New York University Payroll Assessment

1. New York UniversityPayroll AssessmentFinal ReportJuly 2009

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3. 2 Executive Summary Findings Current annual payroll operating cost of $4.7 million offers significant opportunity for improvement Time & Labor process is completely manual HR/Payroll system is 30 years old and presents considerable risk of failure Recommendations Continue to run payroll as an insourced function Implement a Time & Labor solution Transition payroll into a true Service Center model and optimize payroll operations Reengineer key aspects of HR transaction processing to improve speed and efficiency of transactions which affect payroll Financial impact Reduce steady state run cost by $2.1 million, a 45% reduction Payback: 2.3 years with an NPV of $18 million

4. 3 Executive Summary The to-be Payroll environment at NYU will have the following characteristics: Run cost reduced by approximately 50% Automation of all payroll-related processes Elimination of the risk associated with an obsolete HR/Payroll system Payroll department optimized for maximum efficiency Payroll operating in a Service Center model Simplified payroll processing calendar with fewer pay cycles University-wide shift in behavior and mindset: More operational discipline and more timely processing Fewer exceptions Elimination of check distribution and reduction in check cashing services A self service model for data entry and issue resolution; examples: Self service for employee personal data entry (e.g. time entry, address change) Self service Employee Portal for procedure and policy information 800 number for employee inquiries

5. 4 Project Objectives and Scope

6. 5 Data Gathering for the Project Data gathering consisted of two activities: Building a fact base of current state data: operating costs, third party services and costs, transaction types and volumes, service delivery structure, pay processing calendars, technology applications, etc. Conducting a total of 18 interviews, involving 48 NYU personnel, to understand the roles, procedures, issues, opportunities, and challenges with the current payroll process Schools/Units � Time data collection, review, and submission; HR transaction preparation and entry Central Areas � Time data entry and payroll processing; Academic Appointments; HR, Benefits, and IT Support

7. 6 Themes/Findings from the Interviews Time & Labor processing is almost 100% manual Onboarding and other upstream HR activities cause delays in the entry of HR transactions, which then create late payroll transactions There is a lot of complexity inherent in a new hire transaction which often results in delays and late processing There are an unusually high number of reviews and approvals in the end-to-end process There is no standardization of Time and HR processes/roles within the Schools/Units A majority of the complexity and issues within the Schools/Units is with the cost accounting associated with Pay and HR transactions, not the payroll transaction per se End users want better access to information � about employee data and about payroll-related processes and procedures There is no standard tracking mechanism for Sick/Vacation time (some schools use shadow systems, others do it manually); this information is very frequently not accurate While overall customer service from the central Payroll department is viewed favorably, there is considerable reliance on individual contacts/relationships to resolve issues � there is no �service center� model for customer service There are fundamental limitations with the Integral system, and fundamental risk of failure with the Integral Payroll module Current check distribution procedures are cumbersome and costly

8. 7 Not replacing the Integral Payroll systemcarries substantial business risk The university�s HR and Payroll system is called Integral. This system has the following characteristics: Was originally developed in the 1970�s Runs on a mainframe computer, which is expensive and nearing obsolescence Integral is obsolete software with many structural limitations; very difficult to modify and maintain For example: No effective dating, limit of 7 jobs per employee Only a handful of organizations are still running Integral Number of IT professionals with Integral expertise is small, and getting smaller There is substantial business risk associated with continuing to run the 30 year old Integral Payroll system Payroll failure � with no real contingency plan Inability to implement regulatory changes Dependence on two specific NYU support individuals, both of whom are nearing retirement Dependence on a relatively small third party support firm, JAT ($6 million annual sales, <100 employees) Business requirements that will require significant additional effort and cost in the absence of a PeopleSoft implementation: Support for Abu Dhabi and any other global sites Position Management HR/Payroll historical data conversion in the Data Warehouse Additional PASS/HRIS enhancements

9. 8 Comparison of NYU With PeerOrganizations in Higher Education

10. 9 Current Cost Structure

11. 10 Cost of Payroll Operations

12. 11 Efficiency of Payroll Operations

13. 12 Payroll Quality Metrics

14. 13 NYU Operations

15. 14 Opportunities � Time & Labor Description: Implement an automated Time & Labor solution Web-based software which automates time entry and approvals, facilitates time entry through multiple channels (e.g. clocks, online, etc.), entry and tracking of sick/vacation time, and entry of labor/cost accounting information Implementation of updated roles, processes, and procedures for end to end Time & Labor activity Managed introduction of the new technology and processes across the university Supporting Data Approximately 50% of Payroll labor and cost is dedicated to time & attendance management. External benchmark average is 10% Manual time capture is an error-prone process. Each timesheet is manually keyed in at least 3 separate times (sometimes more depending on the school process). Even at a 99% error-free rate, there would still be 30 keying errors for every 1,000 timesheets NYU Payroll is significantly lagging the benchmark in terms of cost and efficiency � in large part driven by exorbitant time and attendance costs Impact Up to 50% reduction in Payroll T&A personnel (3.5 of 5.5 FTE) - $200K Annual Savings Up to 75% reduction in School/Unit Payroll support personnel (26 of 35 FTE) - $1-2M Annual Savings APA estimates indicate that an electronic T&A system will produce 1-3% reduction in total hourly payroll by reducing overpayment errors and over reporting of sick/vacation time - $1.5-3M Annual savings

16. 15 Opportunities � Payroll Service Centerand Payroll Optimization Description: Redesign the work within the central Payroll operation Move Payroll towards a true Service Center model with a call center capability, automated tracking of calls and cases, and better integration with related Benefits and HR activities Redesign the Payroll Calendar with the objective of reducing the number of different pay frequencies and reducing the total number of pay runs within a month Move to eliminate the current process of hand delivery of checks Implement a payment/chargeback mechanism for exception processing such as off cycle checks and garnishments Implement operational metrics reporting to improve operational efficiency Supporting Data A significant portion of the school�s Payroll/T&A FTE is spent on customer service tasks such as fielding questions on leave balances, payroll deductions and missing time Payroll support personnel at the school level do not have direct access to the systems of record and often cannot answer questions. These questions must be escalated to Payroll resulting in duplicate effort The current informal system of raising issues has no tracking or reporting system and, according to our interviews, issues are often lost and must be raised multiple times Impact Relieving HR/Payroll/T&A personnel at the school level from Payroll customer service responsibilities is essential for realizing the $1.2M Annual savings from field support FTE noted previously Employee satisfaction will increase when they are able to quickly and easily find answers to their questions. The first person they speak to (Payroll Service Center representative) will have the knowledge and systems access to address their questions Shift customer service inquiries to capable, but newer Payroll employees. Current, informal system places the heaviest burden for customer service on the most experienced (and most expensive) caseworkers in Payroll who are the known contacts in the field.

17. 16 Components of a Payroll/HR/BenefitsService Center � Future Vision

18. 17 Opportunities � HR Reengineering Description: Reengineer HR transaction processes with the Schools and Units Improve end user access to information � both employee data and process/procedure documentation Look to more broadly distribute PASS within the Schools, down to the department level Look to reduce the number of approvals on a transaction Implement better controls/audits on Academic and Student onboarding, to reduce missed payrolls Supporting Data Average percentage of late HR actions (PASS) is 74% Currently, only one of the schools interviewed has PASS distributed down to the department level, but they are in the top quartile (internal benchmark) of timely PASS submissions and they perform their duties with less personnel than average (1:134 ratio vs 1:88) Impact Reduce percentage of late HR actions from 74% to 25% Reduce off-cycle paychecks by approximately 50-70% for an estimated annual savings of $100-200K Reduce Payroll FTE by 1 for an estimated annual savings of $50K

19. 18 Opportunities � Payroll Outsourcing Description: Outsource the data processing components of payroll to a third party Shift responsibility for the data processing of some, or all, of the following components to a third party processor: Gross to Net payroll calculation Garnishment processing Off cycle check processing Check printing and distribution Tax reporting and processing and W2 processing The two different service models for Payroll Outsourcing are outlined on the next page Supporting Data: Outsourcing of payroll � in the �data processing model� (see next page) would result in an 18% reduction in the annual run cost Outsourcing of payroll � in the �managed service model� (see next page) would result in a 16% increase in the annual run cost � given the significantly higher third party service cost associated with the �managed service model� Impact Reduction of the quantity of exceptions, as envisioned in the to-be environment, would be essential in managing the ongoing run cost of payroll outsourcing Portions of Employee Benefits are outsourced to Towers Perrin � requiring some coordination of data flows and other aspects of service

20. 19 Payroll Outsourcing � Service Options There are two basic service models for Payroll Outsourcing

21. 20 Options Overview

22. 21 Financial Analysis of Options

23. 22 Comparison of Annual Run Cost Estimates

24. 23 Key Metrics � Before and After

25. 24 Guiding Principles for ImplementationRoadmap and Projects The goal of the Implementation Roadmap is to strike the proper balance among multiple factors: Funding and ROI Resource availability Pace of change Timing of benefits realization Fit with annual University calendar Fit with other large University initiatives Each of the projects has been envisioned, with a high level estimate of effort and duration, with a holistic view of the end-to-end process � considering business process, roles, change management, etc. in addition to software installation Projects have been estimated using three resource types: NYU User: functional expert in payroll and payroll-related processes NYU IT: technical expert in payroll-related systems Contractor: external expert in software, relevant processes, and large scale project/program management

26. 25 Recommended Projects � Summary(based upon Option 1)

27. 26 High Level Implementation Roadmap(based upon Option 1)

28. 27 Next Steps Confirm recommendations and going-forward Roadmap with key stakeholders Proceed with procurement of Workforce Time & Labor solution Begin to plan for startup of projects, for Fall 2009

29. 28 Appendix Project Approach Inventory of Interviews Detailed Financial Analysis of Options Project Descriptions

30. 29 Timeline and Activities

31. 30 Approach

32. 31 Inventory of Interviews

33. 32 Option 1 � 8 Year Financial Model

34. 33 Option 2 � 8 Year Financial Model

35. 34 Option 3 � 8 Year Financial Model

36. 35 Option 4 � 8 Year Financial Model

37. 36 Time & Labor ImplementationProject Summary

38. 37 Payroll Service Center/OptimizationProject Summary

39. 38 HR ReengineeringProject Summary