Idea #341 -- Electronic Pay Stubs and Other Payroll Ideas

Idea #341 – Electronic Pay Stubs and Other Payroll Ideas

Report Status: Fully Reviewed

Researched by: Anne Helgen

Original Idea as Submitted

The way payroll provides a check stub goes back to when employees received an actual check with the paystub. Today, the town spends thousands of dollars printing check stubs for mostly direct deposit funds. This is a waste of paper, envelopes, time and postage to send the stubs if the employee is home sick or on leave. The town must provide the record but if an electronic stub were provided through safe, online access and a way to print it at work, the town could save dollars over a small period of time.

Other ideas included in this report

#407 – 1) We also should not issue paper paystubs at all, except to the few employees town wide who do not have email. This is a large expense in postage, processing, stuffing envelopes, etc. It's an outdated practice. Most organizations issues electronic paystubs.
2) The Town should include vacation, sick, personal and other time off totals on staff members paychecks weekly. This is something that many other municipalities do, and that would save untold hundreds of hours town wide in staff time annually. It can be easily configured with software.

Idea intent

Increase efficiency in payroll services to reduce expenditures, increase efficiency and enhance employee satisfaction. Move from paper-based payroll to electronic, add accrued leave to pay notices, change payroll frequency and timesheet reporting.

Weighted Final Score: 63 (Financial Impact: 3, Operational Impact: 6, Time Scale: 3, Ease of Implementation: 4)

Background Information

In 2011, the Massachusetts Department of Revenue Division of Local Services conducted a financial management review of the Town of Belmont.¹ The August 2011 report recommended the following changes to payroll/personnel services, all of which are still relevant today:

Grant remote entry access to all departments to enter payroll into the MUNIS system (this is currently done by the Municipal Light Department). Current practice is to manually input payroll data received by from the department, a duplication of effort. Changing this practice shifts the responsibility to the departments to ensure correct pay codes and funding sources and replaces a paper process that requires manual entry of department payroll. The Treasurer’s office would compare the electronic data to be signed off by the accountant.
Approve and submit payroll timesheets after the close of the work week. Currently, time sheets are prepared and submitted prior to the work week, requiring changes to be made last minute or in the subsequent pay period. As a result, accruals are not up to date and the town does not include employee balances of sick, vacation and personal time on their pay stub.
Use the MUNIS system to track and report personal leave balances for all employees. (This is currently done for the Belmont Municipal Light Department, and School employees have access through a separate system.) This will likely require a change in timesheet reporting (see above) and will also require reconfiguration of the MUNIS module to reflect personal leave accruals in each collective bargaining contract. Currently, the Belmont Municipal Light Department provides this and the town owns the MUNIS module for such.
Move all employees to a bi-weekly payroll schedule for all employees to increase efficiency and free up employee time for more-value added tasks. Currently, teachers and most school employees are paid on a bi-weekly pay schedule, however, many town employees are paid weekly. The move to bi-weekly paychecks will require collective bargaining.

Electronic Pay Stubs

The Town Human Resources Director states that receiving electronic pay notifications is in high demand among town employees. School employees have access to payroll information on a separate system. The Town accountant is currently working on adapting the module used by BMLD for town use; the current status is “in progress” with differences in accounting and reporting to be ironed out.

Detailed Estimate of Cost Savings from Conversion to Electronic Pay Stubs

Currently, the Treasurer and School Department handle approximately 1300-1700 total paychecks per week. Direct deposit is required under school collective bargaining contracts and, while not required by Town contracts, all but a dozen opt to have their check deposited directly into their account. Seasonal employees, such as teenage lifeguards, are paid with paper checks. The number of paychecks/stubs produced in any week will depend on the payment schedule of the employee (weekly or biweekly) and the number of seasonal or contractual employees to be paid during that period.

The Treasurer’s office manages payroll and receives weekly paper pay notifications from the vendor. Approximately 500 paychecks and paystubs for Town departments are stuffed into envelopes by the Treasurer’s office by hand and distributed by interoffice mail to the Department Heads for distribution. School paystubs (approximately 650 bi-weekly and 150 weekly) are sent from the Treasurer’s office by interoffice mail and are prepared for distribution by the School Finance Department. They are then sent via interoffice mail to the relevant schools for distribution. Paystubs are mailed to employees on vacation or leave.

The chart below conservatively estimates the costs associated with the distribution of paper pay notices. The analysis includes “hard” costs, such as paper and envelopes, including paper copies of W-2 statements at year-end and an estimated 1000 1095(c) tax forms (which require specialized envelopes) mailed to employees. In addition, “soft” costs to stuff are estimated. According to the Treasurer, the process of stuffing the envelopes for employees on the town side takes approximately eight hours per month. The School Department estimates this task takes sixteen hours per month for school paychecks. Once distributed to the departments across town buildings, time is required for delivery of payroll notices to the employees, i.e., by mail slot or in person (either distributed in the department or picked up by the employee). Additional town resources are also required to locate paper copies of paystubs and W-2s for employees refinancing mortgages, or for a variety of other reasons. The analysis assumes that no incremental costs associated with interoffice mail deliveries, as this service exists whether payroll is distributed through it or not.

Estimated Annual Costs for Paper Pay Stubs

	Estimated Annual Hours	Estimated Annual Dollar Cost
Annual Cost of Paper and Envelopes		$3,200
Annual Cost to 1000 Mail 1095(c)s (Envelopes + Postage)		$1,000
Postage-Mail to Employees on Vacation or Leave		$150
Total Supply Costs		$4,350
Envelope Stuffing-Town (2 hours/week)	104	$2,080
Envelope Stuffing-School	192	$3,840
Interoffice Mail Delivery Time (from Treasure to six town department building from school finance to six school buildings)	N/A	N/A
School Secretarial time to distribute to mailboxes	78	$1,560
Town Secretarial time to distribute in person or mailbox	130	$2,600
Employee Requests for Copies of Paystubs	26	$520
Total Employee Costs		$10,600
Estimated Annual Hours	530
Estimated Annual Costs		$14,950

Sources: Floyd Carman, Treasurer, Mike McAllister, School Department Director of Human Capital, Shawna Healey, Town Director of Human Resources for the envelope stuffing hours and supply costs.

Other estimates by author: Distribution of paychecks in six schools: 15 minutes per week/school; employee and administrative time to distribute paychecks for town department: average of 10 min per sub-department or location. An average cost of $20/hour (including benefits) was used to calculate costs.

This savings in time and effort would not likely translate to a “hard” labor cost savings, since the staff performing such tasks spend just a few hours every week on them. However, the time and effort spent on these tasks represents “opportunity costs” for staff time that could be diverted to other more value-added activities. Efficiencies from other payroll services ideas included in this write up would increase the potential savings for the town, and the cumulative savings in time would be more significant.

In addition to the elimination of recurring expenditures and the opportunity to use staff for more value-added tasks, there are a number of benefits for the employee. These include safe and secure access to electronic records to view and update personal records, such as a name change, change in marital status or a change in address or email address; easy access to compensation information and history; and ability to request a change in voluntary deductions or request a reprint of the W-2 form.

Lastly, many employees, especially those who increasingly manage finances on-line, dispose of the paper paystubs and use their bank accounts to check the pay amounts. While this does not have a financial impact on the town, it does contribute to environmental waste and recycling costs.

Cost to Convert from Paper to Electronic Paystubs

The cost associated with conversion to electronic pay stubs are expected to be one-time human capital costs. Belmont Municipal Light (BMLD) already provides electronic paystubs and, as a result, the town already owns the module necessary to add this to the town’s accounting system (MUNIS). Implementation will require one-time programming changes and training to the extent required, and significant communication and advance notice to Town and School employees regarding the change. It is possible that resources would be needed to work with MUNIS consultants for the conversion. Any employee without access to a computer or device to receive the paystub would need to be provided access to a device to review and print the information. The change would not require collective bargaining.

A survey of surrounding towns reveal that Arlington, Lexington, Watertown, and Winchester all require direct deposit and electronic notification of pay. If an employee does not have a bank account or computer, the employee can obtain a paper check or is provided access to a computer.

Adding Accrued Leave Days to Paystubs

Employees also want accrued sick, vacation, and leave days to be printed on paycheck stubs, or accessible through an electronic pay portal. School employees, through an existing portal, have access to payroll information, as well as accrued sick, vacation and personal leave days.

Idea #407 requests that accrued leave days be added to the town employee electronic paystubs (school employees can currently access this information through a School Department portal). This also is in high demand by employees. Currently, each town department has its own method for tracking sick, vacation, and personal leave days. This ranges from independent tracking systems (Fire Department, Police Department, School Department) to excel spreadsheets. The Belmont Municipal Light Department is the only entity that currently provides this information on employee pay documents.

Standardizing tracking and reporting among departments will create more accountability and transparency to the process, as well as eliminate misunderstandings or loss of data due to turnover or other issues. Although no detailed analysis was done, this, too, is expected to increase efficiency and free up administrative personnel for more value-added activities.

Costs to Add Leave Days to Paystubs

For departments without independent systems, the MUNIS module will need to be reconfigured to take into account the terms in each collective bargaining contracts. Departments often have employees spread across several of these contracts and the contract terms can vary. Nonetheless, certain departments are more straightforward and could be used as a beta site for the reconfiguration.

The standardization of accrued leave day tracking by all departments will necessitate an analysis of the cost/benefit and process involved to either merge existing stand-alone systems used by the Fire Department, Police Department and School Department or allow these systems to communicate with the MUNIS module.

There will likely be additional MUNIS consulting costs around the actual conversion. It is assumed that BMLD’s expertise and experience will help mitigate some of the town department costs.

Timesheet Submission and Entry into Payroll

Currently, departments submit manually prepared payroll to the Treasurer on the Wednesday prior to the payroll period. The Treasurer’s office reenters the data into the payroll system. As noted in the 2011 DOR review, the method of payroll submission is duplicative (paper preparation reinput electronically) and the timing of submission (Wednesday instead of Friday before the pay period) is structured such that vacation and personal leave days are recognized after they are taken.

Converting to Department electronic timesheets will reduce the amount of time the Treasurer’s office needs to prepare payroll, which would in turn allow for later transmission of the payroll so that accrued days can be accurately reflected. In addition, some efficiencies may also be gained in the Departments.

The “cost” to change these practices will primarily be the time and effort on behalf of the Treasurer, Town Accountant, and various Department heads.

Converting to Bi-weekly Payroll

Currently, most Town employees are paid weekly and a majority of school employees are paid biweekly. Reducing the number of pay periods again improves efficiency and frees up employees for other more value-added tasks.

Most towns, including Arlington, Lexington, and Watertown, pay town employees on biweekly basis. This will require collective bargaining.

Recommendations

Belmont’s payroll systems are long overdue to be overhauled and updated to reflect current practices, reduce expenditures and increase efficiency and department accountability. The Town Treasurer believes that the total cost savings in his office will be the hard costs of $3,200. A separate review of just one of the five recommendations conservatively projects $15,000 per year savings in time and dollars. Adoption of all the recommendations can be expected to result in larger savings and efficiencies.

The SCIG supports the 2011 recommendations made by the Massachusetts Department of Revenue to streamline and upgrade the current payroll systems, including the following

Convert from paper paystubs to electronic paystubs. This is standard practice and will increase efficiency for the Treasurer’s office and the School Finance Department, reduce recurring costs, and enhance employee satisfaction. This is not a collective bargaining issue.
Print accrued personal leave on the electronic paystub. This will require standardizing the methods for reporting vacations and leave and will also require additional work to reflect accruals per each union contract and/or to coordinate with existing public safety leave accrual systems. This is not a collective bargaining issue.
Initiate electronic submission of payroll by departments to eliminate duplicative paper submission and electronic reentry by Treasurer’s office. This will streamline the process and reduce errors in transmission. This is not a collective bargaining issue.
Change the submission and approval date for payroll timesheets to Friday instead of the following Wednesday. This will eliminate the current practice of post-dating vacation and personal leave (i.e., recognizing personal leave when taken and not in a subsequent period). This is not a collective bargaining issue.
Convert all weekly payroll to bi-weekly to further reduce the time and effort spent on payroll and increase efficiency in the Treasurer’s office. This is a collective bargaining issue.

Next Steps

Seek funding and support, if possible, to cover the costs of transitioning to a new system. Collins Center and MAPC may have grant opportunities. Otherwise, self-funding would be reasonable.

Task	Primary Lead	In Cooperation With	Notes	Estimated Timetable
Convert from paper to electronic paystubs	Town Treasurer	Town Administrator, School Department Finance, Town Accountant	Does not require collective bargaining	Within 6 months
Standardize departmental reporting of sick, vacation and personal leave days; format to be compatible with payroll	Town Administrator	Town Treasurer, Town Accountant	Does not require collective bargaining	Six months to one year
Update payroll to accept personal leave days	Town Treasurer	Town Accountant	Does not require collective bargaining	Six months to one year
Initiate electronic submission of payroll by departments	Town Treasurer	Town Administrator, Department Heads	Does not require collective bargaining	Within 6 months
Change submission of payroll timesheets to Friday	Town Treasurer	Town Administrator, Department Heads, School Department Finance	Does not require collective bargaining	Within 6 months
Convert all weekly payroll to bi-weekly	Town Administrator, School Committee (for any weekly payroll)	Town Treasurer, Department Heads, Town Accountant	Requires collective bargaining