OPM launches e-payroll initiative

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, which is 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 today.

The move will save about $1.2 billion over 10 years.

"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 as the four payroll providers:

* The Agriculture Department's National Finance Center, in partnership with the Interior Department's National Business Center.

* The Defense Finance and Accounting Service, in partnership with the General Services Administration.

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

It currently costs agencies from $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 agencies' migration because it will be up to the agencies to reimburse their payroll provider. OMB is also looking to modify fiscal 2004 budgets.

However, while 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 payroll.

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 in place, which presents procurement opportunities for vendors.

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