Working in the social and human services sector, I can tell you that I see a lot of failed attempts to outsource. For nonprofits like associations, small charities/foundations, or other agencies where a majority of employees are salaried (or on standard hours), outsourcing makes a ton of sense.
So, why is it such a challenge for social services agencies to operationalize the outsourced model?
- Insufficient integration with finance creates challenges in funder reporting and budget planning
For most social services agencies, the number one budget line item is salaries. In many cases, salaries comprise up to 70% of an agency’s overall budget. With staffing accounting for such a large proportion of total costs, it makes sense to have more detailed information in this area in order to perform cost analysis and forecast budgets accurately. In most cases, any reports provided back from an outsourced provider include summary information only and do not hallow for additional analysis or drill down. The information that makes it into your finance system is usually summary as well (in some cases it may be as simple as a single journal entry to a salaries account). Consider the following:
- Do you have information on both direct and indirect (i.e. benefits) payroll costs?
- Are you able to allocate your payroll costs accurately to different cost-centers (like programs, clients, interventions) without manual intervention?
- Are you able to drill into areas like overtime or truancy costs?
- Inflexibility to adapt to changes such as new collective agreements or manage exceptions
Many social/human services agencies deal with one or more unions. It can be costly to have changes to your payroll calculations, such as new entitlement rules, applied. As well, many collective agreements include exceptions to general rules – while these can be difficult to build into any software system, in house solutions tend to have more flexibility to handle complex scenarios.
- Challenges reconciling information between scheduling, timesheets, and payroll
One of the biggest issues I encounter when talking with social services agencies is with respect to managing last minute changes to the schedule and their impact on payroll. For example, one client’s legacy system forced their finance user to manually check back through previous pay periods to look for unpaid time. Unpaid time might be approved sick days that had not yet been paid, or time sheets that were late being submitted/approved. Often time, documentation is required for a sick day to be approved (and therefore paid), which means that the absence may not be approved until after payroll is processed for the period worked. Not only is this manual process extremely inefficient, it poses the risk that staff may not receive their pay in full due to human error.
Outsourced payroll offers many advantages, but for social services agencies with more complex needs, these advantages are not often fully realized. Either bringing payroll back in house from outsourced, or the vice versa, is a big decision, and I’d encourage you read up on the topic to understand the full impacts.
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