The new year is barely 2 weeks old and already it’s big changes ahead for the well over 10,000+ employers who manage their staff data and payroll using SAP HCM OnPremise.
On January 9, SAP shared a much-anticipated statement shedding light on the future of SAP HCM OnPremise and an extension for S/4 HANA, elegantly dubbed ‘the sidecar option’. Although SAP states support until at least 2025 and extended support until at least 2030, general feedback from clients is that the ‘clock is now ticking’ for OnPremise HR.
SAP’s note brings much required clarity on the support timelines for the OnPremise HCM suite, and offers clients several options to either protect their OnPremise investment, or prepare for a future in the cloud. The statement puts a stake in the ground for SAP HCM OnPremise clients, as it now requires every client to embrace the future and build a plan with 2025 and 2030 in mind.
However, we all know that payroll systems need to stand the test of time and often have a lifespan of 20 or 30 years. Which is why – this being early 2018 - your horizon when making payroll systems choices needs to stretch way beyond 2025.
On the back of the announcement, ASUG’s Sherryanne Meyer dissects the statement and lays out 5 different options now available to SAP HR clients. Building on ASUG’s 5 options and having deployed 1,000+ SAP HCM OnPremise and SAP SuccessFactors solutions over the last 20 years, we wanted to shed some light on what this means in particular for SAP HCM Payroll.
Balancing innovation and stability
Moving beyond the technical and licensing perspective, we wanted to pay attention to the business context and drivers for each payroll option as these will vary for each employer. Running SAP payroll in-house comes with its own set of challenges:
the frequency of payroll, tax and data privacy compliance changes has never been higher (as confirmed by NGA’s Global Payroll Complexity Index research). Regulatory reform affecting payroll will be the talk of the town in 2018, with GDPR in particular and many other changes waiting in the wings (eSocial in Brazil, US tax bill, etc.)
payroll staff attrition and talent shortages can put significant pressure on your internal shared service center;
moving to a more flexible cost model (Capex to Opex) is often easier said than done;
M&A events – acquisitions, divestitures and carve-outs – can turn your HCM landscape upside down.
Seeking a careful balance between innovation and longevity proves to be both art and science for payroll and HR tech managers. You want to leverage the newest technologies available (bots, analytics, AI) all while preserving impeccable quality in your payroll delivery.
The good news is: there are more options available than ever before to adapt to these seemingly conflicting business requirements. Broadly speaking, at NGA we see 3 strategies, each with its own set of pluses and minuses:
Wait
- + Leverage OnPrem investment
- + Stability and longevity – no disruption
- - No access to modern user interface
- - Hard to embed innovation on a legacy platform
- - Ongoing cost, compliance, skills and maintenance burden
- - Long term SAP HCM support
Move
+ Access to innovation: UX, Payroll Control Center (in case of Employee Central Payroll)
+ Integration with core HRIS (in case of Employee Central Payroll)
+ Hosting by SAP (in case of Employee Central Payroll)
+ More predictable cost model compared to OnPremise
- Cost associated with implementation and risk of disruption
- Long term support given that Employee Central Payroll runs on the same code base as SAP HCM OnPremise
- Potential migration path to HANA in 2023
Outsource
+ Access to innovation from software and service delivery provider: Payroll Control Center, bots, AI, UX, analytics, SAP Cloud Platform apps
+ Compliance and quality covered by payroll provider through SLAs
+ Predictable cost model
+ Various integration options/platforms
+ Wide range of outsourcing options – with or without re-implementation
+ No payroll disruption, maintain what works (in case of no reimplementation)
+ Opportunity for simplification and best-practice standardization of processes
- Less direct control over your payroll system
- Fewer customization options
Each available strategy comes with several options:
1. Strategy: Wait - Option: Maximize available innovation
With Payroll Control Center and Fiori UX options, there’s still some good juice left in SAP OnPrem to optimize. If you want to wait it out, deploying these features is a must-do.
2. Strategy: Wait - Option: Maintain with ease
An external application maintenance expert can allow you to get your house in order and drive your internal SAP HR setup towards maximum efficiency, combining lower operating cost with SLA-governed support quality. Think about optimized user support, release management, integration management, performance monitoring, documentation maintenance and business continuity. Application maintenance can be done remotely and on a per-ticket basis.
3. Strategy: Move - Option: Deploy Employee Central Payroll
A lot has been said and done about Employee Central Payroll. It’s true: it does feature the same codebase as SAP OnPrem but there are multiple benefits associated with moving payroll into the cloud, including integrating with Employee Central/SuccessFactors, hosting by SAP, and a range of SAP cloud innovations.
The O-options
Despite having been around in HR for 15 years, the O-word (yes, we’re talking Outsourcing) is a much-debated term. The reality is that payroll fundamentally IS a recurring, compliance-driven, per-employee, utility-type service and that there are more Payroll BPO options to choose from than ever before.
4. Strategy: Outsource - Option: SAP SuccessFactors Managed Payroll Service (SFSF MPS)
SFSF MPS doesn’t qualify as ‘classic’ BPO but it offers very similar benefits. As an offering directly offered by SAP in collaboration with 3 service providers including NGA, it lets clients ‘cloudify’ payroll by moving SAP payroll to a 3rd party provider, lock, stock and barrel, while preserving the investment from the past, but taking advantage from a flexible cost model and SLA-governed support. Despite some initial debate in the consulting community, SAP clients are clearly seeing the value and adopting the solution.
5. Strategy: Outsource - Option: Transition & Transform (T&T)
T&T consists of 2 major steps. The first phase is to transfer the legacy payroll system to an external provider, which may include hosting. When the transition is limited to HR and payroll services only, this is commonly referred to as a “service wrapper”. This step ensures continuity of the landscape. The second step involves the transformation and (best-practice based) standardization of client payroll processes on a hosted payroll solution.
6. Strategy: Outsource - Option: Local/Regional/Global Payroll Outsourcing (BPO & BPaaS)
Geographically dispersed employees, back-office integration, and complex, ever-changing regulations make payroll a complex and labor-intensive process. End-to-end payroll BPO is the best option to overcome the challenges of multi-country payroll. Increasingly, organizations are moving to outsourcing in order to keep track of rapidly evolving innovations, improve the employee experience, and adopt a next-generation payroll operating model leveraging automation, AI, bots, digital, social and analytics. A good example of this next-generation platform is cleaHRsky which provides a fast-to-deploy, standardized and integrated HR & payroll solution.
At NGA HR, we welcome SAP’s statement as it provides clarity and long-term perspective – both of which matter a great deal in payroll. With another 50 weeks to go, 2018 promises to be a busy year for HR & payroll tech professionals between this news, the introduction of GDPR in May, and whatever news the HR tech community has in store for us next.
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- An earlier version of this overview was presented to NGA clients at our 2017 European Client Summit in October in Amsterdam. Download the what next with SAP HCM payroll presentation here.
- News analysis by Diginomica's Den Howlett
- News analysis by Holger Mueller