The ultimate guide to creating an effective payroll RFP

Payroll professionals are charged with a large variety of tasks, including managing payroll compliance, reporting payroll numbers to C-level executives, and coordinating with vendors and software tools for payroll. One task even the most seasoned payroll managers struggle with is drafting a payroll RFP.

Sending out a request for proposal for payroll services is a crucial step in the process of selecting a new payroll provider or software. A RFP gives vendors the chance to provide the information you need to select the best solution for your business.

How to create an effective payroll RFP? What should be included in a request for proposal? What questions to ask when requesting a proposal from a payroll service or software vendor? What are the key considerations for payroll managers that are charged with drafting a global payroll RFP?

A request for proposal (short: RFP) is a formal request addressed to a payroll service or software provider with the aim of gathering information from different vendors on how they could help your business solve a specific problem, such as managing payroll in a more efficient and compliant way.

When it comes to payroll, a RFP is a useful tool for choosing payroll services or software. Sending out payroll RFPs helps you collect specific information about payroll vendors and services which you need to make an informed decision about which services you want to go with in the end.

In order to help you identify the best vendor or software for your payroll, the RFP should include a broad project description (including rough timelines for important project milestones) and provide some insights into the problem(s) you are looking to solve by contracting payroll services or procuring payroll software.

The main goals of creating a request for proposal for payroll services are:

• Formulating requirements for a payroll service or software,

• Soliciting specific information from different payroll vendors, and

• Creating a sound basis for evaluating and comparing different payroll services to find the one that best meets your business’s needs.

What is the difference between a payroll RFI, a payroll RFP and a payroll RFQ?

The acronyms RFI (request for information), RFP (request for proposal), and RFQ (request for quotation) are closely related; yet there are some significant differences between them. They all mark different milestones when selecting a new service or software solution for your business. When it comes to payroll services and software, RFI, RFP, and RFQ can be distinguished as follows:

• Payroll RFI: used for gathering broad information about payroll services and software when you are still unsure about what type of solution you want or need

• Payroll RFP: used for narrowing down the list of potential service providers and solutions by getting more detailed information on the available options

• Payroll RFQ: used for getting the final details on the payroll solution or services that made it onto your shortlist (at this stage, you are ready to buy the software or services)

When done properly, drafting a payroll outsourcing RFP takes time which causes many businesses to wonder why they should invest valuable time in composing a RFP for payroll services. Here are the key benefits of using payroll RFPs:

• Drafting a payroll RFP allows you to get a clearer understanding of your own situation and identify the main payroll challenges you need to solve.

• Using payroll RFPs is a reliable way of identifying the best-qualified vendor for meeting your business’s needs.

• Going through a request-for-proposal process in payroll saves you the trouble of entering a partnership with the wrong payroll provider and then having to find a suitable replacement.

• Leveraging payroll RFPs to create transparency between your business and any potential payroll partner.

• Working with a payroll RFP typically leads to vendors bringing out their best offers in order to win the contract with your company.

• Creating a payroll RFP means investing a considerable amount of time upfront, however, it will save you time in the long run.

Let’s get down to the nitty-gritty. What should be included in a payroll RFP? Here is an overview of the different elements you should cover when drafting an RFP for payroll services or software:

• Background information on your business: The aim of sending out payroll RFPs is to find a solution that really matches your business’s needs. Therefore, you need to be specific about what parts of payroll you need help with, what your main struggles are, and what problem(s) you hope to solve by contracting payroll services or buying payroll software.

• Required services and features: Another important element when creating a payroll RFP template is a detailed description of your requirements. Being thorough and listing all the requirements you have will help providers get a clear understanding of what you are looking for. Again, it’s crucial to be specific. If there is a particular software you want to integrate with your payroll solution, this is where to include this information.

• Project timeline: The decision to contract a payroll provider or buy payroll software is typically problem-driven. This means that there currently is an issue you’re trying to solve. If you have a concrete timeline in mind until when you want your new payroll solution to be up and running, you should include this timeline in your RFP.

• Available budget and expected cost: Payroll outsourcing isn’t cheap. With vendors proposing different pricing structures, it can be hard to draw a comparison between different service providers. That’s why a payroll RFP should always include a specific request for information on the vendor’s pricing structure as well as your proposed budget for your payroll project.

• Questions about the payroll provider: A payroll RFP gives you an opportunity to ask specific questions about the services offered by the payroll vendor. We’ll look at the different questions in more detail further down in this blog post.

• Expectations regarding vendor response: Last but not least, you should formulate clear expectations regarding the response from potential vendors. Let vendors know how you would like them to structure their response. This will make it easier to compare responses from different vendors and ensure that you will get all the information you need. Also include a deadline until when you expect to hear back.

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There is more to creating an effective payroll RFP than just knowing what elements to include in the document. Here are some essential tips to help you succeed:

• Involve the right people and departments: In order to get a holistic view of your company’s payroll situation, you should reach out to different people and departments to get their input on current and potential future payroll pain points.

• Follow a strategic approach: Your RFP-process should be strategy-driven. Don’t just consider the document itself, but also think about the following steps, such as evaluating vendor responses.

• Focus on goals and solutions: Without clear goals regarding what you want to achieve, drafting a payroll RFP is a waste of time. You need to know exactly why you want a new vendor or software in order to ask specific questions and find the payroll service that best matches your business’s needs.

• Set priorities: When it comes to the features and functions your new payroll solution should cover, you need to be specific about which ones are essential must-haves and which ones are desirable nice-to-haves.

• Include different types of questions: Some aspects in your payroll RFP can be covered using simple yes-or-no questions. For other aspects, however, you will need to ask open-ended questions. In any case, make sure to ask specific and detailed questions.

• Keep it in one file: Even the most comprehensive payroll RFP shouldn’t be spread over several files. The rule is: one file between you and each of the vendors you reach out to.

• Include a cover letter: A short cover letter accompanying your RFP gives you a chance to highlight the most important information, such as your RFP and payroll project timelines, proposal requirements, and a formal invitation to the vendor to submit a proposal.

• Challenge potential vendors: Use your request for proposal to put the different vendors to the test and evaluate their problem-solving skills. Also, being faced with a challenge will force vendors to come up with creative solutions which could enrich your business’s payroll management.

The purpose of creating a payroll RFP is to create a shortlist of the most promising payroll services. In order to find out which solutions best suit your business’s needs, you not only need to be clear about the issues you're facing in payroll, but you also need to ask the right questions. What questions you need to ask depends on whether you are intending to use payroll software or payroll services.

Questions to ask in your payroll services RFP

There are many different questions you should ask any payroll vendor you consider working with. However, some questions should make it to the top of the list since they turn around aspects that are crucial for payroll. These questions include:

• How do they ensure payroll compliance?

• What technology and software tools do they use?

• How do they secure payroll data (both during transfer and storage)?

• Can they provide all the services you require?

• Will they assign a personal account manager to you?

• Will you have access to systems and databases?

• How long will it take to implement the new payroll set-up?

• How do they manage payroll reporting?

• How do they ensure the accuracy and timeliness of payroll?

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Questions to ask in your payroll software RFP

A good payroll software offers you more than just a program that calculates gross-to-net and produces payslips for your employees. When selecting a software solution for running payroll, make sure to inquire about the following aspects:

• How often is the payroll software updated to reflect legal changes affecting taxation and payroll?

• How often is the software updated to keep it secure and publish new capabilities and features?

• Which payroll software integrations are available?

• What are the response times for inquiries submitted to customer support?

• What features and functionalities are included in the software?

• How long does it take to set everything up to start using the software?

• Is there an implementation support?

Running a global payroll is a lot more complex than processing payroll for just one location. The increased complexity means that there are also more risks, which is why it’s particularly important to do due diligence when selecting a global payroll provider.

A global payroll RFP therefore needs to be even more comprehensive and ask different questions than a normal payroll RFP. Additional elements that should be included in a global payroll RFP are:

• Geographic scope: When drafting a global payroll RFP, make sure to include information on which geographies your business operates in, how many employees it has in each market and how often employees get paid in each country. Also, be specific about the information you want the global payroll provider to include in their response regarding their country coverage.

• Payroll consolidation capabilities: Running a multi-country payroll involves many different processes and data sets that need to be brought together. Payroll consolidation allows businesses to harmonize and standardize processes and data streams across geographies to get a consolidated view of their global payroll operation. Ask any potential global partner about how they approach payroll consolidation.

• Level of automation: Payroll automation is vital when it comes to global payroll efficiency. With the high number of processes, vendors, and systems, automating workflows is essential for preventing chaos and ensuring efficiency.

• EOR and contractor options: No business works with full-time employees only. The typical global workforce involves different employment types, including employees and contractors. This should be reflected in the provider’s product offering. Also, there should be options for hiring a handful of employees in one country without having to set up a foreign legal entity and a separate local payroll.

• Vendor management: Even the best global payroll solution cannot provide global coverage without local payroll vendors. Efficient vendor management is crucial for a successful global payroll operation. So make sure to ask about how the service provider manages different vendors and if they are open to adding new vendors to their system.

• Global payroll reporting: Payroll reporting is a fundamental part of payroll compliance and delivers critical insights to inform strategic business decisions based on validated payroll data. Any global payroll provider you choose should have strong reporting capabilities for multi-country payroll.

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The above-mentioned aspects are just a snippet of what to consider when vetting potential service providers. There are many more aspects that should be taken into account when creating a request for proposal for global payroll services.

Download our free global payroll RFP template to get the full list of requirements, objectives, and questions that should be included in your request for proposal. Also, feel free to book a demo with one of our payroll experts to learn about Lano’s global payroll consolidation platform and services.

Download our free Global Payroll RFP Template.

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