking) to SGWI’s business entity within that country.

From there, SGWI will process all payroll, taxes, and the subsequent payment remittance for the client and provide regular check-ins with both client and employee throughout the life of the contract. Additionally, SGWI provides HR management services for the workers, up to and including separation should that become necessary.  

Key benefits of GEO

Through the GEO model, employers are able to become agile in their global expansion efforts and do so with lower employment-related risk than might be the case otherwise. Some of the key benefits of GEO include:

• Flexibility: it provides employers with a mechanism for compliant global expansion (both short and long term), that can be engaged across 175 countries
• Low barrier to entry: clients can enter, test, and expand to new markets as and when ready without needing to establish a legal presence in the targeted country
• Rapid start-up: clients can be live in as short as two weeks (once talent has been sourced)
• Reduced risk: it ensures proper classification of workers (e.g. employee vs. contractor), a common pitfall that often results in penalties during global expansion efforts, and provides for compliant handling of workers throughout the relationship to ensure ongoing compliance with local labor laws.

Looking ahead

SGWI has seen steady uptake for its GEO offering, with demand in line with its traditional outsourcing model, and quickly increasing. To date, it has more than 400 GEO clients with employees operating in over 120 countries. Going forward, SGWI will focus GEO investments on enhancing its technology to support more capability for contingent workers, including expanded HR and payroll analytics, and incorporating complementary HR capabilities (e.g. recruiting board, etc.) to support mixed talent pools. 

The GEO model is well-timed, with only a few other vendors playing in this specific space currently. With organizations continuing to expand globally, coupled with increasing contingent labor use, SGWI is in a strong position to grow its GEO adoption in the coming year.

Now in its tenth year, Neeyamo is hitting its stride as a niche global HR services provider. I recently caught up with the company at its first U.S. analyst and advisor event for an update on its HR service lines.

Strategic focus

Neeyamo aims to ‘address the white spaces in HR technology and services’, including underserved markets and geographies. It positions itself as a specialist long-tail country provider, targeting global organizations which have ~70% of their employee base across five countries, with the remaining 30% distributed in small numbers across multiple locations. In these multiple locations, clients typically have numerous payroll technologies, including legacy technology, often with payroll distributed across several platforms – resulting in poor overall data management, limited helpdesk and language support, and high fixed cost. Neeyamo’s goal is to be able to provide a single-point HR solution for all tail-country needs.

Starting with 50 employees and 30 clients in 2009, today Neeyamo has:

• 1.6k employees globally, serving ~250 customers
• 6 global delivery centers (California, Mexico and three in India) and 17 proximity delivery centers
• 4 lines of businesses: global payroll, multi-process HRO, pre-employment and other screening services, and cloud transformation services.

Global payroll

Neeyamo has~75 global payroll customers in 153 countries, and processes 7 million payslips per year, served by 500 payroll specialists. Its technology, PayNComp, is currently configured in ~30 countries. Neeyamo plans to bring this to ~70 countries within the next three years to handle most tail countries, and will use in-country partners elsewhere.

Neeyamo’s roadmap for PayNComp is focused on delivering real-time payroll results, and is currently capable of processing ~10k employees (gross to net) in ~90 seconds. Neeyamo is striving for three primary experiences from PayNComp:

• Executive experience: A single view of global payroll at a glance with the ability to view all relevant payroll reports for every country and business unit per pay period
• Payroll team experience: Country/BU level view of payroll, a maker/checker process to ensure validation at every level. Includes input validation to catch errors early, variance analysis, dashboards, and a compliance view
• Employee experience: Easy view/interface of payslips, tax documents and other payroll related information, supported in multiple languages.

Helpdesk

Though not a separate line of business, Helpdesk support is a strong area of focus for Neeyamo. Out of its 250 customers, 100 clients utilize helpdesk, supported in 25 languages and used by all payroll clients.

Helpdesk support and ticket creation is built into the process, so users don’t have to log out and log in to a separate system. Users also have the option to take a screen shot to attach to a ticket, add a category. Users can see the most common questions and answers, and can access the helpdesk via phone, email or chat. The following is a breakdown of how inquiries are handled, with two-thirds of inquiries answered via self-service (ESS, MSS), and only 5% requiring specialist support:

• Tier 0: 66% (ESS, MSS)
• Tier 1: 28% (HR Helpdesk)
• Tier 2: 5% (Specialist Helpdesk)
• Tier 3: 1% (Escalated Support).

Global multi-process HRO (MPHRO)

Neeyamo provides MPHRO in 100 countries for ~150k employees and ~24 processes, supported in 25 languages.

One of Neeyamo’s global clients spoke about MPHRO support including payroll, absence management, and leave management. The client runs a ‘topic of the week’ with the Neeyamo Service Center to provide continuous education, therefore minimizing the number of helpdesk calls. The client chose to leave the U.S. running on Workday payroll, with Neeyamo taking over payroll processing in another ~20 countries, serving ~4,200 employees. Implementation of Neeyamo replaced 8-10 other vendors.  

Other recent Neeyamo MPHRO contracts include a global CPG company headquartered in the U.K. with delivery in ~60 countries across six continents.

Global screening services

Neeyamo provides screening services in 190 countries, for 200 customers, providing 21 different kinds of checks (e.g. employment, background, criminal, education, reference, address, identity, drug testing), verifying 5 million elements. Of its clients, 125 U.S.-based companies use Neeyamo for all international checks. Neeyamo claims that they are the largest international verification company, and with a performance level of 80% of all checks achieved within five days.

Summary

In just 10 years, Neeyamo has scaled its geographic presence and its services and technology capability. Earlier this year, Neeyamo partnered with a French-based provider of HR and finance enterprise software, Talentia, to strengthen its global presence. Talentia supports clients directly in France, the U.K., Spain, Portugal, Greece, Italy, Switzerland, Germany, and Canada. Expect to see even more in 2018 and beyond as Neeyamo is opening offices in Argentina, Brazil, Costa Rica, China, Germany, Poland, South Korea, and Taiwan.

Neeyamo also covered its cloud transformation services, which my colleague Pete Tiliakos will cover in a separate blog, coming shortly.

NelsonHall’s most recent Next Generation Payroll Services market analysis reveals that payroll service buyers are focused on access to transformation-enabling technology. The use of automation has become commonplace, with payroll vendors leveraging RPA, AI, and machine learning capabilities to eliminate manual effort in the payroll process. And payroll service providers are investing heavily in automation capabilities that will not only increase efficiencies and reduce operating costs, but also position them to compete against their peers for clients seeking ‘next generation’ payroll and HR innovation.

Recently I had a briefing with CloudPay (identified as a leader in our 2017 Next Generation Payroll Services NEAT evaluation) to see how they are approaching automation in payroll services.

CloudPay’s automation roadmap

CloudPay currently processes over one million pay slips annually (nearly $4bn in payments) across 120+ countries and in ~10 currencies, and has invested heavily in enabling technologies. In addition to its foundation platform which is entirely cloud-based, enabled with dynamic connections to essential applications, and predictive analytic capability, CloudPay is focused on incorporating automation throughout its service offering.

CloudPay’s automation roadmap is supported by ongoing investments of ~15% of its annual revenues. Its progress began well over a year ago, and is focused first on RPA to address two historically troublesome and highly manual processes that are critical to accurate payroll results: data movement, and data validation. Ultimately, CloudPay is targeting ~40% process automation over the long term, enabled by its standardized global process.

Automated data movement through dynamic integration

Historically, when payroll files are submitted to the vendor or payroll team for processing, any issue within a file (be it one data point or a hundred data points) required manual effort to first detect the issue and then perform rework to produce a new file containing corrected data; the process was then repeated until clean files are received and processed without issue.

CloudPay has developed its Connect 2.0 integration, which eliminates the need to constantly reproduce data files to correct errors, and the need to manually validate them, shifting its approach from a file-based process to a record-based process.

Connect 2.0 (which began rolling out in 2017) is an API and database for moving payroll data in and out of CloudPay’s platform from external systems; it includes asynchronous synching, which allows data updates from HR systems and sends data to CloudPay as it becomes available, instead of pending scheduled syncs.  It allows clients to choose how they want to integrate (e.g. XML, API, XLS, SFTP, etc.) and can handle all formats in one protocol.  

Data that is synced to CloudPay is automatically validated before coming into the payroll processing lifecycle (preventing bad data transmission); if bad data is detected, Connect 2.0 will isolate it in real-time and provide instant feedback (leveraging chatbots) to the client HRIS on how to fix it. While a client’s team is fixing the error, CloudPay Connect will continue to accept correct data. 

Automated data validation

CloudPay has automated its payroll data validation process, another traditionally manual, yet critical process to ensure that payroll output is accurate and within control limits based on policy and internal audit guidelines. CloudPay is leveraging RPA to automatically validate payroll data before, and results after, processing.

Examples of automated validation include validating that pay code results match configuration, and that results are as expected. It makes sure that complete data is in place for each employee to allow for processing of payroll results, and conducts pay period-over-period comparisons to prevent over or under payments, etc. All exceptions are flagged for review and correction (rather than manually auditing).

The program provides for a framework that can be customized at the individual payroll level (e.g. each entity or country) meaning its clients can customize thresholds to align tolerance levels to meet corporate policy, business nuances, and ensure control and compliance to prevent invalid payments.

Looking forward

Over the next year, CloudPay will continue with its automation roadmap in the following ways:

• Rolling out updates to Connect 2.0 with capability to support XML file formats, and enabling XLS and Workday PICOF formats, in April 2018. Workday PECI formats will be enabled by the end of 2018, and by year-end, all clients will be live on Connect 2.0
• CloudPay has already begun implementing the RPA-led validation process and is rolling the program out across its client base in a phased approach, with all clients expected to be live by May 2018
• Next on the roadmap (and in-flight) is the incorporation of mini bots to automate basic tasks and transactions and AI-driven virtual assistance to provide users with a simplified, wizard-style, guided experience within its platform.

CloudPay is actively measuring pre- and post-automation roll out results and KPIs across its operations and clients. Stay tuned for an update later this year, as I plan to check in on CloudPay’s progress and results of its automation initiatives, and also to discuss its latest payroll innovation and progress in the global payroll space.

NelsonHall continues to assess the impact of intelligent technologies on the HR outsourcing space, engaging with leading vendors across all towers of HR services (e.g. benefits, payroll, recruiting, etc.) to understand the latest innovations that are transforming the way providers are delivering their solutions and services, and what buyers seek when selecting vendors. Later this year, NelsonHall will publish a major global market analysis focused on RPA in HR services. 

A key finding from NelsonHall’s recently published Next Generation Payroll Services market analysis is that buyers are now much more focused on automation and other forms of transformative technology that will drive digitalization of their HR operating models. In payroll, as elsewhere in HR, this increasingly takes the form of automating manual transactional tasks and increasing the level of employee and manager self-service.

Therefore, it’s no surprise that the top three drivers for payroll services center around cloud, automation, and cognitive technology, namely:

• Access to leading cloud technology
• Process efficiency through automation
• Analytic insights and easy access to historically rich payroll data.

As a result, leading vendors are focusing their investments in technology and innovation; on average, vendors are pushing ~16% of revenues into technology and value-added features that drive innovation in service delivery. One such vendor is APAC-based Excelity Global, which has historically placed strong emphasis on use of new technology to enable “next generation payroll” delivery. Excelity’s vision is to provide the leading proprietary payroll platform offering in APAC, and has supported this by making consistent annual investments of ~25% of its revenues.

At the core of Excelity’s offering is ezpayroll, its cloud-based payroll platform targeted at small-market customers seeking advanced payroll technology. Currently, ezpayroll is configured to support 12 APAC countries (expanding to Korea and Vietnam in 2018), with specific templates tailored to support the needs of industries such as banking, manufacturing, and IT services.  Additionally, ezpayroll is delivered with pre-built integrations to leading HCM platforms, including a certified integration and partnership with Workday. 

In addition, Excelity has recently launched complementary technology which integrates with ezpayroll and provides its customers with value-added features that drive efficiency by simplifying everyday processes. Examples include WiFi TimeSheets and Excelia.

WiFi TimeSheets

This is a SaaS-based time and attendance (T&A) tracking and compliance system. With Wi-Fi TimeSheets, customers can digitalize the time and attendance tracking process, eliminating paper and manual effort for employees, while improving attendance tracking accuracy to prevent payroll leakage, through automation of the time tracking process. It does this by connecting employees to the system through an app (available on iOS and Android), which tracks employee location through one of three methods: WiFi connection, geographical tagging through mobile, or beacons (which can be purchased separately and installed on worksites.)

With each method, WiFi TimeSheets automatically clocks employees in and out based on their location and provides employers with mobile-enabled dashboards and real-time data, including a GPS map of employee whereabouts and worksite/location tracking. 

WiFi TimeSheets then uses this data as the basis for comprehensive reporting to identify hidden costs and track project performance via analytics, forecasting, and benchmarking. The application is integrated with ezpayroll but offered as a stand-alone solution, supported by pre-built APIs to customer systems and existing time clock technology. 

Excelia

Excelia is a cognitive chatbot assistant for supporting employee inquiries with on-demand and personalized responses. With Excelia, employees can obtain assistance with common daily HR tasks such as onboarding, information requests such as viewing payslips, and training. The bot draws on core HR and delivers personalized assistance through a conversational interface, providing users with inquiry support in seconds (as opposed to traditional methods involving calls, emails, and ticket creation which typically took hours to complete).

Excelia has been deployed across 250+ India-based customers to date, achieving ~40% reduction in inquiries reaching Excelity’s tier 2 support.

Looking ahead

Excelity’s roadmap for WiFi TimeSheets includes expansion beyond India, to China and Singapore in January 2018, with other key APAC countries coming onstream by May 2018. Additionally, enhancements planned include expanded administrator features for broader benchmarking, forecasting, and enhanced reporting features for mobile users. Similarly, Excelia will be rolled out globally by Q1 2018, with plans to incorporate additional data elements from Excelity’s platform.

With the payroll services market in a very mature state and more focused on transformation than ever, vendor differentiation is key. 2017 has been a strong year for Excelity in launching value-added payroll technology solutions. This should position Excelity for strong growth in the coming year and beyond, in support of its goal of becoming the leading APAC payroll platform and provider. 

It has been 10 months since the announcement that Aon was divesting the businesses within its Outsourcing segment to private equity firm Blackstone, and 6 months since Alight was formally launched as a new company, which makes it an ideal time to review its progress and where it is headed in 2018.

By all accounts, it was a smooth transition, with client retention remaining high. But more importantly, the separation allowed the company to create a new identity, departing from its roots as the administrative arm of a much larger global professional services firm to reflect a more modern approach that emphasizes a consultative partnership with its clients.

The consultative partnership approach is becoming increasingly important as more and more organizations seek solutions that go beyond cost reduction to those aimed at solving larger business problems, such as increasing employee engagement and helping employees optimize their benefit selections. With market expectations changing, the line between consulting and administration is blurring, so it’s imperative for suppliers to adapt in order to meet demand for this higher level of service. While Alight is still at the initial phase of its journey to be an impactful advisor, its direction on this front is clear.

Alight’s other key priorities for 2018 include innovation with both its services and technology, as well as creating an engaging user experience, which are better viewed within the context of its two core businesses.

HR & Financial Solutions

Its HR and financial solutions segment is a mixture of hosted legacy HR BPO deals that it continues to support, and its newer cloud-based HR and financial services offering, which includes advisory services, deployment services, AMS support, and HR BPaaS support.

In 2017, Alight experienced continual expansion for its cloud services, including deployments for both Workday HCM and Workday Financials. One of the more significant trends in this business is the company’s growth internationally, including in Europe (largely the Nordics) and APAC.

Over the next year, growth is expected to continue in all regions, with APAC slated to be the fastest growing. More importantly, Alight intends to expand its service support, specifically focusing on services for the mid-market as well as a co-sourced and fully outsourced payroll offering.

Health & Wealth Solutions

Alight’s health and wealth solutions segment contains its legacy benefits administration service offerings, including various H&W services as well as DC and DB administration.

Highlights from 2017 include launching its unified data platform, which aggregates data from multiple sources and will be further enhanced to provide a consumer-centric view of each individual participant served.

2018 investments will focus on expanding the digital user experience, including releasing an enhanced mobile app that will have capabilities for annual enrollment. It will also launch a new integrated partner network on UPoint that will include seven providers in Q1 2018.

It’s clear that Alight’s 2018 vision will include a heavy emphasis on technological developments, especially with the front-end user experience, which is pivotal to address wider business issues as well as expectations from an increasingly diverse workforce. 

In my last blog, I laid out 2018 predictions for two areas of talent management: recruiting and learning (see here). This blog looks at what to expect over the next year for payroll services and benefits administration. Trending topics in these areas over the last year included cloud, compliance, configuration, and consumerization.

Payroll

The payroll landscape has shifted away from traditional bureau payroll services towards technology-based managed payroll services. Presently, ~80% of payroll contracts are delivered on cloud systems, but it’s the future developments of these platforms that will take center stage over the next year.

2018 developments will focus on enablers to make the move to cloud faster, simpler, and more manageable, especially for SMEs where momentum for cloud payroll systems will take off. Also, expect to see additional offerings that facilitate integration to external systems such as ADP’s Global Cloud Connect and CloudPay’s Cloud Connect 2.0.

Initiatives around driving transparency for both the organization as well as its employees will be top of mind in 2018, similar to ADP’s recently launched NextGen Payroll engine, which was designed and built with the user in mind. A greater level of transparency in payroll will also facilitate optimization of benefit choices.

Over the last year, the use of RPA for repetitive payroll tasks such as data processing and reconciliation has become quite common. In 2018, suppliers will seek to leverage machine learning and cognitive capabilities to differentiate themselves. Another significant advancement in 2018 will be around launching chatbots to create a conversational user experience in real-time.

In 2018, the global payroll market will grow by ~4%, with multi-country activity increasing 3.5 times faster than single-country contracts. In fact, over the last year, several payroll vendors geared up for global expansion, including NGA HR who launched a managed payroll offering in Africa, Ceridian who expanded its payroll capabilities in Europe, and activepayroll who established a presence in Germany. 

Benefits administration

2017 marked the end of the consumerization era in benefits administration (which emphasized a redesign of the user experience to incorporate consumer shopping trends in the enrollment experience, as well as the addition of voluntary benefits), to make way for the benefits optimization era.

The concept of optimization is in its infancy, but that will change over the next year and beyond. Currently, optimization tools in the market tend to be narrow, with most focused on “financial wellness.” The theme of financial wellness has been important for the last few years and continues to expand to a broad range of topics, and it will only get more personalized over time. To date, “health and wellness” optimization tools have only begun to scratch the surface, and will be a big area of development over the next year. 

In 2018, buying patterns for benefits administration services will focus on best-of-breed suppliers, making partnerships all the more important to bridge the gap in tying services together to a deliver a cohesive experience. Beyond partnering, tier one vendors will turn their attention towards data aggregation, like Fidelity Investment’s data sharing solution, Access, which facilitates aggregation of financial information across third-party websites and applications. In general, centralizing and aggregating data will be critical in next generation benefits administration services.

One final point of interest to watch for in 2018 is the resurgence of multi-process HR services deals, which have been revived by the adoption of cloud-based HCM systems, including SAP SuccessFactors and Workday HCM. However, unlike the legacy deals, the new wave of activity will be focused on narrow HR BPaaS services, with HR administration, payroll, and benefits support as the most common bundle. In addition, these contracts will likely include ongoing AMS support.

2017 did not disappoint and, based on current predictions, 2018 will be another exciting year in the HR services market.  

As globalization of the workforce continues its evolution, HR leaders today face the challenge of managing a more diverse, dispersed, and technology savvy human capital environment than ever before. Thus, acquiring, integrating, managing, and paying a borderless workforce is a major challenge for many multinational organizations today, driving the need to transform and digitize global HR and payroll delivery models.

NelsonHall’s recently published Next Generation Payroll market analysis finds the pursuit of digital transformation has created a convergence for HR and payroll to address technology jointly, in an effort to achieve an optimal delivery model and transformation globally. As payroll seeks to leverage technology in line with the digital transformation initiatives of the broader organization, technology-based managed payroll services are in demand. The study finds that multi-country payroll services continue to grow at more than twice the rate of the overall payroll services market. 

With technology-based managed payroll services in high demand, “next generation” payroll outsourcing is being built on cloud platforms and complemented with intelligent technology. As a result, global payroll service providers are investing heavily (on average ~16% of revenues) in payroll innovations that bridge the gap between global and local, and leverage technology to eliminate boundaries.

One such vendor driving innovation is Neeyamo, who positions itself as a specialist “long-tail country” HR and payroll services provider. It targets global organizations who tend to have the largest portion of their employees based in home and secondary countries, with the remaining population distributed in small numbers across multiple locations, constituting a "long-tail" of countries.  

Recognizing that the market continues to lack a single global payroll technology platform that covers the entire globe, Neeyamo has focused its offering on filling those gaps. Its long-tail approach is addressing these gaps by leveraging technology and automation to enable cost-effective service to smaller, traditionally cost prohibitive countries, often those traditionally avoided by many large HRO players.

Neeyamo has introduced a framework it calls Global Payroll Hyperloop, which is driven by its proprietary, cloud-based global payroll platform, PayNComp, and paired with complementing technologies and automation features to reduce delivery time, eliminate manual processing, and provide comprehensive global compliance support. Key elements of Neeyamo’s global HR and payroll solution include:

• Incorporating advanced automation features and bots throughout the payroll delivery model, eliminating over 70% of routine payroll administration activities and speeding payroll processing, with the capability to process gross to net calculations, lending itself to real-time payroll processing for “payroll on demand”
• Chatbots for payroll inquiry management support, collaboration tools, and analytics for global payroll reporting and insight
• HR Compliance Plus, a global HR compliance system with intuitive, wizard style, cloud-based platform for HR compliance monitoring, that includes an analytics dashboard to track compliance globally
• Benefactorz, a global cloud-based HR benefits management system which is integrated with PayNComp and designed with an intuitive user experience, and advanced controls and analytics for benefits management.

Not only has Neeyamo’s innovation focus made an impact on its payroll delivery capability, but it has also shown a positive impact on its client base as well. As part of NelsonHall’s Next Generation Payroll Services market analysis, Neeyamo’s client reference interviews yielded above average client scores for innovation (compared to the combined average of its peer vendor participants): 

(1 = very low satisfaction, 5 = very high satisfaction)

Additionally, Neeyamo plans to continue driving innovation across its payroll delivery model in the following ways:

• Continued investments and enhancements to PayNComp, which is currently natively configured in ~30 countries and supports payroll in 150+ countries. Neeyamo's roadmap will take this to 70+ native countries supported within the next three years
• Further investments in automation, including incorporating artificial intelligence and machine learning capabilities throughout the payroll process, predictive analytics, and early-stage development of blockchain technology for HR and payroll service delivery.

As a result of its proven global payroll capability and innovation approach, Neeyamo has recently signed its largest client to date: a Fortune 100 corporation with employees across more than 80 countries – a true test for Neeyamo’s Global Payroll Hyperloop.

With payroll buyers focused on best-in-class technology-enabled services to drive global HR and payroll transformation, they will seek vendors who can deliver not only tactical HR and payroll management, but innovation that drives value creation. Going forward, I expect that Neeyamo’s Hyperloop framework will position it well with multinationals seeking a proven global HR and payroll solution and a provider that is capable of driving value through innovation.  

This week, ADP held its annual industry analyst event in NYC, and as well as welcoming guests with apples to celebrate the arrival of fall, it also ushered in the season with significant news regarding its HR technology innovations. One thing is clear about the technology-enabled services company: its investments in innovation continue to accelerate, as it invested ~$450bn in FY 2017 – a significant increase from the ~$150m invested in FY 2011.

The key areas of innovation ADP has delivered to date include:

• Cloud HCM platforms: across its cloud suite, which includes Run, Workforce Now, Vantage HCM, and GlobalView, ADP supports ~570k cloud clients, adding ~40k in the last year
• Mobile: its mobile app has ~12m users
• Big data and analytics (via ADP DataCloud): there are ~4k analytics clients and ~1.5k benchmarking clients
• Open HCM ecosystem (ADP Marketplace): there are currently ~205 apps available, ~6k subscriptions, and ~4k downloads from ADP Marketplace.

While client-centric innovation has been a focus at ADP for several years, the company is going even deeper now with its latest next generation technology. Key attributes of ADP’s NextGen Platform include the ability to create dynamic teams, which incorporate analytics (such as attrition rates), and ~30 mini apps (and growing) for various HR processes across the entire lifecycle; these allow organizations to personalize their HR experience with the functions most pertinent to their needs, whether by company, region, or country.

In October, ADP will launch its NextGen Payroll engine which was again built with the user in mind. The system has ~51 predefined policies to facilitate configuration, and is event-driven, with payroll recalculated in real time. Advantages of the new payroll system for employees include flexibility of when they get paid, the ability to see all of their pay if they work multiple jobs and are paid by ADP, and transparency in how their pay is calculated. Transparency is also a common theme for HR practitioners as well as getting global insights.  Already available is ADP’s NextGen Tax engine, which is supporting ~300 clients to date. 

Other key initiatives include building out DataCloud further. Recent enhancements include launching the following data explorers: Turnover Probability and Pay Equity Explorer, with additional data explorers such as overtime projections on the horizon. A significant development with DataCloud includes the application of machine learning, which will add personalized assistance to HR (e.g. schedule certain reports to run automatically, or recommend that you run other reports based on what your peers in a particular industry are doing) and push insights to HR and managers (e.g. notify you if overtime is high). In addition, ADP will launch Mobile Insights this year.

The HR services industry is at an inflection point where technological innovation like that at ADP is necessary and will significantly impact whether vendors continue to experience healthy growth rates year-on-year. 

Principal issues & operational priorities

The main issues and operational priorities cited by respondents included the following:

• Standardization of HR processes
• Increasing self-service utilization
• Increasing efficiencies/reducing manual intervention
• Statutory compliance.

Other issues included:

• Driving down costs in the delivery of HR services
• Redesigning processes in a way that improves the user experience
• Updating technology systems
• Delivering a roadmap of investment and change
• Implementing a robust quality control framework.

These issues and priorities, in turn, directly impacted the drivers and benefits organizations were seeking to obtain from outsourcing multi-process HR services, as explained below.

Drivers for outsourcing multi-process HR services

The top driver among respondents included seeking lower costs, including the use of labor arbitrage. Approximately 17% of organizations were seeking global standardization, followed closely by the need to increase productivity and automation.

Other reasons cited include leveraging best practices (13%), improving quality and service delivery (11%), HR transformation including processes and technology (7%), greater accuracy/error reduction (5%), scalability (4%), and continuity (2%).

Top vendor selection criteria

Nearly 25% of respondents made their decision on which supplier to use based on the rapport that was established with the vendor, with many organizations emphasizing the need to have a true partner where the relationship would continue to build and improve over time, and where the respondent felt that the supplier was invested in its clients’ long-term success.

The next highest selection criterion was cost, followed equally by the supplier’s ability to handle complexity and their ability to demonstrate knowledge and proficiency.

Current satisfaction levels & areas for improvement

Multi-process HR benefits: a selection of current client satisfaction levels and future importance ratings

Respondents’ current satisfaction levels derived from multi-process HR services reveals that there is plenty of room for improvement. While organizations are mostly satisfied with the cost savings achieved, driving further standardization and consistency in HR processes should be the main priority for vendors over the next few years. Another significant area for improvement is the turnaround time for HR transactions and inquiries.

In terms of respondents’ qualitative feedback, by far the top area for improvement cited related to various aspects of innovation, including:

• Integrating more innovative tools from a technology perspective, including robotics and AI
• Being proactive and formal as new innovations are released
• Working more cohesively to bring innovations to services faster, clearer, and within a defined timeline
• Introducing more incremental innovations.

Other areas cited for improvement included:

• Strengthening thought leadership capabilities
• Identifying issues and driving process improvements
• Applying knowledge to an activity, rather than just completing an activity
• Improving communications, especially when a change will be made.

Overall, respondents are reasonably satisfied with their current multi-process HR services supplier, and would on average rate their likeliness to recommend their existing vendor at 7.8 out of 10 in favor of recommendation.

NelsonHall’s NEAT vendor assessments look in detail at vendors’ ability to deliver immediate benefits to their clients, as well as their ability to meet future client requirements, and assist strategic sourcing managers in assessing vendor capability while cutting the time and cost associated with their sourcing projects. To find out more, contact Guy Saunders.

This is the second of two articles on the multi-process HR BPS market. NelsonHall’s latest market analysis report on the multi-process HR BPS market recognizes two types of strategies adopted by vendors taking a modern approach to multi-process HR services: intelligent technologies and cloud-based HR services. Here, I take a quick look at both strategies.

Intelligent technologies

The intelligent technologies approach to multi-process HR services emphasizes the use of automation tools, AI, and advanced analytics to enhance multi-process HR BPS services. Services in scope within these deals tend to include workforce administration, payroll, and often administrative functions around talent management processes, as well as analytics, leveraging on-premise or hybrid technology arrangements.

The top drivers for buyers under the intelligent technologies approach include:

• Improving process controls and driving efficiency
• Streamlining HR processes through automation to reduce process duplication
• Obtaining greater transparency and visibility through advanced analytics.

The biggest inhibitors and challenges with this approach include the following:

• Often, organizations are looking to address larger transformational issues first, including moving to a cloud-based HCM platform, or at least consolidating the number of systems used
• The challenge of demonstrating how intelligent technologies will generate cost savings over the life of the contract; this includes introducing continuous technological improvements that reduce costs beyond the initial year.

To succeed, suppliers must look to continuously develop intelligent technologies, especially machine learning, for different HR processes, and be able to deploy intelligent technologies for on-premise systems (since there will be a certain proportion of organizations that will delay the adoption of cloud platforms).

Cloud-based HR services

The cloud-based approach to multi-process HR services, on the other hand, emphasizes support around broader offerings, such as HR SaaS implementation and ongoing AMS services, in addition to multi-process HR BPS services. The service scope of these deals includes workforce administration and payroll, with an increasing focus on managed benefits, and can include deployment and/or ongoing release management support. The key distinction here is that the underlying technology is 100% cloud-based, including for core HR and payroll.  

Buyers of this approach are adopting it because they are seeking a technology transformation to a more manageable model and also lack the time, skills, or expertise to operate internally in a HR cloud environment.

Impediments to adopting this approach include a desire to ride out previous technology investments, and also the impression that cloud HR software is so intuitive that organizations can operate it internally as the ‘be-all and end-all’ solution. Other issues with the cloud-based HR services approach include ensuring integration with other HR systems.  

Under this approach, it is imperative for vendors to create fast and secure data sharing capabilities with third party applications for seamless integration, with an eye on incorporating intelligent technologies, particularly chatbots, in the near future.

While many providers tend to hone capability in one of these areas, ancillary developments are often made in the other due to competing market demands for cloud HR technology adoption and improved service quality.

Click here for the first article in this two part series: State of the Multi-Process HR Services Market

As H1 2017 comes to a close, it’s a good time to reflect on recent key activity and where the market is headed for the rest of the year and beyond. Here, I round up what’s trending now in payroll, benefits administration, recruitment, and learning.

Payroll

The most common theme in the payroll market is global and multi-country activity. NelsonHall estimates that multi-country payroll will grow 4x the rate of single-country payroll services through 2020, accounting for nearly a quarter of the market. Supporting this prediction were several new contract awards, including Neeyamo signing a contract with a global CPG company headquartered in the U.K., with payroll delivery extending to ~60 countries across six continents; and Ramco signing a multi-million dollar HCM and global payroll contract with Panasonic Group for ~20k employees across 21 entities.

In anticipation of the multi-country trend, some regional payroll providers made acquisitions to increase their presence and expand their geographic footprint. For example, Nordic-based Zalaris acquired Sumarum AG to expand its capabilities in Germany to better serve MNCs, and its geographic expansion plans aren’t ending there. Australia-based Ascender was also on a roll, acquiring NGA HR’s Australia and New Zealand payroll business, including NGA’s proprietary Preceda and PS Enterprise platforms, as well as Japan-based Workcloud; both acquisitions help to facilitate Ascender’s 2020 strategy to be a leader in payroll in the APAC region.

Benefits Administration

In benefits administration, the focus is centered on the employee experience, including education, integration, and connectivity. A recent survey by T. Rowe Price found that plan sponsors believe they have a duty to help prepare their employees for retirement, and that ~48% have a metric to track the retirement preparedness of employees. Currently, many DC administration vendors have implemented initiatives focused on education to ensure retirement readiness, and these programs are now expanding to address other financial issues such as budgeting and student loan debt management, with targeted messaging for participants based on their situation and goals. The objective will continue to push towards total financial wellness for participants throughout their lives.

To date, initiatives around integrating health and wealth have largely focused on offering retirement plan participants access to HSAs to help individuals prepare for healthcare expenses in retirement.  Since 2010, Fidelity’s HSA administration offering has experienced double-digit growth y/y, and over an 18 month period, Fidelity added ~65 new employer HSA clients, representing ~181k participants.

Empower Retirement is the latest plan administrator to add such an offering, partnering with Optum to launch The Empower Health Savings Account, which includes:

• Access to investment advice
• Health plan selection and enrollment
• Retirement plan management
• Inclusion of wellness programs and health savings account management.

The next phase of integrating health and wealth together will likely focus on the annual enrollment process, and include helping participants view the impact of their choices so better decisions about trade-offs can be made. 

Finally, a big part of the employee experience is providing access to benefits information on mobile devices and increasing functionality on mobile devices. In H1, Businessolver joined other vendors with the launch of its mobile app, MyChoice, which allows users to:

• View their current and future benefits elections for medical, dental, vision, voluntary, and supplemental plans
• View medical savings account balances
• Upload their medical ID cards and benefit documents for dependent verification
• Receive reminders via push-alerts
• Chat with a representative to answer general benefits questions.

Recruitment

In recruitment, the focus is shifting towards total workforce services by offering blended RPO and MSP services to organizations. Traditionally, services for the contingent workforce were offered separately from RPO. In anticipation of demand for total talent management services, supplier strategies vary, from adding MSP services to reorganizing portfolios (as was the case for TrueBlue, who transitioned its MSP business from Staff Management | SMX to PeopleScout).

Recruitment continues to be an area for strong growth, as evidenced by delivery expansions in H1, including:

• Allegis Global Solutions opening a recruitment services delivery center in central Birmingham, U.K.
• Alexander Mann Solutions opening an expanded global client service center in Shanghai
• Pontoon opening a new office in Bangalore
• Korn Ferry Futurestep opening a European talent delivery center in Manchester, U.K.

Learning

Not only is there increasing pressure to making training programs more effective, many corporate L&D departments are facing mounting pressure to demonstrate the impact of training on the bottom line. Many vendors have responded by organizing learning BPS offerings around specific performance improvement objectives, including:

• Strategic transformation
• Revenue and competency
• Compliance
• Cost reduction
• Learner engagement.

Learning developments will consequently be made depending on a vendor’s core performance objective focus. For example, with respect to the learner engagement objective, Raytheon Professional Services has built a number of electronic performance support systems (EPSS) for clients to improve performance and productivity by coaching employees through tasks.

Over the last few years, Ceridian has been focused on re-establishing itself as a cloud technology and service provider with its Dayforce HCM platform. Here, I look at the progress the company has made, including a review of current and future Dayforce developments and client successes.

Current Dayforce developments

In all its deals, Dayforce is always the global employee record. Modules include:

• WFM: time and attendance, absence management, scheduling, and labor planning
• Payroll: native payroll, ConnectedPay, and tax
• Benefits: eligibility, open enrollment, and ACA management
• Talent: Team Relate, compensation, onboarding, recruiting, and performance.

Ceridian’s investments in Dayforce are influenced and prioritized by its product idea portal, which allows its customers to submit feature requests that are then voted on by other clients. In recent years, developments have been focused around talent, with its latest enhancements on compensation and learning.

Compensation management allows users to define compensation budgets for base and variable pay and allocate compensation pools to teams. It also includes scenario modeling for managers, total reward statements, has analytics embedded, and provides pay equality drill-downs within each job, including performance and tenure information to identify disparities.

Dayforce learning management has been developed and will be available for clients later this year. The module will allow users to rate courses, and includes machine learning to recommend courses to users, with content provided from a partner. Other features include a personalized training calendar, learning paths, mandated training, publisher content integrations, and audits, reporting, and alerts.

Predictive analytics is another development for this year, focused on improving retention by predicting employee flight risk, ultimately increasing cost savings from reduced turnover.

Dayforce clients

NelsonHall estimates that Ceridian has ~3.3k clients (supporting ~5m employees) on Dayforce, including Rubio’s Coastal Grill and Blue Man Group. Rubio’s was leveraging a paper-based solution for its ~4.5k employees, and was seeking a partner to improve compliance. Rubio’s selected Dayforce because it was a single platform and was intuitive, and it executed a large change management initiative around the adoption of Dayforce. Benefits of Dayforce include reducing its onboarding time from 3 hours to 30 minutes. Rubio’s is currently expanding its relationship with Ceridian and is implementing the performance management module.

Prior to implementing Dayforce, Blue Man Group’s payroll was decentralized and the company was using three different payroll systems. Blue Man Group was seeking a solution that was streamlined, that would improve accuracy, and reduce processing time, with a user-friendly experience. What appealed to Blue Man Group about Dayforce was the unified system experience, flexible configuration, and security features. After implementing Dayforce, payroll run-time was reduced from 12-16 hours to 4 hours. Today, Blue Man Group is leveraging the HR, payroll, tax, scheduling, and benefits modules from Ceridian for its ~525 employees, with the possibility of adding on talent modules in the future.

Future developments

Ceridian shows no signs of slowing down, with future developments focused on succession planning and offboarding, among others. To facilitate implementations, Ceridian launched Dayforce Activate in late 2016, which was geared towards smaller organizations, but Ceridian will be expanding this guided implementation tool to organizations with more than 1.5k employees.

Historically, buyers of Dayforce tend to be North American headquartered mid-market organizations, but over the last 18 months, Ceridian has made headway with many large market organizations with >15k employees and has diversified its vertical markets by gaining traction in the financial services and healthcare sectors.

Long-term plans are to increase its global footprint, which will be facilitated by the Payroll Services Alliance, which extends payroll services to ~80 countries via partnerships with Ascender, Aditro, Seresco, SD Worx, Trianon, Elanor, and FIS Antex.

As Ceridian expands globally and builds its client base further, NelsonHall also expects it to provide benchmarking.

In summary, business focus has been key to enabling Ceridian’s rapid transformation as a cloud technology and service company.

Earlier this year I published a blog detailing Excelity Global’s rapid start to 2017, highlighting their multiple strategic partnerships, client wins, technology investments, and continued expansion and growth in the APAC payroll services market. Recently, I met members of Excelity’s executive team to discuss this month’s formal launch of the ezpayroll technology offering and its roadmap for the future.

Strategy for ezpayroll

Technology is clearly at the core of Excelity’s strategy, with technology investments consistently reaching ~25% of its revenues. And with ezpayroll, Excelity has stated its intention to provide the leading proprietary payroll technology offering in APAC.

Within the region, Excelity often finds Microsoft Excel to be its largest competition for payroll technology, with ~30% of APAC payrolls run manually on the spreadsheet application. Recognizing this opportunity, ezpayroll has been targeted at the SME market, offering potential customers an affordable, scalable, cloud-based, multi-country payroll platform that can simplify the payroll process, improve the employee experience, drive standard practices, and enhance reporting and compliance.

While the SME market will likely remain the sweet spot for ezpayroll, large enterprise clients can also be supported, making ezpayroll a viable option for processing the multi-country payrolls of smaller populations across APAC countries, with capability to integrate with leading HCM platforms such as Workday and SuccessFactors.

Key features of the ezpayroll platform include:

• Cloud-based payroll platform, with a simplified, intuitive user experience
• Capable of operating on leading mobile platforms and formats
• Self-service and reporting capability
• Integration with leading HCM platforms, as well as all Excelity service offerings and enabling technologies
• Rapid DIY implementation approach – customers can be live on average within a few days (depending on data migration needs)
• Compliant, secure, and scalable for growth
• Currently enabled in the following countries: India, Singapore, China, Hong Kong, Philippines, Malaysia, Thailand, Australia, New Zealand, Japan, Indonesia, and Taiwan
• SaaS model with flexible contracting, (generally 1 year and greater), and priced on a Per Employee Per Month (PEPM) model
• Add-on modules include leave management, time and attendance, business expenses, and employee overtime management
• Although primarily suited for payroll technology only clients seeking to process in-house, payroll BPO services can also be included as needed.

ezpayroll roadmap

Over the next six months, Excelity’s roadmap for ezpayroll includes plans to make the platform available across its footprint in APAC in a phased approach, starting first in India, followed by Singapore, Malaysia, and the Philippines later this month, and Japan, Taiwan, and Thailand in June, and lastly Australia, New Zealand, and China in July.  Further, Excelity plans to continue making enhancements to the user interface and user experience features, and develop add-on HR modules with the long-term vision of developing a full HCM suite. 

Additionally, Excelity has developed industry-specific templates for ezpayroll (beginning with Banking, Manufacturing, and ITeS) to further customize and ease the implementation process for customers in those sectors. As a result, leading banks in the APAC region are working with Excelity to begin offering ezpayroll as a complimentary business service to their small business customers who maintain accounts with them (PEPM fees would then be paid by the bank on behalf of its users). Excelity expects this initiative to drive rapid growth for the ezpayroll platform across the region.

Outlook

The launch of ezpayroll further enhances Excelity’s value proposition by complimenting its proven capability and delivery model with a cloud-based payroll technology offering – moving Excelity further toward becoming a true cloud HR BPaaS provider. With a beta group of ~50 clients using the ezpayroll product today (currently all in India), Excelity expects to be processing ~120-150k pay slips monthly with ezpayroll by the end of 2017.

With several established payroll vendors currently offering SaaS payroll solutions in the region, the challenge for Excelity and ezpayroll will be differentiation.  I expect to see Excelity meet this initially with aggressive pricing, and longer term with continued investments and development of key features that enhance the user experience. Further, I expect Excelity will leverage its network of strategic partners across APAC to reach additional new customers.

Given Excelity’s strong momentum and rapid start to 2017 (particularly its strategic partnerships in Japan and China), coupled with a complete offering and proven capability in a market with deep opportunity in the payroll space (growth in APAC is estimated at 4X the broader market in NelsonHall’s 2016 payroll market analysis), I expect Excelity will see solid demand and take-up of ezpayroll in the coming year, resulting in high growth.

Payroll in the Asia Pacific region continues to be a very active outsourcing market. NelsonHall’s 2016 payroll market analysis revealed that growth rates in the region are expected to achieve ~2x the overall market, while the multi-country payroll market is estimated to grow at ~4x the rate of the total market.

Now two years on from its acquisition by Everstone Capital from Aon Hewitt in 2015, Excelity Global continues to grow and improve its position both in the Asia Pacific region and globally as a leading multi-country payroll provider. Excelity is one of the leading payroll service providers in Asia Pacific in terms of payroll revenue and, with over 450 clients, Excelity now serves ~1.2m employees across 20 countries, with a payroll value of $5bn annually and growing.

2017 is already proving to be another lively year for Excelity, with highlights including new partnerships and multiple key client deals, due in part to its continued investment in its SaaS payroll platform, ezpayroll (which offers clients a range of BPO service level options). In 2016, Excelity saw its ezpayroll platform capability expand to thirteen countries: India, Singapore, China, Hong Kong, Philippines, Malaysia, Thailand, Australia, New Zealand, Japan, Indonesia, Korea, and Taiwan. Excelity continues to invest upwards of ~25% of its revenues in its technology and platform, and intends to expand its capability and reach in the future.

For example, last month, Excelity announced a strategic partnership with Tokyo-based payroll service provider, Socialynx. The partnership is part of Excelity’s strategy to broaden its footprint in the APAC region, and specifically in Japan. With this partnership, Excelity will tap in to the Socialynx delivery model and clients (many of whom are Japan-based and regionally distributed), offering Socialynx clients the opportunity to move to ezpayroll.

As a result of this partnership, Excelity has already established a strong pipeline of new client opportunities and expects to close deals this year that will add ~15k new pay slips processed per month. Longer term, Excelity sees this as an opportunity to further grow its client base in Japan, specifically with Japanese Banking and Finance companies – an industry sector in which Excelity already has deep expertise and a strong client base.

Earlier this month, Excelity announced that it will partner with WOWOOHR, a cloud-based Chinese HR services provider (formed as a joint venture in late 2016 by Ant Financial Services Group, FESCO Group, and the Adecco Group).  WOWOOHR will provide Excelity with regional mandatory benefit services to clients in China, while Excelity will offer payroll services through its ezpayroll platform to WOWOOHR clients.

Further, Excelity has also agreed to a partnership with Indonesian consulting firm Cekindo.  Under the partnership, Cekindo will leverage Excelity’s technology for delivery of HR & Payroll services to its BPO customers. A similar (soon to be formally announced) agreement is in place with a leading multinational professional services firm for Excelity technology in India (live in April 2017), and later this year in Japan, and China.  

Furthermore, at the start of 2017, Excelity announced that it had signed multi-year deals with three large, multinational, clients: India-based Fortis Health (24,000 employees), and Datamatics (8,500 employees). The scope of these deals includes payroll and benefits, and starts with services in India, with expansion to other countries and services as the relationships progress. Excelity also signed a deal with a large U.S. based, global diversified manufacturer for multi-country payroll. While specific details of the contract could not be shared, NelsonHall estimates the value at ~$1.4m (U.S.).

Going forward, Excelity will continue partnering with leading providers across APAC, and will broaden its presence in the region by opening a delivery center in Malaysia and have secured business licenses for sales offices in Australia to open later in 2017. With this strong momentum and continued investment, I expect Excelity will see further growth and new client wins in the region as they continue building on the past two years’ progress.  

Merger and acquisition activity in the payroll services market was relatively quiet in 2016, with most of the leading payroll providers focusing primarily on organic growth while investing in the development of new and enhanced solutions internally rather than on making big acquisitions.

Also, vendors are continuing to establish strategic partnerships to bolster their delivery network and global reach, driven by demand for multi-country payroll, which NelsonHall's most recent market analysis estimates is growing at three times the rate of the overall market.

For Belgian headquartered SD Worx (and the Payroll Services Alliance, established in 2011 in partnership with Aditro), 2016 saw significant strengthening of its global payroll capabilities through both acquisition and strategic partnerships, as it rolled out its ‘internationalization’ strategy, stated in its 2015 annual report as being critical to the future growth of the business.

During the year, SD Worx made several key additions to its European portfolio and partnerships, including:

• In March 2016, SD Worx acquired Fidelis HR to strengthen its capability and presence in Germany. The acquisition added ~6,000 clients and revenues of €55m and moved SD Worx to 3rd in the German payroll market
• In August 2016, SD Worx acquired Ceridian’s U.K. and Ireland book of business and assets (including its delivery center in Mauritius) and extended its partnership to deliver Ceridian’s Dayforce cloud HCM to European based clients.

While SD Worx will remain the leading payroll provider in Belgium (>50k clients), these acquisitions and partnerships put it in a strong position in both the U.K. and German markets. This, combined with the partnership with Ceridian’s Dayforce cloud HCM platform, means that SD Worx is well positioned to expand its multi-country clients, leveraging its existing client base and the Payroll Services Alliance. SD Worx is also in a good position to take advantage of the growing appetite for outsourcing in other European markets including the Netherlands and France, where it will continue to expand its portfolio.

Key additions in other regions in 2016 were:

• In August 2016, Ceridian U.S. and Canada (ranked 3rd by revenue in North America) was added to the Payroll Services Alliance, providing SD Worx with a strong partner in North America and adding Ceridian’s Dayforce HCM platform to the Payroll Services Alliance network and capability
• In December 2016, SD Worx partnered with Ascender to expand its payroll services geographical reach into Asia Pacific and the Middle East. Identified by NelsonHall as one of the top payroll vendors in Asia Pacific by revenue, Ascender should drive growth for SD Worx in the region and further increase its global footprint.

In the most recent NelsonHall payroll services market analysis, SD Worx ranked 6th by total revenues. And with strategic moves such as these, SD Worx is well positioned to challenge the payroll services market leaders still further for global payroll market share. 

In NelsonHall’s recently published Payroll Services market analysis report, the payroll outsourcing market is forecast to grow from $17.4 bn in 2016 to $21.8 bn by 2020. Growth is across all regions, with the greatest growth coming from multi-country payroll contracts. The multi-country payroll market is growing at three times the rate of the overall market and represents ~15% of total standalone payroll services revenues.

Analysis of multi-country payroll contracts also finds that:

• Global contracts consisting of more than two regions represent 15% of multi-country contract revenues
• Multi-region contracts consisting of two regions represent 50% of multi-country contract revenues
• Multi-country contracts consisting of more than one country within a region represent 35% of multi-country contract revenues.

Multi-country growth is primarily driven by:

• Process efficiency to support increased productivity
• Demand for consolidation of payroll suppliers
• Greater visibility of the global workforce and associated analytics
• Increased control over compliance and risk associated with payroll processing
• Demand for a more comprehensive global technology solution.

Approximately 75% of vendors included in NelsonHall’s market analysis are currently providing multi-country payroll, and continue to invest in this space. The average number of countries serviced is 14, and the average number of client employees being serviced is 7,000. Contracts signed in 2015/16 for multi-country payroll services included organizations with as few as 100 employees and as many as 50k client employees.

What can we expect in the future? NelsonHall predicts that multi-country payroll will grow at four times the rate of single country services to 2020, with a 23% share of the overall market, as the size and scope of contracts will continue to grow. Key trends include:

• Multi-country payroll will more often be combined with HCM. For example, in December 2016 and January 2017, Ramco announced several contracts for its global payroll, including HCM and global payroll contracts by Western International Group, Horizon Hospitality Holdings, LBC Express, Inc. based in the Philippines and Panasonic Group
• Vendors will continue to invest heavily in their integration capabilities and middleware products, with the aim of providing a seamless approach to payroll across multiple geographies and technologies, to enhance speed and delivery of services
• Tail country specialists, such as Neeyamo is today, are likely to emerge in the payroll space to service large global organizations with small and disparate employee populations in several countries and regions
• Vendors will look to broaden both their in-house and payroll partnership network, to continue to increase in-country payroll service delivery capabilities to support the growing requirement for multi-country and multi-language payroll offerings. For example, in December 2016, SD Worx partnered with Ascender to expand its payroll services geographical reach into Asia Pacific and the Middle East. Prior to this, SD Worx boosted its European footprint by acquiring Ceridian U.K., Ceridian Ireland, CTB A&A, and Fidelis HR in Germany, as well as a strategic partnership with Ceridian in the US and Canada. 

To find out about NelsonHall’s extensive research plans for HR outsourcing services in 2017, contact Guy Saunders.

Following several years of growth, the HR outsourcing market continues to ride the crest of the wave, and is gearing up for a prosperous 2017 following investments across all service lines. We will shortly be publishing an in-depth blog on HRO predictions for 2017, but first I take a quick look at what happened in 2016 to lay the foundations for things to come, specifically in payroll services, benefits administration, RPO, learning services, and cloud-based HR.

Payroll Services: HCM Integration & Multi-Country Expansion

Highlights in the payroll market in 2016 included an emphasis on integrating payroll systems with HCM software, which is especially important when it comes to multi-country payroll, an area targeted for huge growth over the next three years. In anticipation of multi-country demand, vendors have continued to expand their payroll capabilities, with ADP’s payroll services now extending to ~111 countries, and NGA HR launching a payroll offering across 33 LATAM countries.

Other 2016 milestones reached in payroll services include Paychex exceeding 1m worksite employees serviced across its payroll and PEO offerings, and OneSource Virtual (OSV) exceeding 500 clients, while maintaining a client satisfaction rating of 98%.

Benefits Administration: Private Exchange Momentum

Private exchanges continued to gain momentum over the last year. Fidelity investments expanded its PIX, focused on SMBs, beyond Massachusetts and New York to Colorado and California, and Morneau Shepell launched a retiree PIX in Canada, adding 3M Canada as its first client. Vendor priorities have been focused on integrating voluntary benefits into the exchanges as well as within traditional H&W administration offerings.

Private exchanges are growing at 6% CAAGR through 2020, and Willis Towers Watson, with ~20% market share, is gearing up to capitalize on the growth in 2017 after recently expanding its delivery center in Arizona, to which it will continue to add headcount over the next year.  

With respect to DC administration, Fidelity enjoyed another successful year, adding $65bn in new DC plan sales across ~1.3k employer clients in H1 alone. In addition, as of mid-year, Fidelity already had another $14bn in commitments for 2017.

Benefits administration acquisitions really heated up in H2, with Mercer making some key purchases, including Pillar Administration in Australia (which now makes it the largest superannuation provider in the country) and Thomsons Online Benefits, adding its global cloud-based benefits technology platform, Darwin.

RPO: M&A Hotspot

There were ~25 HRO acquisitions in 2016, ~40% of which were focused on RPO. Many of the acquisitions focused on expanding or strengthening geographic capabilities, especially for Randstad who acquired Penna in the U.K., Obiettivo in Italy, Careo Group in Japan, and BMC in the Netherlands.  

And, while the U.S. and the U.K. markets are the most active for RPO, emerging markets in APAC and LATAM have high growth potential over the next few years.  

Learning Services: Shift to Performance Targeting

The most significant change in the learning services market is the shift away from a transactional approach that pushes a catalog of service offerings towards an approach that leads with targeting performance objectives. On the backend, automation and analytics are key components of the performance-centric approach.  

Trending themes by learning function include the following:

• Content: content curation services
• Delivery: digital modalities
• Administration: RPA
• Technology: cloud-based Learning Management Systems.

Cloud-based HR Services: Focus on Rapid Deployment

The cloud-based HR services market, including cloud consulting, implementation, AMS support, and HR BPaaS, took 2016 by storm. Key priorities were focused on launching guided implementation tools for rapid deployments, for example:

• NGA HR launched NGA FastTrack to rapidly deploy SAP SuccessFactors
• Ceridian launched Dayforce Activate, which shortens the implementation lifecycle to provide clients with a faster ROI
• Neeyamo launched Rapid Deployment for SAP SuccessFactors, which allows go-live to be achieved in 21 days
• Aon Hewitt launched a rapid deployment offering for mid-market organizations (1.5k-7k employees) who are migrating to Workday from a payroll service bureau provider, activating Workday core HR, U.S. absence, U.S. benefits, and U.S. payroll, including payroll settlement, check print, garnishment admin, and tax filing services in ~5 months.

Other initiatives were focused on ramping up delivery capabilities, with Zalaris opening a COE for SAP SuccessFactors in the Nordics, OSV opening a center in Ireland to provide support around Workday, and Neeyamo launching a SuccessFactors Employee Central service center.

All cloud-based platform providers, including SAP SuccessFactors, Workday, Oracle, ADP, Ceridian, and Ultimate have robust pipelines and roadmaps for continued innovation, making this one of the key areas to follow in 2017.

Below is a small selection of the results comparing current client satisfaction with future importance.

Further Cost Savings: the biggest challenge for payroll vendors

While client satisfaction with cost savings is currently only moderately below client expectations, this gap will widen markedly unless payroll service providers can accelerate their ability to drive down cost. Key expectations include cost reduction through consolidation of disparate payroll systems, increased automation of current payroll processes, including the use of RPA tools to support query handling, increased use of technology and self-service, and improved integration of payroll and HR systems, reducing manual effort and duplicate data. Comments from users included:

“For the future of our type of industry, every aspect of the company cost is going to be important

“There is still too much time spent in checking and re-checking what we need done”

“We only got live in April 2016, we are still in stabilization. We are going to be looking at more ways for reductions”

“It is significant as we are constantly reducing the budget”

Improved Reporting: could do better

Similarly, while client satisfaction with reporting is also currently only moderately below client expectations, this gap will again widen markedly unless payroll service providers can enhance their use of analytics in support of reporting. Improved consolidated reporting across the business, to provide business insight and inform strategic decision making, is important here as is the introduction of more predictive and prescriptive analytics. Comments from users included:

“I think that the more user friendly it gets it takes away from detailed reports, it turns it into over-simplified data. I would rather have them more data savvy”

“This is a hot topic just now as we are going through audits”

“It is meeting expectation but it is becoming more important to us”.

Payroll Accuracy & Improved Usability remain areas for focus

Other areas where vendors need to enhance their payroll services include continuing to improve payroll accuracy and usability. As in cost reduction and reporting, the keys to success lie in the introduction of new digital business models incorporating combinations of RPA, analytics, and cognitive technology to introduce improved accuracy, and reduced “customer effort”, alongside improved analysis, and reduced cost.

What does the future hold?

In terms of ability to meet future client needs, areas scoring the highest client satisfaction include:

• Strength of partnership
• Time and attendance
• Vendor service culture.

Areas scoring the lowest in terms of ability to meet their future needs include:

• Ability to be proactive
• Innovation and creativity
• Analytics and reporting.

Clearly, these are opportunities for improvement. Clients are looking for vendors to take the initiative in introducing new ideas, new processes, and new technologies, and not feeling like they are the ones always leading the vendor. Accordingly, it is important for vendors to be proactive and develop new standards and process models based on new thinking and new technologies. RPA, in particular, is starting to become very important to payroll clients as demonstrated by the following RPA-related comments:

“It will drive down the cost and risk”

“Main goal for next three years”

“Very important”

“Some things are still done manually”

In addition, I believe innovation is a joint responsibility, and my suggestion is for the vendor to ensure that thirty minutes is set aside at each governance and operational team meeting to focus on both innovation and continuous process improvement.

For example, in terms of analytics and reporting, the good news is that the single biggest investment area for payroll providers at present is analytics with ~2/3 of vendors making investments in their analytics offerings, including predictive analytics. Vendors need to make sure that clients are fully aware of the new possibilities arising from these new and emerging capabilities.

NelsonHall’s NEAT comparative vendor assessments look in detail at vendors’ ‘ability to deliver immediate benefit’ to their clients, and their ‘ability to meet future client requirements, and assist strategic sourcing managers in assessing vendor capability while cutting the time and cost associated with their sourcing projects.

The payroll NEAT shows how 16 payroll vendors are positioned overall in terms of their ability to deliver payroll services, as well as within four distinct market segments (i.e. areas of focus designed to meet specific payroll requirements): these are Analytics and Reporting Focus, Technology and User Experience Focus, HR Cloud Integration Focus and Multi-Country Focus. The NEAT online tool also enables buy-side organizations to input their own weightings and tailor the payroll dataset to their specific requirements across over 50 individual vendor evaluation criteria. In this way, sourcing managers can configure the NEAT evaluations in accordance with their own priorities and business requirements for service offerings, delivery capability, customer presence, benefits achieved, and other criteria.

One of the top HR initiatives for organizations has been to replace legacy on-premise systems with cloud-based technology. In fact, as of Q4 2015, ~44% of organizations have moved core HR to the cloud according to PWC’s annual HR Technology Survey. This trend will not only continue, but will naturally expand to other HR functions, including payroll, followed by time and attendance, then benefits, and finally talent management.

There are many factors driving the trend towards cloud-based HR technology adoption, including globally dispersed workforces. Cloud-based HCM software has introduced a new group of suppliers focused on delivering services around cloud-based technology, including:

• Pre-deployment services, including HR cloud consulting
• Deployment services, including implementation
• Post-deployment services, including AMS and HR BPaaS.

An example of a vendor operating in this space is OneSource Virtual (OSV). OSV focuses its services exclusively around Workday and, since its inception, OSV has expanded its capabilities in line with Workday; for example, it developed HR BPaaS capabilities in the U.S., Canada, and the U.K. following Workday’s payroll localizations in these countries.

More importantly, OSV is getting ahead of the curve by entering into an alliance with CloudPay to offer a global WFA and payroll service called Global Workforce Administration. CloudPay produces ~800k payslips and processes ~$3.5bn in payments annually across ~120 countries, ~26 languages, and ~30 currencies, instantly expanding OSV’s ability to provide payroll services for multi-national corporations operating beyond the U.S., Canada, and the U.K.

This alliance is significant and will be an important factor in OSV’s growth. In addition to the demand for cloud-based technology and support, demand for multi-country payroll is also very high.  NelsonHall’s recently published Targeting Payroll Services market analysis report reveals that the multi-country payroll market will grow four-times the rate of single country services through to 2020. 

What’s more, the convergence of these trends is widespread and not just occurring within large market multi-nationals. For example, the average size of organizations for the Global Workforce Administration offering is just under 4k employees, and typically across ~8 countries. In addition to the U.S., Canada, and the U.K., top countries in scope include Germany, France, China, and India.

While prospects for the Global Workforce Administration offering come from a variety of industries, the highest demand is currently from the financial services, technology, and healthcare verticals.

The immediate needs of organizations include having one system of record globally in the cloud for HR and payroll, which OSV is situated to deliver on the Workday platform. Looking ahead, NelsonHall not only expects the trend to continue with other HR functions, but for organizations utilizing the Workday HCM platform to expand use to Workday’s Financial Management module, and subsequently add on finance & accounting BPaaS support, which OSV can also deliver.

Over the last year, OSV’s business development initiatives have positioned the company well to capitalize on the future direction of the market, and it will undoubtedly continue to expand its portfolio of cloud services support.

NelsonHall’s recently published Payroll Outsourcing market analysis reveals that the Asia Pacific market is forecast to grow at 11% CAAGR to reach $1.2bn by 2020, which is approx. twice the rate of the overall market. Along with Latin America, APAC is the region seeing the highest growth, with increasing demand for outsourcing solutions in relatively immature markets. Growth is also due to demand for multi-country payroll in these regions, together with an increased focus on compliance. It’s therefore no surprise that half of all the vendors included in our market analysis are targeting clients in APAC.

APAC is typically supported from service delivery centers in Manila, India or China. China is becoming increasingly popular as a delivery location, not only for onshore clients but also for nearshore clients based out of Japan.

One of the leading vendors in the region, achieving double-digit growth, is Excelity Global, which has delivery locations in Singapore, India (Bangalore, Gurgaon, Noida, Hyderabad, Pune, Chennai, Mumbai), China (Shanghai, Beijing, Shenzhen) and the Philippines. In addition, China is also used as a nearshore center for all Japanese service delivery.

Growth in APAC is evidenced by a wealth of market activity from Excelity and several other vendors, including:

• Excelity onboarded a number of new countries including Bangladesh, Macau, Cambodia and Pakistan in 2016. Excelity will focus on expanding its presence in Malaysia, Japan and Australia
• Neeyamo provides payroll globally from six  global delivery centers including four delivery centers in India (Chennai, Pune, Gurgaon and Madurai), with an additional presence in Manila and Mexico. Its APAC clients are typically supported through the service centers in India and Manila as well as in-country presence. Neeyamo has also created a niche for itself in long tail country support. Neeyamo’s partner network enables it to support payroll services in ~100 countries
• Ramco began offering managed payroll services to China, Australia and New Zealand in 2015, and will continue to develop its presence in the ANZ market. Following recent wins in the Philippines, Ramco is expected to build a delivery center in the region
• MHR has opened legal entities in Australia to support growth in its international business in 2015/2016
• NGA HR is looking to develop its Australian market share by leveraging its onshore service center in the region
• Infosys is continuing to build its presence in the ANZ and APAC region, where it has recently won new clients
• Ceridian is looking to expand its presence in ANZ
• ADP, the leading provider in the region by revenue, has service centers including in India, Singapore, Philippines, China, and Australia
• TMF Group acquired KCS Group in 2014, a leading business services provider in Asia, significantly increasing its scale across APAC, with growth plans including China, India, and Hong Kong.

Vendors will continue to invest in developing cloud technology solutions to address the growing demand from the APAC market. For example, Excelity’s first cloud services product, Payroll on Demand, was launched in Q2 2016 – and it will be launching a fully unified regional payroll platform and SaaS capability in eight additional APAC countries in 2016, including Australia, New Zealand, Taiwan, and Japan.

With the evolution of its cloud-based payroll offering, Excelity has the chance to make further inroads into organizations needing a payroll solution initially in single country. As its experience and product offering strengthens over time, with localized client wins, Excelity is likely to gain multinational clients seeking a standardized payroll platform across the entire APAC region. Excelity’s certified partner relationship with Workday will help to accelerate its growth, particularly given Workday’s roadmap to increase its own APAC presence. Its cloud payroll offering will appeal to fast-growing companies due to its relatively low cost and quick implementation times.

As earnings are released, it’s a good time to reflect on HR outsourcing trends by key service line. Here’s a brief round-up of market activity across payroll, RPO, and learning services in H1 2016.

Payroll

Payroll activity has been bustling in Europe YTD, with a strong emphasis on ramping up capabilities. SD Worx made two acquisitions to accelerate its growth across Europe, including Ceridian U.K. and Ireland, and Fidelis HR in Germany. Already the largest payroll provider in Benelux, SD Worx strengthens its footprint across EMEA through these acquisitions.

Continuing its expansion, Workday launched payroll in France.  At the same time, Workday partners providing cloud-based HR services such as OneSource Virtual (OSV) and NGA HR have been expanding delivery capabilities in Europe as follows:

• NGA HR opened a new center in Bristol, England, that will also be an innovation hub for cloud HR, payroll, analytics, and HR BPaaS
• OSV launched the next phase of its European service center in Derry, Ireland, which currently has ~100 employees.

For leading payroll outsourcing providers, multi-country capability is a critical success factor, and most vendors continue to expand their footprint globally, e.g. ADP recently added payroll support for Angola, Azerbaijan, Guam, Mozambique, Puerto Rico, Tanzania, and Zambia.

For more insights into the payroll market, NelsonHall will be publishing its Next Generation Payroll Services market analysis in August.

RPO

The RPO market continues its evolution. NelsonHall estimates that ~43% of all RPO contracts include multiple countries in scope. Therefore, many vendors have been focused on expanding their geographic presence. Examples include:

• Randstad in Japan and Italy via its acquisitions of Careo Group and Obiettivo Lavoro respectively
• Cielo in Asia Pacific by expanding its delivery support in Singapore
• Adecco Group in the U.K. by acquiring Penna’s career and talent solutions business
• Alexander Mann Solutions by opening a second delivery center in Poland.

Learning

Contract activity for learning BPO (LBPO) was up significantly relative to H1 2015 across various verticals, including manufacturing, with wins focused on the automotive sector including:

• Raytheon Professional Services won a three year contract with BMW in Northern Europe for delivery, administration and management, deployment, and local adaptation services
• GP Strategies winning an automotive training contract with a Korean OEM as well as an operations training contract with a European Luxury OEM.

Also noteworthy was HSBC’s two-year extension with GP Strategies; HSBC is GP Strategies’ largest LBPO client.

Stay tuned for more highlights and trends from H1 2016 specific to benefits administration. 

The company has a history of aggressive growth, including mergers & acquisitions, and wanted to centralize and standardize its payroll services across its new entities being established, all on one platform. Excelity was chosen in 2004 due to its ability to scale and quickly deploy, and its ability to partner, which has remained a key renewal criteria for the client throughout its journey with Excelity.

Contract Scope & Expansion

The contract began with only China in scope in 2004, and Excelity became an approved global vendor. In 2013, Hong Kong was added, as was Taiwan in 2015. In Q3-Q4 2016, Korea will be added. Although there are some countries still providing payroll in-house, the company is exploring more opportunities. In China, Hong Kong, and Taiwan there are ~15,000 employees across ~48 legal entities in scope. Korea will be an additional ~1,000 employees.

Services in scope include:

• Multi-country payroll administration
• Gross to net payroll processing and delivery for all employees
• A hotline service where employees can call Excelity if they have a payroll question (both China and India support payroll administration, with China providing employee call support)
• An employee self-service (ESS) portal where employees in Taiwan and Hong Kong can access pay statements online. This is a future scope expansion opportunity for China. All employees in China, Taiwan, and Hong Kong receive their pay via wire transfer/direct deposit
• Customized reporting for the HR leadership team
• Mandatory benefits regulation research in ~50 cities, plus Hong Kong and Taiwan
• Individual income tax regulation research, calculation and filing in ~40 cities
• Pricing of the contract is based on a fixed fee per employee per month.

Governance, SLAs & Benefits

Governance includes quarterly leadership team reviews and monthly operations meetings which includes review of metrics/SLAs and process improvement opportunities.

Metrics include timeliness and accuracy of pay and tax filing, issue resolution response time, and compliance with local tax laws. To date, SLA targets are being met, including accuracy of 99.9% and timeliness of 99%. Additional benefits obtained include:

• Regulation compliance across ~50 cities
• Standardized reporting system across ~48 legal entities and customized reporting specific to different business unit requests
• Standardization of payroll processes and employee experience.

Lessons Learned & Best Practices

These include:

• Building a successful working partnership. This was important when the company first outsourced to Aon Hewitt and is equally important now with the rebrand to Excelity, which came with new management changes. This requires many regular meetings between the parties, and commitment to achieve working best practices around requirements and priorities
• Effective communications, reviewing contacts and connections, including the escalation process for any service issues
• Focus on continuous process improvement and service excellence. As the company grows, adds new entities, and outsources payroll in additional countries to Excelity, process improvement, including continuous improvement of communications and development of both parties’ teams, is imperative.

Outlook

This Excelity client’s global strategy is to expand payroll outsourcing, so I expect to see additional countries added in 2017 and beyond. As Excelity currently supports ~450 client organizations across 17 countries in Asia Pacific, I expect Excelity to continue to meet the client’s needs by paying particular attention to best practice processes and effective governance.

Excelity Global is one of the leading Asia Pacific providers of payroll and HR outsourcing services, and Everstone, an India and South East Asia private equity and real estate investment company, plans to invest in Excelity Global for further growth in Asia Pacific and globally. Though a new name and brand, Excelity is an established provider with ~600 employees and ~400 clients across 17 countries in Asia Pacific. Formed in 1997 as Hewitt Associates, the company’s development in the region has seen various transformations, including:

• Hewitt forming a JV with India Life, creating India Life Hewitt in 2003
• Hewitt completing the acquisition of India Life in 2004, consolidating payroll processing centers, and starting payroll operations in China
• Further expansion to Singapore (2005-8)
• Aon Hewitt broadening its product portfolio for the APAC market in 2010, adding Workforce Administration as an offering
• Signing its first WFA client in India in 2011, a leading chain of fast food restaurants
• Expanding HRO services in 2012 to add regional payroll as an offering
• Launching the myPay app for accessing payroll on mobile, and being certified as a Workday Global Payroll Cloud partner (2013-14).

Excelity’s service offerings extend beyond payroll administration, also including tax processing, benefits administration (including mandatory, supplemental and flexible benefits), employee data management, learning, performance management, and recruitment.

Excelity targets single-country, regional and global companies. Service delivery locations include Singapore, India (Bangalore, Gurgaon, Noida, Hyderabad, Pune, Chennai, Mumbai), China (Shanghai, Beijing, Shenzhen) and the Philippines. China is also used as a nearshore center for 100% of Japan’s service delivery. Based on NelsonHall analysis, Excelity is one of the largest payroll service providers in Asia Pacific in terms of payroll revenue. Excelity processes over 1 million pay slips per month across the APAC region, with a value of $5bn per annum.

Clients are across several industries, including a multinational pharma company in China for payroll, a local bank in Singapore for payroll administration, a large restaurant chain in India for workforce administration, and a business processing center in the Philippines for automated time tracking and leave system.

Payroll in Asia Pacific is proving to be a very active HRO market. NelsonHall’s 2015 global payroll market analysis study reveals that the multi-country payroll market continues to grow at ~3X the rate of the total market, and the highest growth rates are in Asia Pacific and Latin America.

Meanwhile, HRO M&A activity continues unabated, with four acquisitions in 2016 already. NelsonHall believes this is a trend that will continue, including acquisitions of all sizes of companies, though we expect to see mostly mid-size companies acquiring to expand their geographic footprint and their ability to deliver multi-country, regional and global services. We will also continue to see acquisitions by private equity investors. Another very recent Asia Pacific example is Talent2 agreeing to sell its managed services business to private equity partners 5 Value Capital, rebranding to Ascender, providing payroll and learning services. Both Ascender and Excelity Global are in the top 5 payroll providers in Asia Pacific by revenue.

Excelity’s first Cloud Services product, Payroll on Demand, will be launched in Q2 2016. Excelity will be launching a fully unified regional payroll platform and SaaS capability in eight additional countries in the APAC region in 2016. NelsonHall expects Everstone to invest in Excelity's Hire-to-Retire HCM platform, enhance its service offering, and expand regionally and globally within the next 1 – 2 years. 

Overall, HRO contract activity is up ~11% y/y in 2015.  Renewals and contract extensions account for 25% of that activity, vendor changes ~20%, and new deals 55%. Regional and global multi-country contracts continued to grow in most HRO towers, especially payroll, which is also a strong driver for multi-country MPHRO contracts. 

Although trending down slightly in the last three years, mid-market activity remains high globally. Contracts included:

• Xerox awarded a Total Retirement Outsourcing (TRO) services contract for 1.2k employees by Tennants Consolidated in the U.K.
• Zalaris awarded a MPHRO contract for 1k employees by Borregaard in Norway, including HR admin, payroll, travel expense, time and attendance, and personnel document archiving solution
• Raet awarded a payroll contract for 6.7k employees by Philadelphia Zorg in the Netherlands.

Public sector activity is up nearly 5% y/y and accounts for ~20% of contracts, including:

• Voya Financial and City and County of Honolulu: DC administration
• Equiniti and Her Majesty’s Passport Office: payroll and time and attendance
• TIAA-CREF and Lane County, Oregon: DC administration.

M&A activity continues to increase y/y with ~27 deals to date, up from 25 acquisitions in 2014. By service line, M&A activity within benefits administration remained high, while acquisitions within RPO have become increasingly aggressive y/y. The majority of the RPO M&As have been focused on expanding or strengthening existing RPO services, especially to add recruitment consulting capabilities such as Capita acquiring ThirtyThree, WilsonHCG acquiring Sumner Grace, and ReThink Group acquiring Consort Group. To a lesser degree, RPO vendors are also keen to expand their geographic footprint, with the emphasis on the U.S., U.K., and Canada.

New offerings launched recently that will gain momentum in 2016 include cloud-based HR services, including HR technology consulting/strategy, HR SaaS implementation services, and post-deployment support, which may or may not include HR BPO services. The biggest focus for most organizations has been on developing a cloud-based HR technology strategy, though some vendors such as Aon Hewitt who launched its offering about two years ago are further along the continuum, providing post-deployment application management support on Workday exclusively to many clients.

Much of this HRO activity from 2015 will shape the deals and future direction vendors will pursue in 2016. Other 2015 developments that will continue to evolve in 2016 include private health insurance exchanges and the use of robotics process automation within HR.

As a result, the merchant banking division of Goldman Sachs and funds advised by Park Square Capital will become the primary shareholders, owning 95% of the business. Until the transaction is approved (expected in early Q1 2016), KKR will keep 100% ownership and then retain 5%.

Adel Al-Saleh, NGA HR and Northgate Information Solutions CEO, confirmed that over the past four years, the company has been “on a journey to streamline our portfolio, which included selling the Northgate Managed Services and Northgate Public Services businesses, and building strong foundations to grow NGA Human Resources.”

An area of growth announced in June 2014 is enhanced multi-country payroll capabilities via its Payroll Exchange, which connects cloud-based HRMSs including Workday, SuccessFactors, SAP, euHReka, Oracle, and PeopleSoft with NGA’s managed or comprehensive payroll services – which can be provided in 145 countries. Around fifteen clients supporting ~250,000 employees are being scheduled for deployment with these technologies between H1 2015 and H2 2019, and several more clients are in the pipeline. New client industries now using Payroll Exchange include pharma, transportation, food and beverage, financial services, and consumer services.

NGA HR’s strategic priorities in support of growth include:

• Delivery:
  • Build scale via its seven global delivery centers and ~30 local delivery centers
  • Provide consistency in delivery across all centers, as well as increased automation and quality including usage of Lean Six Sigma and Robotics.​
• Technology platforms & offerings: Process improvement of platforms and service offerings including Payroll Exchange, Service Center Tools, and increased localization

• Strengthening partnerships:
  • Certified Payroll connectors with Workday & SuccessFactors, integrated into Payroll Exchange
  • BPaaS: BPO service wrappers around Workday & SuccessFactors
  • Expand network of local payroll partners for selected geographies.
• Target areas for growth & expansion:
  • Enhance mid-market capabilities and growth in select markets, including the U.S., U.K., Western Europe, Australia and New Zealand
  • Seek growth in new markets.

NelsonHall believes the outlook for growth at NGA HR is very positive, as it has been making the right investments to quickly deploy and integrate HR solutions in the cloud (including HR Cloud Accelerators, announced Q4 2015). Plus, NGA HR has been enhancing its multi-country payroll capabilities via the Payroll Exchange, and is one of only a few companies that can deliver payroll and HR globally, via on-premise and cloud technology service and/or BPO and BPaaS payroll & HR outsourcing focused on workforce administration.

Capita states it believes the acquisition would:

• Position Capita as a leading provider of technology-enabled BPS
• Provide a stronger platform for Xchanging to accelerate sales growth and to develop its offerings
• Enable Capita to secure £35m+ in cost synergy benefits
• Be immediately earnings accretive.

Capita has been in discussions with Xchanging since early August regarding a possible offer, upping its initial 140p offer to its final 160p proposal on September 24 - which Xchanging’s board confirmed it would be willing to recommend on September 29 should Capita make a firm offer. Capita was granted due diligence access and had until 5pm on November 2 to make an announcenent.

There is another suitor, Apollo, with whom Xchanging has been having discussions about a potential 170p offer. Will this announcement push Apollo into making a counter offer? Xchanging's share price has surged since the news of the potential talks (over 165p at the time of writing, though still below its one-year peak).

Xchanging has been contending with a range of issues, and its global portfolio lacks coherence, partly a reflection of its heritage in a few large and diverse “Enterprise partnerships”. Xchanging is currently between CEOs, Ken Lever having announced his intention in July to step down at the end of the year, and new CEO Craig Wilson not yet started.

If Capita were to complete, this would be its largest ever acquisition, dwarfing its second largest, the £157m acquisition of avocis this February (though there have been a number of £50m+ acquisitions since 2011, helping Capita expand into new markets or extend its IT capabilities).  So why is Capita so interested?  

In recent years, Xchanging has repositioned and invested to emphasize its capabilities in “technology-enabled BPS”- exactly what Capita is emphasizing with its own various BPO offerings.  Also, the private sector is increasingly important to Capita (over 60% of its current pipeline is in commercial sectors) and Xchanging would increase its presence in the Lloyds market, where Capita already has a presence for specialist services.

Looking in more detail at Xchanging assets that would be attractive – or at least very relevant - to Capita:

1. Xuber software suite for the non-life commercial market: the biggest investment to date (a whopping $200m+ in total investments since 2011), both in platform development and in acquisitions: in 2014, Xchanging invested £75.6m in acquiring Total Objects, whose binder software is now integrated into the Xuber suite, and Agencyport Europe,extending its software into the health insurance sector, with software for international private medical insurance and exposure modeling (acquisition was delayed), plus a further £11.7m on development of Xuber. Xchanging has found converting interest in Xuber to sales more challenging than anticipated, particularly in the U.S. Will Capita’s greater commercial clout help? It would inherit sales teams from Xuber, Total Objects and Agencyport Europe that need integrating into a single unit to cross-sell, where relevant, the portfolio. Would Capita place the Xuber business in its newest operating division “Capita Digital and Software Solutions”, or would it place it in an insurance sector division?
2. The Xchanging Claims Services BPS unit : Capita is already active with a range of specialist services in the London insurance market: this capability would neatly expand its portfolio
3. Xchanging’s business in Germany, where it provides investment account administration BPS for Fondespot Bank, will also be of interest to Capita, who is building a presence in the DACH region, via an acquisition spree in the CMS BPS market, also via an insurance BPS contract with Zurich. The complex administration services in Germany that Xchanging would bring in to Capita would fit well in its Asset Services division
4. Procurement: Xchanging has been through a significant change of direction with its procurement services in recent years, to technology-led offerings, boosted by the acquisitions of MM4 (which was U.S centric) and Spikes Cavell Analytics Ltd (SCAL, which was U.K public sector centric). These offerings may find traction in the Capita client base
5. Expanded offshore IT services capabilities: in India, Xchanging has centers in Chennai and Pune, Bangalore, and tier 3 cities such as Shimoga (Karnataka).  It also has a center in Kuala Lumpur, Malaysia, most providing IT infrastructure services to YTL Communications, and a smaller ADM unit in Singapore (where Capita also has a small presence, targeting the reinsurance sector). There is also some offshore BPO activity in India and Malaysia. Capita may rationalize some of these sites, but would certainly be interested in the expanded offshore application services and BPO delivery capabilities
6. IT services: Xchanging has some networking capabilities, with a client base in the education and health sectors, as well as Lloyds – this would fit well into the Capita IT Enterprise Services division, which has grown through a series of acquisitions in recent years

And less attractive to Capita?

• The Australian operations, where Xchanging’s New South Wales Workers’ Compensation contract was not renewed, and where its procurement business has not really gained traction.
• The U.S. business: Capita’s international efforts are currently focused on Northern Europe. It would be a major change of strategy for Capita to start targeting the U.S., and its management will be highly aware of other service providers who have tried and failed to penetrate the U.S.

But overall, Xchanging’s portfolio is particularly well suited to Capita's business and where it is looking to develop over the next few years. And the cost synergies from the head office rationalization are also a particularly good match.  

We thus believe is highly unlikely that, even if there is a higher counter offer from Apollo, the Xchanging board will change it recommendation to shareholders: Capita presents a better option longer term. Howver, a counter offer from another IT services vendor might be more attractive.

NelsonHall has just published a comprehensive Key Vendor Assessment on Capita. We have also historically included Xchanging in the KVA program.

Overall, there has been growth across ADP’s cloud-based platforms, including RUN, Workforce Now, Vantage HCM, and GlobalView HCM, with the total number of clients reaching ~501k, up 16% from ~431k last year. These platforms make up the foundation of ADP’s HCM business, so further developments and enhancements to its technology are paramount to its continued success.

For the last year, the focus has been on enhancing the user experience across most of these platforms. For example, the benefits module of Vantage HCM includes a comparison shopping experience, and a new onboarding tool will be released in the next few weeks. Another significant enhancement included the launch of ADP Marketplace in late 2014, which integrates third-party applications with ADP’s technology. To date there are ~60 apps in the ecosystem, including RightFit’s RightView, which was added last week.

In the U.S., ADP has focused on the synergy between payroll, HR, and benefits, which is now expanding globally through a partnership with Thomsons Online Benefits. Global/multi-country benefits offerings essentially take one of two forms:

• Multi-country benefits brokerage and consulting services
• Multi-country technology platform with optional local administration.

Thomsons’ Darwin platform will be integrated with ADP’s GlobalView HCM platform, which is geared towards MNCs. Other examples of multi-country technology platforms include Mercer’s MercerGold and JLT’s BenPal.

In terms of its future direction, ADP’s new big data platform, DataCloud, will be a significant focal point, which goes beyond providing analytics and reporting to include benchmarks beyond pay. Other future developments of DataCloud include predictive analytics and data exchange, which will show how workforce metrics impact business outcomes.

The largest opportunity for ADP is leveraging its HR BPO services, and ADP appears to be on the path to capitalize on this as it focuses on connecting its technology with expertise to transform HCM. This, however, will not happen overnight and while ADP’s Strategic Advisory Services can facilitate the connection to its HR BPO services, the bandwidth of Strategic Advisory Services to support such a venture will take time to develop, especially when compared to other HR BPO providers such as Aon Hewitt, Accenture, and Xerox that have separate consulting arms.

However, the ingredients for success are all present, so it’s just a matter of assembling them – though the outcome will be different for each client depending on their outsourcing mix. For example, for Sodexo, ADP provides end-to-end HR BPO services, while Kimball International has outsourced employment verifications and COBRA administration to ADP while retaining other services in-house using the Vantage HCM platform. 

In any event, ADP is continuing on a path that is focused on client-centric innovation coupled with services.

With respect to its benefits administration business, ADP has carefully and deliberately built out a comprehensive offering, which now includes a private exchange. Within the broader picture, ADP’s private exchange integrates with its other HCM offerings, including payroll, HR, and benefits.

ADP’s private exchange offering, targeted at employers with a workforce of 1k-15k, provides an end-to-end experience for eligible and non-eligible employees including:

• Defined contribution
• Public exchange enrollment
• ACA compliance via ADP’s Health Compliance offering, which includes eligibility, affordability, and regulatory management around ACA
• Spending accounts, which will assist employees in saving for their health needs.

Underpinning ADP’s private exchange approach are the following two key partnerships, which essentially provide coverage for an organization’s entire workforce:

• USI Insurance Services: for eligible employees (although clients can continue working with their current broker)
• GoHealth: for non-eligible employees.

USI, an insurance broker and consultant with ~50% of its business focused on employee benefits, will use its ONE Advantage approach for ADP’s clients, which includes:

• Omni: its proprietary knowledge platform
• Network: ~1.5k employee-benefits employees across the U.S. in local markets
• Enterprise planning: regular client engagements focused on broader strategy objectives.

USI will provide eligible employees of ADP’s clients the ability to choose benefits that best suit their individual needs via a broad selection of plan options, which is integrated into ADP’s technology, including Vantage HCM. ADP’s emphasis on innovation, particularly in developing and enhancing the end-user experience, will bolster the solution with appropriate decision support tools in place and will mirror a retail-oriented shopping experience.

ADP’s partnership with GoHealth, on the other hand, will provide support for employees that are not eligible for employer-sponsored health insurance, namely part-time, temporary, and contract workers who need to enroll in a public exchange. Through GoHealth, non-eligible employees will be able to:

• Compare plans and prices offered on the public exchange
• Apply for subsidies
• Receive support from licensed advisors.

ADP’s partnership with GoHealth bridges the gap for non-eligible employees, who are often left on their own to navigate public exchanges, and provides employers with information on how these employees are obtaining health benefits. Like USI, GoHealth is integrated with ADP’s platforms. 

The end result is an integrated private exchange offering within a holistic HCM solution that incorporates payroll, HR, and benefits.

2014 was a busy year for HRO with ~60 partnerships, mergers and acquisitions combined. We now take a look at what to expect in 2015 and beyond for each HRO service line, including service offerings, market developments, and growth.

MPHRO driven by continued shift to cloud-based platforms

• The Multi-Process HRO (MPHRO) market will grow with a mid-single digit CAAGR through 2018
• In terms of revenue, North America will be the largest region, and LATAM will grow the fastest
• Offerings will continue to be structured around a core model, including payroll and HR administration; benefits and recruitment services will continue to be the most popular add-ons
• Workday use will increase in MPHRO contracts; other cloud-based platforms such as Employee Central will penetrate as well. Momentum among existing MPRHO clients for cloud-based platforms will pick-up significantly by 2017
• Partnership activity will far exceed acquisitions, with partnerships primarily focused on cloud-based platforms and analytics (in 2014 ~3/4 of all HRO contracts were platform-based, of which the majority were cloud-based)
• The proportion of mid-market clients will outnumber large market activity by 2016 (in 2014 the mid-market represented 45% of the market, up from 35% in 2012)
• Demand for end-to-end MPHRO deals will be almost non-existent, as buyers continue to seek specialists for some of their services (e.g. learning) and reduce risk by not having one vendor provide all HRO services.

Benefits Administration exchange offerings will be key

• The benefits administration market will grow at an upper single digit CAAGR through 2018, with the majority of activity coming from the private sector
• The U.S. market will be driven by a need to control costs and be compliant with legislation; the U.K. market will be driven by auto-enrolment legislation
• Within Health & Welfare (H&W) services, private health insurance exchanges, reimbursement account admin, and leave of absence offerings will grow the fastest through 2018
• The main emphasis for vendors will be to develop or enhance exchange offerings (e.g. launching an exchange geared towards the mid-market, adding extended lines of coverage); other efforts will focus on enhancing existing Employer Shared Responsibility offerings
• Technology updates will continue to focus around expanding portals with additional features, and improving the user experience, in an effort to further engage participants
• Multi-country benefits admin activity will take one of two approaches: leveraging existing benefits brokerage and consulting relationships, or focusing exclusively on a technology platform.

Learning key to attraction, development and retention of talent

• The Learning BPO (LBPO) market will grow at mid-high single digit CAAGR through 2018, with Government being the largest sector with growth led by Healthcare
• Selective LBPO contracts will continue to outpace full LBPO, led by content development, including the conversion of instructor-led training (ILT) to e-learning
• Client learning spend will accelerate for job skill training and professional development for purposes of attraction, development and retention of talent
• Vendors will continue to strengthen and integrate their talent management service and technology offerings with learning, both organically and via M&As and partnerships
• Clients will seek the help of LBPO providers to select and implement social learning platforms. Vendors who can help clients monitor and measure their effectiveness will have a competitive advantage
• Vendors will explore adding Corporate Massive Open Online Courses (MOOC) capability as clients seek to further reduce costs and reach a wider net of learners
• E-learning will continue to exceed ILT, though ILT remains important, including for hands-on learning and role-playing, e.g. performance management.

Payroll outsourcing driven by multi-country and platform integration

• The payroll market will show solid mid-single digit global growth. Primary growth is driven by demand for multi-country services and for integrated HCM/payroll cloud integration and/or interfaces
• There will be increasing uptake of employee access to payroll information via mobile, particularly in the U.S. Half of clients globally have self-service, and access pay statements online
• Payroll consolidation will continue to support geographical expansions
• Payroll services will develop by greater focus on technology and automation, including integrating with HR-cloud offerings and using platform-based outsourcing
• Retail, manufacturing, and financial services will continue to be the largest purchasers of payroll services
• Cost and compliance will remain fundamentally important requirements of payroll outsourcing.

RPO and MSP (Contingent Workforce Outsourcing) the fastest growing HRO services

• RPO and MSP are the fastest growing HRO services, expected to continue with mid-teen CAAGR through 2019, in a market driven by increased demand for talent
• Vendor consolidation and partnerships will continue to expand into new geographies to meet demand for global RPO / MSP services
• In the candidate-centric market, services will develop to support greater capability in analytics, improved visibility of labor market supply data, and workforce planning processes to address growing talent shortages. Candidate engagement and a streamlined process will remain a fundamental focus
• Technologies to support mobile marketing and video interviewing will be increasingly popular
• Vendors will continue to invest in onboarding services that go beyond the initial hire to support year 1 retention, and are expected to play a larger role in recommending employee progression and career advice for candidates to support retention
• Contingent workforce management services will grow in Statement of Work (SOW) programs and direct sourcing services to ~28% by 2018
• Requirements for diversity sourcing will be reinvigorated following the new legislation in the U.S. on veteran hiring
• Blended RPO / MSP services will increase in adoption, driven by a focus on developing optimal workforce strategies and bringing greater value to engagements through single governance and reporting and broader analytical insights on the total workforce.

We look forward to an exciting year!

Amy Gurchensky, Liz Rennie, Gary Bragar

Inuit provides business and financial services, including accounting services to small and mid-size U.S. companies. Prior to the acquisition Intuit provided payroll solely to the U.S., and it will now be able to provide payroll to its U.S. clients with international employees.

Acrede’s cloud-based technology processes payroll for employees in 30 countries, including in Europe and Asia. Acrede has offices in Jersey, U.K. and Singapore. All 80 Acrede employees are transferring to Intuit and Acrede’s CEO Karen Paterson will become Intuit's Payroll Platform Director. Prior to Acrede, Karen was the founder of Patersons, now CloudPay, which achieved success with its SaaS-based multi-country platform.

Though Inuit payroll is a sizeable business (for fiscal year 2014 Inuit’s online payroll revenue was $144m, with 345 subscribers and its desktop payroll services $506m with 1,017 customers), payroll BPO has been a small percentage of its payroll business which has historically focused on its core market of small businesses with 1 - 20 employees. However, given the size of Intuit with ~8,500 employees and ~$4.5bn revenue and Acrede’s global capability, larger companies will likely be targeted.

Acrede presents Inuit with significant growth opportunity in its payroll business. Per NelsonHall's Q2 2014 HRO confidence index, 75% of all HRO contracts were platform-based and ~one third of HRO contracts signed were for services in multiple countries, with the highest number being for payroll and RPO service lines.

Per NelsonHall market analysis, demand for multi-country payroll is one of the top drivers to outsource payroll. A key feature of these contracts is clients looking for consistent multi-country payroll processes and a common view of payroll data across geographies, integrated with their wider HR systems to provide common employee and management information. Vendor selection criteria include the provider having an international footprint in the geographies where the client has operations, the ability to scale, and multi-lingual employee support. In addition, clients desire a single contract with one vendor and one set of SLAs.

In terms of revenue, in 2013, multi-country contracts signings represented ~12% of the market. In Q1 2015 NelsonHall will be conducting its fifth global payroll market analysis, which will include the size and growth of the payroll outsourcing market for single-country, multi-country within a single region, multi-region and global (which includes three or more regions).

Per NelsonHall’s 2014 payroll market analysis, half of all vendors are currently providing multi-country payroll, with a few focused solely on multi-country. Providers are continuing to enhance their multi-country capability and with Acrede, Inuit becomes the latest example to have global payroll capability.

TriZetto has a headcount of 3.7k (Cognizant at end of H1 2014: 187k.4). In its last 12 months, TriZetto had $711m in revenues and a non-GAAP operating margin of 18.4% (Cognizant in 2013: 20.6%).

TriZetto LTM revenues breakdown by service/product line is:

• Payer software: 40% (~$277m)
• Consulting: 23% (~$164m)
• Hosting: 13% (~$92m)
• BPO: 5% (~$36m). BPO services are provided on the Payer side
• Provider SaaS: 20% (~$142m).

Cognizant has higlighted the acquistion of TriZetto as an important step in the company's history:

• Towards a non-linear growth business. TriZetto is obiously an ISV business and has higher revenue per head (~$190k) than Cognizant (~$50k). Howevever, Cognizant is not buying a provider of plartforms: TriZetto is essentially a traditional ISV selling on premise perpetual licenses, where applications are implemented and customized by the client
  - SaaS revenues represent 20% of revenues, BPO services 5% only
• As a revenue generator with planned $1.5bn in additional revenues over 5 years. TriZetto has been a flat growth vendor overall in spite of M&As. In addition, the additional $1.5bn in additional revenues does not mean that Cognizant will triple revenues of TriZetto. Taking an assumption of revenue synergies happening towards the endof this 5-year period, TriZetto could reach sales of ~$1.3bn, up from $700m currenly. This is nice but hardly exponential for the company of the quality of Cognizant
• TriZetto with its software product business has high margins. Yet, TriZetto has lower operating margins than Cognizant. In addition, TriZetto under the ownershipby Apax Partners, offers little cost synergies. This means that under Cognizant, which will be focusing on revenue growth and investment in sales and products, the operating margin of TriZetto is likely to go down.

This lack of growth raises the question of price. Cognizant has not provided detailed information regarding its net profitability. Yet $2.7bn in cash for a company with flat revenues at best, a net profit likely to be  in the $70m-$100m range and no cost synergies expected seems a bit expensive. However the market seems comfortable with the price Cognizant paid for TriZetto: Cognizant's share price was relatively flat after the annoucement.

This acquistion will put on hold any other significant M&A for Cognizant for while as the company will be focusing on small tuck-in acquistions to strengthen specific capabilities and focus on share buy-backs.