OPM kicks off e-Payroll

By the end of September 2004, four payroll providers, instead of the current 22, will be processing paychecks for nearly 2 million federal employees, according to the Office of Personnel Management.

The goal of the e-Payroll initiative, led by OPM, is to consolidate and standardize how payroll is processed in the federal government. It will also, for the first time, provide governmentwide rules for payroll, OPM Director Kay Coles James said at a briefing earlier this month. The move will save about $1.2 billion in 10 years, mainly due to reducing the number of legacy systems that have to be maintained and operated as well as the number of systems that must be replaced.

"This is the biggest consolidation of payroll processing for any organization," Mark Forman, associate director for information technology and e-government at the Office of Management and Budget, said at the briefing. "We no longer will be the laggard; we will be the benchmark."

As expected, OPM officials announced that they chose four agencies: The Agriculture Department's National Finance Center will work in partnership with the Interior Department's National Business Center. The Defense Finance and Accounting Service will work in partnership with the General Services Administration.

The four agencies already provide nearly 75 percent of the payroll services for executive branch agencies.

It currently costs agencies $45 per person to $600 per person to cut a check, Forman said. The government can "generate significant savings by cutting down how much it costs to cut paychecks," he said. "This leverages economies of scale. It does it in an order of magnitude that can't be done anywhere else."

OMB is working with agencies to see what funds might be available to cover the cost of switching to e-Payroll, because it will be up to the agencies to reimburse their payroll providers. OMB also is looking to modify fiscal 2004 budgets.

However, although it will cost less from a governmentwide perspective, some agencies might find they will pay more to the new provider than they currently do to process their payrolls.

Norm Enger, e-government program director at OPM, said migration efforts will cost $40 million this fiscal year and $50 million next fiscal year.

Eventually, there will be two payroll platforms based on commercial off-the-shelf technology to replace the legacy systems, which presents procurement opportunities for vendors. Still, those platforms are still about seven years away, he said.

The technology replacement is targeted to begin in fiscal 2005. But until then, the four providers will operate using their existing systems, according to Janet Dubbert, OPM's e-payroll project manager.

The e-payroll project is doable, but it won't be easy, said George Molaski, president and chief executive officer of E-Associates and former chief information officer at the Transportation Department. The challenge will be addressing the specific payroll issues in some agencies, such as how overtime is calculated or what union agreements come into play.

"The issues are going to be: Are the agencies going to balk at the special little things they want or are we going to standardized pay systems for the entire federal government?" Molaski said.

Some payroll processing consolidation has already taken place in the past decade, said Karen Cleary Alderman, executive director of the Joint Financial Management Improvement Program. "The big issue is capital investment to refresh systems. How often do you do it?"

A JFMIP report completed in November 2001 formed the business case for the e-Payroll initiative. JFMIP found that payroll consolidation and standardization makes sense. The program is responsible for setting standards for agency financial management systems.

Other sources wonder if the tight time line can be met. Also, some agencies have asked for waivers or exemptions to use their own payroll systems until the standardization is complete.

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Moving time

The Office of Personnel Management has developed a plan that provides a standard path and process to help agencies switch to one of four payroll providers by Sept. 30, 2004. However, the plan and specific time line for each agency will vary.

Each agency has been assigned to a provider and will negotiate all issues related to the service and migration process with that provider. Each agency is expected to provide a letter of intent to OPM by Feb. 3 confirming that it has worked out the details with the provider.

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