University of Virginia Process Simplification
Process Simplification Teams and Reports: Completed Teams

Direct Deposit Team Final Report


January 30, 1997

Executive Summary

Purpose of the Direct Deposit Team
The Direct Deposit Team was created in 1996 as part of the Process Simplification effort taking place at the University of Virginia. The purpose of this team was 1) to analyze the distribution of payroll/stipend payments and earnings statements to employees and stipend recipients and 2) to suggest improvements which would increase efficiency and cost effectiveness while reducing personnel requirements.

This Executive Summary provides an overview of the Direct Deposit Team's analyses, recommendations, and implementation plans. More detailed information on each of these subjects can be found in the attached proposal.

Payroll Distribution
Analysis of Current Situation:
The team's analysis of payroll distribution revealed the following:
* The following number of employees and stipend recipients still receive paper checks on payday even though direct deposit is available.

Salaried Employees: 1,564 (17%)
Wage Employees: 4,394 (52%)
UVA Temps: 700 (50%)
Stipend Recipients: 1,258 (74%)
Total Checks per Month 7,916
Total Checks per Year 94,992
  • The bank charges 5.77 cents more to process a paper check than to process a direct deposit transaction. As a result, the University spends an additional $4,128 per year to cover the incremental banking costs associated with issuance of paper checks.
  • Distribution of payroll is a very labor intensive task. A total of 7.75 FTEs (6 FTEs in academic departments, .25 FTE in the Bursar's Office, and 1.5 FTEs in the Payroll Department) are required University-wide to distribute paper checks and earnings statements to employees and stipend recipients. An estimate of the personnel costs associated with payroll distribution are:
Academic Departments (6 FTEs) $150,000
Bursar's Office (.25 FTE) 6,252
Payroll Department (1.5 FTEs) 37,500
Total Annual Cost $193,752
Clearly, issuing paper checks is costly to the University not only in terms of actual dollars, but also in terms of personnel time and effort.

Recommendation
Based on the analysis of payroll distribution, the Direct Deposit Team recommends that direct deposit become mandatory for all salaried and wage employees, with the exception of UVA Temps and stipend recipients. UVA Temps are excluded from this recommendation because of the constant turnover in this work pool. Stipend recipients are excluded because it is believed that they may have significantly different banking needs/habits than employees. In addition, stipend payments are currently distributed only by U.S. mail or direct deposit. As a result, distribution of stipend payments is not a burden at the departmental level.
The net effects of this recommendation will be:
  1. A reduction/elimination of the payroll distribution tasks that are currently the responsibility of departmental personnel.
  2. A decrease in banking costs incurred by the University because direct deposit transactions are cheaper to process than paper checks.
  3. An increase in central department costs. The Payroll Department will need to hire an additional FTE because of the increased workload resulting from mandatory direct deposit. The estimated annual cost for this FTE is $28,000.
Implementation
Implementation of this plan will begin on July 1, 1997. Because of the increased numbers of people who will be signing up for direct deposit, it will be necessary to hire one additional FTE for the Payroll Department. Enrollment of employees in direct deposit will be handled in the following manner:
  • New salaried employees will sign up for direct deposit during new employee orientation. No exceptions to this direct deposit policy will be made for new salaried employees.
  • New wage employees will sign up for direct deposit at the Employment Services Office when they are filling out other required employment paperwork (e.g., tax forms, I-9 form). As is the case with new salaried employees, no exceptions to the direct deposit policy will be made for new wage employees.
  • Existing employees (salaried and wage) will be informed of the direct deposit requirement through a letter sent on July 1, 1997. This letter will inform employees of 1) the new policy, 2) the plans to close all departmental distribution points and 3) the consequences of not complying (i.e., that they will have to pick up paychecks at a central distribution point in Carruthers Hall if they do not enroll in direct deposit). Because there are currently more employees receiving paper checks than could be served at the central distribution point, it will be necessary to close the departmental distribution points in three stages. Employees will be separated into three groups based on the vice presidential areas of the University (Office of the Executive Vice President & Chief Financial Officer, Office of the Vice President & Provost for Health Sciences, and Office of the Vice President & Provost). Each group of employees will be given a deadline by which they must sign up for direct deposit. These deadlines correspond to the dates on which certain departmental distribution points will be closed. The suggested deadlines are as follows:
January 1, 1998 -Employees (faculty, classified staff, and wage) under the purview of the Office of the Executive Vice President and Chief Financial Officer (Leonard Sandridge, Executive Vice President & Chief Financial Officer).

April 1, 1998 - Employees (faculty, classified staff, and wage) under the purview of the Office of the Vice President and Provost for Health Sciences (Robert Cantrell, Vice President & Provost).

July 1, 1998 - Employees (faculty, classified staff, and wage) under the purview of the Office of the Vice President and Provost (Peter Low, Vice President & Provost). Employees (faculty, classified staff, and wage) who do not enroll in direct deposit by their respective deadlines will be required to go to the central distribution point (the Bursar's Office in Carruthers Hall) to pick up their paychecks. By July 1, 1998, it is expected that the central distribution point will be fully operational.

Earnings Statement Distribution
Each time a payroll payment is made to an employee or stipend recipient, a corresponding earnings statement is produced by the Payroll Department. Preparation and distribution of earnings statements have proved to be an extremely labor intensive task at the University. The charge of the Direct Deposit Team was to analyze the current situation and make suggestions for improvement.

Analysis of Current Situation
The Direct Deposit Team analyzed the two mechanisms currently being used to deliver earnings statements to employees - hand delivery by departmental personnel and pick-up by the employee. The problems found in the current situation are:
  1. It is too labor intensive at both the University and departmental levels.
  2. Employees do not always receive earnings statements in a consistent or timely manner.
The Direct Deposit Team also analyzed three additional delivery mechanisms (electronic mail notification, messenger mail delivery, and US mail delivery) to determine whether there was a better delivery system available for use by the University.

Recommendation
After analyzing the five delivery mechanisms listed above, the Direct Deposit Team recommends that the University use US mail to deliver earnings statements to employees. In addition, the team recommends that the University use an outside vendor to process the mailing of the earnings statements. The advantages of using US mail and outside vendor processing are:
  1. Employees would have to keep a current address on file with the Payroll Department in order to receive their earnings statements.
  2. All employees would receive earnings statements via the same delivery mechanism (i.e., it would standardize the system).
  3. Personnel in the Payroll Department would no longer have to process the earnings statements. The outside vendor would coordinate the printing, sorting, bundling, and mailing of the earnings statements.
  4. It would eliminate the need for departmental personnel to distribute earnings statements. This is essential because of the plans to eliminate departmental distribution points when mandatory direct deposit is implemented.
The University would incur an annual incremental cost of $75,372 if this recommendation is implemented. The Direct Deposit Team firmly believes that the cost can be justified by the many advantages that will be gained.

Implementation
It is recommended that the shift to US mail delivery of earnings statements begin on July 1, 1997. Prior to this date, the University will need to solicit bids from vendors which specialize in mail processing. In addition, the University will need to verify all employee addresses prior to implementation.

Background & Objective
The Direct Deposit Team was created to expand on the efforts of another Process Simplification Team, the Check Distribution Team. The Check Distribution Team analyzed the distribution of payroll payments and earnings statements to all wage employees. The conclusions reached by that team were that 1) it should be mandatory for all wage employees to sign up for direct deposit of their paychecks and 2) the University should examine the feasibility of using US mail for delivery of earnings statements.

The objective of the Direct Deposit Team was to analyze the current processes by which payroll payments and earnings statements are distributed to all employees (salaried, wage, and UVA Temps) and stipend recipients. These distribution processes are currently very labor intensive, especially at the departmental level. Based on the findings of the team, recommendations will be made on ways to streamline the distribution of both payroll payments and earnings statements.

Payroll Distribution
Current Payroll Distribution Methods
The University processes approximately 18,900 payroll payments and 1,700 stipend payments per month. These payments are distributed among four main categories of recipients: salaried employees, wage employees, UVA Temps, and stipend recipients.

1. Salaried Employees
Salaried employees are paid either on a monthly or a semi-monthly pay schedule. During an average month, there are 7,000 salaried employees, of which 6,000 (86%) are paid monthly and 1,000 (14%) are paid semimonthly Salaried employees receive their payroll payments by one of two mechanisms: 1) direct deposit (electronic funds transfer) into an account at a financial institution designated by the employee or 2) issuance of a paper check to the employee. The first mechanism, direct deposit, is utilized by approximately 93% of salaried employees paid monthly and 56% of salaried employees paid semimonthly Those employees not participating in direct deposit must pick up a paper check on or after payday at a designated location in the University (typically the employee’s home department). Currently, 7% of salaried employees paid monthly and 44% of salaried employees paid semimonthly are still compensated with paper checks. Beginning in January 1995, it became a University requirement that all new salaried employees sign up for direct deposit. Prior to this mandate, however, employees could choose the method by which they were paid.

If delayed payroll is implemented and all salaried employees are switched to a semimonthly pay schedule, the total number of semimonthly payroll payments will increase substantially. This, in turn, will increase the number of paper checks issued per month. These changes are compared to the current situation in the following table.

Table I. Salaried Employees (Per Month)
Current Situation:
Payment Schedule Total # of payments/month Direct Deposit
# of % of Total transactions Payments
Paper Checks
# checks % of Total issued Payments
Monthly 6,000 5,580 93% 420 7%
Semimonthly 1,900 1,064 56% 836 44%
Salary Overtime 1,100 792 72% 308 28%
Totals 9,000 7,436 83% 1,564 17%
After Delayed Payroll:
Totals 15,000 13,016 87% 1,984 13%

2. Wage Employees
Payroll distribution to wage employees, as noted previously, was studied extensively by the Check Distribution Team. Current figures show that of 5,400 wage employees, 2,600 (43%) are paid monthly and 2,800 (52%) are paid bi-weekly. Participation of wage employees in direct deposit is significantly lower than that of salaried employees. Only 49% of wage employees paid monthly and 48% of wage employees paid biweekly are signed up for direct deposit. The remainder of wage employees are issued paper checks. It is important to note, however, that direct deposit was only recently made available to wage employees. Beginning in January 1996, wage employees were given the option to sign up for direct deposit. Unlike new salaried employees, however, new wage employees are not currently required to participate in direct deposit as a condition of employment. Wage payroll payments are summarized in Table II.

Table II. Wage Employees (Per Month)
Payment Schedule Total # of payments/month Direct Deposit
# of % of Total transactions Payments
Paper Checks
# checks % of Total issued Payments
Monthly 2,600 1,274 49% 1,326 51%
Biweekly 5,900 2,832 48% 3,068 52%
Totals 8,500 4,106 48% 4,394 52%

It is important to note that wage employees will not be affected by delayed payroll. In addition, many wage employees (e.g. graduate teaching assistants (GTAs) and graduate research assistants (GRAs)) will remain on a monthly pay schedule even after delayed payroll takes effect.

3. UVA Temps
UVA temps are encouraged to utilize the direct deposit system, but are not required to do so at the present time. There are, on average, 1400 payments issued to temporary employees each month. Approximately 50% of these payments are direct deposited.

4. Stipend Recipients
Approximately 20,400 stipend payments are distributed each year. This indicates that, on average, there are approximately 1,700 stipend payments issued per month. Stipend recipients have the choice of receiving their stipend payments either through direct deposit or through issuance of a paper check. At the present time, only 26% of stipend payments are processed through the direct deposit system. The remainder of stipend payments (74%) are issued in the form of a paper check. Because these checks are processed through Accounts Payable, they are sent directly to the recipients’ home addresses via US mail.
Table III. Stipend Recipients (Per Month)
  Total # of payments/month Direct Deposit
# of % of Total Payments/Month Payments
Paper Checks
# of checks % of Total issued Payments
  1,700 442 26% 1,258 74%

Labor & Cost Analysis of Current Distribution System
The current distribution system is labor intensive and costly for the University. The costs and labor requirements of the current system are summarized below:
1. Banking Costs
An analysis of banking costs reveals that it is more expensive to pay employees and stipend recipients by paper check than through direct deposit. Paper checks cost 3.665 cents each and the bank charge to process each check is 7.5 cents, resulting in a total cost of 11.165 cents per check. The bank charge to process each direct deposit transaction item is 5.4 cents. Therefore, it costs 5.77 cents more to issue a paper check than to process a direct deposit transaction. The University currently spends a total of $1,191 per month to issue paper checks. If all employees and stipend recipients were paid through the direct deposit system, the University would save $765 per month. After implementation of delayed payroll, the monthly cost to issue paper checks will increase to $1,238. The University could save $789 if these payments were made by direct deposit instead of paper check. Table IV summarizes these incremental monthly costs incurred by the University in issuing paper checks. It should be noted that the cost of issuing paper checks to stipend recipients is considerably more expensive because a postage cost is also incurred to mail the check to their homes.
Table IV. Incremental Monthly Costs to Issue Paper Checks
Current costs:
Payment Type Paper Checks
Total #
Checks/Month Incremental Cost/Month

Monthly Salaried 420 $ 24
Semimonthly Salaried 836 48
Salary Overtime 308 18
Biweekly Wage 3,068 177
Monthly Wage 1,326 77
UVA Temps 700 40
Stipend Payments 1,258 Check Costs: 73
Postage Costs: 308
Total Monthly Cost 7,916 $765
Costs after Delayed Payroll
Total Monthly Cost 8,336 $789

2. Academic Department and Other Operating Unit Costs
A total of 6 FTEs are required University-wide to distribute paper checks and earnings statements to employees. A rough estimate of the total salary paid to these FTEs is $150,000 (assuming that the average salary is $20,000 plus fringe benefits of $5,000). It should be noted that this figure of 6 FTEs is an estimate of the total effort spent on this activity by many individuals throughout the University. It should not be interpreted as a reflection of work done by only 6 people. Implementation of delayed payroll will increase the number of FTEs needed to distribute payroll payments and earnings statements to 7.

3. Central Department Personnel Costs
Payroll Department
The Payroll Department currently requires 1.5 FTEs to process direct deposit transactions and earnings statements.
Bursar's Office
The Bursar's Office currently requires .25 FTE for paycheck and earnings statement distribution.

Recommendation:
The team recommends that participation in direct deposit be required of all employees, except UVA Temps and stipend recipients. This recommendation will affect both new and existing employees.
  • New Employees -
  • Since January 1995, all new salaried employees have been required to sign up for direct deposit during new employee orientation. The same policy should be instituted for new wage employees. Participation in direct deposit is currently much lower among wage employees than among salaried employees. This difference is due, in part, to the fact that participation is still optional for wage employees. Therefore, the team recommends that all new wage employees be required to sign up for direct deposit.
  • Existing Employees -
  • A major focus of this proposal is shifting existing salaried and wage employees to a direct deposit system. Currently, 17% of all payments to salaried employees and 52% of all payments to wage employees are made with paper checks. The team recommends that employees who are presently receiving paper checks be required to switch to the direct deposit system.
Benefits of 100% Participation in Direct Deposit
  • 100% participation in direct deposit by salaried and wage employees would represent an annual bank cost savings of $4,128 to the University before implementation of delayed payroll and $4,416 after implementation.
  • Electronic direct deposit requires more effort in the University Payroll Department than processing paper checks. Between handling sign up, file maintenance and post payday research and corrections, it is estimated that at least 1 additional FTE would be required (Attachment A). There would, however, be a corresponding decrease across the University of 6 FTEs because departmental employees would no longer be required to hand out paper checks and earnings statements. In essence, this means that those employees responsible for distribution in the departments would now be able to direct their attention to other duties.
Obstacles to Recommendation
  • New Employees -
  • The team does not anticipate that sign-up of new employees will be problematic. It will be explained to new employees that sign-up for direct deposit is a condition of employment and that paychecks will not be distributed by any other mechanism. It is this team’s recommendation that no exceptions be made for new employees.
  • Existing Employees -
  • It is inevitable that some employees will object to signing up for direct deposit. There are a couple of reasons for this resistance: 1) some employees do not have and/or do not want a bank account; and 2) some employees are hesitant to give the University access to their bank accounts. To address the second concern, the team has decided to rewrite a portion of the direct deposit sign-up form (see Attachment B). This rewrite will further clarify the situations in which the University would be permitted to make adjustments to an employee's bank account. It is anticipated that even after the rewrite, however, there will still be some employees who refuse to sign up for direct deposit. It should be noted that while all salaried and wage employees (except UVA Temps) will be expected to participate in direct deposit as a condition of employment, this team does not advocate firing individuals who refuse to participate. Based on the analysis of this team, however, it is clear that the University cannot continue to provide the same level of service to these employees who will not sign up for direct deposit. As noted throughout this document, distribution of paper checks has become a very burdensome task throughout the University, especially at the departmental level. Therefore, the team recommends the elimination of all departmental distribution points and the establishment of a central distribution point (the Bursar’s Office in Carruthers Hall) where employees will have to pick up their paychecks if they do not sign up for direct deposit. At the present time, however, there are more employees receiving paper checks than could possibly be served at a central distribution point. As a result, it will be necessary to close the departmental distribution points in stages. The process by which these departmental distribution points will be closed is explained in the Implementation section of this proposal.
Exceptions to Recommendation
The team has decided not to require mandatory direct deposit of the following types of payments:
  • Payroll Payments to UVA Temps. UVA Temps should be excluded from the direct deposit mandate. There is a very high turnover in this work pool. In fact, it is not uncommon for some temporary employees to work for only one day. Based on this information, team members have concluded that it is not worthwhile to insist on direct deposit for temporary employees. Of course, all UVA Temps will continue to have the option of selecting direct deposit. Temps who choose to receive paper checks will continue to pick them up at the Employment Services Office in the Michie Building between the hours of 8 a.m. and 5 p.m., Monday through Friday.
  • Stipend Payments. The team believes that stipend recipients may have significantly different banking needs and habits from those of employees and that further examination is necessary before a recommendation of mandatory direct deposit can be made for them.
  • Special Payments. There will be times when issuance of a paper check is unavoidable. For example, a new employee’s first payroll payment is often a paper check. Another instance in which a manual check may have to be issued is if an employee changes the account to which direct deposits are made. There may not be sufficient time to update the direct deposit system before payday. In this case, payroll would have to manually produce a check to pay the employee on time. Manual checks issued under such special circumstances would have to be picked up by the employee at the Bursar’s Office in Carruthers Hall between the hours of 8 a.m. and 5 p.m., Monday through Friday.
Implementation:
It is recommended that implementation of the plan begin on July 1, 1997. The University will need to have two implementation plans: one for new employees and one for existing employees.
  • New Employees -
  • As noted previously, it is currently a condition of employment that all new salaried employees (faculty and classified staff) sign up for direct deposit. This condition of employment will need to be extended to include all wage employees, with the exception of UVA Temps. Sign up for new salaried employees should continue to be coordinated during new employee orientation. Direct deposit sign up for new wage employees will be conducted in the Employment Services Office when the employee fills out other required employment paperwork (i.e. tax forms, I-9 form). Sign up for student wage employees will be handled at the departmental level.
  • Existing Employees -
  • On approximately July 1, 1997, a packet will be sent to all salaried (faculty and classified staff) and wage employees who are not signed up for direct deposit of their paychecks. This packet will contain 1) a letter announcing the new direct deposit requirement, 2) a fact sheet outlining the benefits of direct deposit (Attachment C), and 3) a direct deposit sign-up sheet. The letter will fully explain the new policy and the manner in which it will be implemented. Existing employees will be separated into three groups which are based on the three vice presidential areas of the University (Office of the Executive Vice President & Chief Financial Officer, Office of the Vice President & Provost for Health Sciences, and Office of the Vice President & Provost). Each group of employees will be given a deadline by which they must sign up for direct deposit. These deadlines correspond to the dates on which certain departmental distribution points will be closed. Employees who do not sign up for direct deposit by their respective deadlines will have to go to the central distribution point to pick up future paychecks. The recommended deadlines for the employee groups are as follows:
January 1, 1998 -
  • Employees (faculty, classified staff, and wage) under the purview of the Office of the Executive Vice President and Chief Financial Officer (Leonard Sandridge, Executive Vice President & Chief Financial Officer).
    April 1, 1998 -
  • Employees (faculty, classified staff, and wage) under the purview of the Office of the Vice President and Provost for the Health Sciences Center (Robert Cantrell, Vice President & Provost).
    July 1, 1998 -
  • Employees (faculty, classified staff, and wage) under the purview of the Office of the Vice President and Provost (Peter Low, Vice President & Provost).

    Successful implementation of the direct deposit policy will be highly dependent on the assistance and support of departmental personnel who are responsible for handing out paychecks. These personnel will be asked to: 1) encourage employees to sign up for direct deposit; 2) provide assistance to employees who need help filling out the direct deposit form; 3) remind employees of the date when their departmental distribution points will close; and 4) inform employees of the consequences of not complying with the direct deposit requirement (i.e. that they will have to go to the central distribution point to pick up their paychecks).

    By July 1, 1998, all departmental distribution points will be closed and the central distribution point will be fully operational. The Bursar’s Office, in Carruthers Hall, will be the central paycheck distribution point for all employees who have not signed up for direct deposit. Checks will be available at this location from 8 a.m. to 5 p.m., Monday through Friday. Employees will be expected to go to Carruthers Hall on their own time (e.g. lunch hour) to pick up their paychecks. In addition, employees will be required to pick up their own paychecks (i.e. they can not send someone else to pick up their checks). Employees who complain about these inconveniences will be advised to sign up for direct deposit.

    Earnings Statement Distribution

    Background
    Each time a payroll payment is made to an employee or a stipend recipient, a corresponding earnings statement is produced by the Payroll Department. An earnings statement is a record of an employee’s gross pay, deductions, and net pay for a specific pay period. Preparation of earnings statements for delivery to employees has proved to be a very labor-intensive task at both the University and departmental levels. A total of 7.75 FTEs are involved in the preparation and distribution of earnings statements. The steps required to prepare these statements for distribution are detailed below:
    • The Payroll Department prints, sorts and bundles the earnings statements by home department codes.
    • The earnings statements are then either: 1) picked up in Carruthers Hall by a home department representative or 2) hand delivered to the home department by a courier from University Mail Services.
    • The home departments distribute the earnings statements to employees. It is up to each home department to determine how the earnings statements will be distributed to employees.
    There are currently two mechanisms used by home departments to distribute earnings statements to employees -
  • hand delivery and pickup by the employee. There are three additional mechanisms, electronic mail, messenger mail, and US mail, which could be utilized to deliver these statements. The charge of this team was to: 1) analyze these five delivery mechanisms and 2) recommend the most cost
  • and labor-efficient method.

    It should be noted that the analysis and recommendation that follows is intended only to address distribution to employees. Stipend recipients with direct deposit will continue to be notified of their stipend payments through electronic mail. Stipend recipients not signed up for direct deposit will continue to receive their stipend payments and related documents through US mail.

    Earnings Statement Distribution Options:
    1. Hand Delivery
      Some departments appoint an individual to be responsible for hand delivering the earnings statements to employees. Obviously, this is only feasible in smaller departments, and even then, it is a very time-consuming task.

    2. Employee Pickup
      Departments that are unable to hand deliver designate a location where employees may pick up their earnings statements. The drawback to this delivery mechanism is that it requires a departmental employee to be present at the pickup location at all times.
    3. Electronic Mail Notification
    • Electronic mail is not presently being utilized to deliver earnings statements to employees. It is, however, an appealing means of delivery. A program could be written to interface the computer which produces earnings statements with the electronic mail system. With the exception of the set-up of the system, this would be a cost
    • and labor-efficient means of delivering earnings statements to employees. At the present time, however, this is not a viable option because:
    • There are concerns about the privacy of information sent through electronic mail.
    • There are a significant number of employees who either don't have access to a computer or are not computer literate.
    These problems would have to be addressed before e-mail could be utilized as the delivery system for employees’ earnings statements.

    4. Messenger Mail Delivery
    Preparation of earnings statements for delivery through messenger mail would be very labor intensive. Because of constraints in the computer system which produces the earnings statements, it is not possible to address these statements to messenger mail addresses. As a result, the earnings statements would have to be sorted and bundled twice -
  • once in the Payroll Department and once in the home department. In the Payroll Department, the earnings statements would be sorted and bundled according to home department code. Once the home departments received the earnings statements, they would have to be addressed, sorted, and bundled according to messenger mail addresses. Processing these documents twice would obviously be inefficient and could result in unavoidable delivery delays. It is important that earnings statements are available to employees on payday. As a result, the team cannot recommend using messenger mail to deliver earnings statements.

    5. US Mail Delivery
    Employees do not receive earnings statements through US mail at the present time. The team has explored, however, whether US mail should become the standard mode of delivery for all employee earnings statements. One advantage of switching to US mail delivery is that employees would have to keep a current address on file with the Payroll Department. Although employees are supposed to notify the Payroll Department when they have a new address, it has been a problem getting these updated addresses. The team believes that this would cease to be a problem if earnings statements were mailed to employees’ homes. Another advantage is that it would standardize the means of delivery throughout the University and insure that all employees receive prompt notification of their earnings. Finally, use of US mail for delivery would eliminate the need for departmental personnel to distribute earnings statements. This is in keeping with one of the main goals of this proposal, which is to eliminate the role of departmental personnel in distribution of payroll payments and earnings statements.

    If this means of delivery is selected, there are two options on how to process the mailing. Either the University could process the mail in-house or it could hire an outside vendor to handle the processing. A cost analysis of in-house vs. outside vendor processing follows.

    Cost Analysis: In-House Processing
    If the University elected to process the mailing in-house, it would have to insure that adequate labor, machinery, and software were on hand to prepare the mailing. In order to be eligible for bulk postage rates, the University would have to prepare the mailing in accordance with the following US Postal Service requirements: 1) each item would have to be delivery point bar coded and 2) all outgoing mail would have to be sorted and bundled by postal code. The University would have to purchase CASS and PAVE software to support, validate, and evaluate the coding and presorting of the mailing at an approximate cost of $7,000 per year. The labor costs associated with processing the mailing would be difficult to determine until the system was actually in place. However, an initial estimate of the labor costs would be $6,250 per year for .25 FTE. The postage cost to mail each earnings statement would be $0.245. Using the information outlined above, a rough estimate of the monthly cost to process this mailing internally, both before and after implementation of delayed payroll, would be:


    Proposed Cost
    Before Delayed Payroll
    Proposed Cost
    After Delayed Payroll
    Postage Costs:
    Monthly Salaried $1,470 $0
    Semimonthly Salaried 466 466
    Overtime-Salaried 270 270
    Biweekly Wage 1,446 1,446
    Monthly Wage 637 637
    UVA Temps 172 172
    Software Costs: 583 583
    Labor Costs: 521 521
    Paper Costs: 125 175
    strong>Total Monthly Cost: $5,690 $7,210
    Total Annual Cost: $68,280 $86,520
    Cost Analysis: Outside Vendor Processing
    There are many vendors which provide mail processing services. To gain the most from outside processing of earnings statements, the University would need to find a vendor that could provide the following services:

    • Receipt of earnings statements via modem
    • Printing of earnings statements
    • Supplying paper and envelopes
    • Application of delivery point barcode to each item (US Postal Service requirement for bulk postage rate)
    • Sorting of items by postal code (US Postal Service requirement for bulk postage rate)
    • Application of postage to envelopes
    • Delivery to US Post Office
    An estimate of the cost for full-service processing of mail by an outside vendor, based on an informal quote obtained from a mailing services vendor, would be $0.245 per item to cover postage costs and $0.10 per item to cover processing costs. A rough estimate of the monthly cost to the University would be:

    Proposed Cost
    Before Delayed Payroll
    Proposed Cost
    After Delayed Payroll
    Postage & Processing Costs:
    Monthly Salaried $ 2,070 $ 0
    Semimonthly Salaried 656 4,796
    Overtime-Salaried 380 380
    Biweekly Wage 2,036 2,036
    Monthly Wage 897 897
    UVATemps 242 242
    Total Monthly Cost: $6,281 $8,351
    Total Annual Cost: $75,372 $100,212
    The main advantages of enlisting the services of an outside vendor are that: 1) the University would avoid the labor costs associated with processing the mail; 2) the University would not need to purchase any special software or equipment; and 3) inserts with important announcements for employees could be included with each statement.

    Recommendation

    In order to streamline the process of earning statement distribution, the Direct Deposit Team recommends using US mail for delivery of earnings statements. Utilization of this system would insure that all earnings statements are processed and received by employees in a timely and consistent manner. In addition, use of this system would enable University personnel who are responsible for earnings statement distribution to redirect their efforts to other tasks.

    If US Mail delivery is adopted by the University, this team strongly recommends that an outside vendor perform the processing and mailing of these items. When comparing the postage and processing costs between using a mailing service vendor and processing this mail in-house, it appears that use of an outside vendor would cost only $591 more per month under the current system and $1,141 more per month after delayed payroll. The team requests that the University fund the total cost ($75,372 before implementation of delayed payroll and $100,212 after implementation) of an outside vendor from central sources beginning with the 1998 fiscal year.

    Implementation
    Upon approval of this plan by the Process Owners Group and the Steering Committee, the next step in the process would be solicitation of bids from vendors.

    It is recommended that the shift to US mail delivery of earnings statements begin on July 1, 1997. This will allow time for the Payroll Department to verify all employee addresses prior to implementation. In addition, funds will not be available to implement this program until the 1998 fiscal year.
     
    Conclusion

    The Direct Deposit Team undertook an extensive review of payroll and earnings statement distribution with three goals in mind: 1) to decrease costs; 2) to increase efficiency; and 3) to reduce personnel needs. To that end, the team recommends that direct deposit become mandatory for all employees (except UVA Temps and stipend recipients) and that earnings statements be processed by an outside vendor for delivery to employees through US mail. If these recommendations are adopted together, the effects will be as follows: 1. Decrease in Costs: A cost savings of approximately $4,230 per month will be achieved through implementation of the team’s recommendations. Table V summarizes these savings.

    Table V. Summary of Cost Savings (Per Month)
    Cost Categories Current Monthly Costs Proposed Costs with Implementation Difference (Savings)
    Bank Costs:
    Salaried Employees $577 $487 $(90)
    Wage Employees 713 459 (254)
    UVA Temps 116 116 0
    Stipend Recipients 164 164 0
    Personnel Costs:
    Departments 6.00 FTE
  • $12,500
  • 0.00 FTE
  • $0
  • $(12,500)
    Bursar's Office 0.25 FTE
  • $521
  • 0.25 FTE
  • $521
  • 0
    Payroll Dept 1.50 FTE
  • $3,125
  • 2.50 FTE
  • $5,458
  • 2,333
    Cost to Mail Earnings
    Statements Using Vendor
    0 6,281 6,281
    Total Monthly Costs $17,716 $13,486 $(4,230)
    Total Annual Costs $212,592 $161,832 $(50,760)
    1. Increase in Efficiency: The University manually distributes approximately 26,000 checks and earnings statements per month. After implementation of delayed payroll, this number will increase to 32,600. Under the recommendations proposed by the Direct Deposit Team, the number of documents distributed per month could be reduced to approximately 2,700.
    2. Reduction in Personnel Needs: There will be an increased labor need of 1 FTE in the Payroll Department, but a corresponding decrease of 6 FTEs throughout the University.
    The Direct Deposit Team is confident that the recommendations made in this proposal will streamline the distribution systems used for payroll payments and earnings statements.
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    Last Modified: 10-Nov-2010 07:58:01 EDT