Finance slashes SAP costs for Single Touch Payroll

The federal Department of Finance’s long-running battle to rein-in big ticket software bills from ERP behemoths is finally chalking up some runs with the government’s chief bean counters claiming a major cost cutting victory over SAP in deployments of Single Touch Payroll (STP).

The public service’s official penny pinchers have crowed that a Finance “digital solution for [STP]  for its clients that consume the payroll service” that spans across nine government agencies has come at “an average cost for each agency of around $65,000” rather than $600,000 each.

Finance claims that under the rollout, executed by its Service Delivery Office (SDO), the “standard solution … has minimised the implementation and ongoing costs for its clients, including running, maintenance and upgrade costs.”

The rollout of STP, which is a legislated tax reform requirement for many organisations, has been a running battle for government and business because of the slowness of big financials and payroll vendors to add the functionality to their existing installs.

At the same time, software users hit by STP compliance requirements are loathe to take on expensive major ERP and payroll upgrades or overhauls because of steep costs arising from integration and modifications of what are often legacy systems.

The result has been a raft of businesses pleading for STP exemption certificates on the basis their software platforms don't yet offer the functionality to auto-report payroll data direct to the ATO so it can catch tax cheats, especially contractors in risky areas like cleaning, couriers and IT.

Meanwhile, the Tax Office has also been pressuring both SAP and Oracle to integrate STP functionality into their platforms because the two heavyweights account for the lion’s share of major government and corporate payrolls where contractors exploit a lack of visibility.

Sooner or later something had to give, and it has. 

Finance’s deployment of a low-cost standardised SAP STP solution represents a massive tactical win for the ATO because it will give the revenue agency visibility over a small army of IT contractors, cleaners and other managed service provider staff across much of the public service.

Compliance with STP requirements is also an urgent imperative for many government agencies.

Aside from the public revenue at stake, the optics of a public sector that potentially foists one set of rules onto business but then grants itself exemptions is not the kind exposure any public servant or their minister wants.

Finance’s SAP cost-crimping solution not only scuppers that scenario, but also gives Tax a real-world example to point to when prodding laggards to comply, especially across state governments where SAP and Oracle have a legacy stranglehold on payroll systems.

According to Finance’s annual report, the SDO successfully implemented the SAP-STP solution in May this year, meaning the government will get a full financial year’s reporting by next June.

“The solution was implemented at a technical cost of around $600,000, representing an average cost for each agency of around $65,000. In comparison, estimates for a single agency implementation cost are five times higher,” Finance said.

“If applied across the nine SDO clients, this would total around $3 million. Through the implementation of STP as a shared services offering, the SDO delivered to its clients a solution that is standard, compliant with legislative requirements and achieves value for money by removing the cost of duplication.”

Further pressure on SAP flagged

Finance’s public struggles with bloated SAP costs (which obviously extend to other mega vendors) also come in for conspicuous mention in terms of the public service weaning itself off legacy and custom financials, payroll and ERP builds across the public service.

In an analysis of corporate service functions provided via shared services arrangements to non-corporate Commonwealth agencies, Finance’s annual report notes substantial progress is being made in using “hubs” to deliver corporate services functions through Software as a Service.

“The Hubs are working together to design a common Enterprise Resource Planning (ERP) solution that could be shared/reused among some or all of the Hubs,” Finance’s analysis noted, but cautioned the SaaS version now on offer has a finite lifespan.

“The technology landscape is evolving which creates challenges and opportunities for the Program. For example, five of the Hubs use a SAP-based ERP. In 2025, SAP will no longer actively support this ERP version, so the Hubs will need to move to an alternative solution or pay a premium for maintenance.”

That sounds like a long time away, but given Finance first floated its ERP review back in 2013, it’s certainly worth planning for.

Finance said its roadmap and potential architecture for a co-designed whole-of-government ERP (govERP) is coming along, but isn’t hoisting its colours yet.

“GovERP will allow the Hubs to invest once in a new ERP and share the asset, avoiding the costs of each Hub investing separately for the same capability. Costs avoided will be identified in 2019–20 as part of the detailed planning and implementation process,” Finance said.

The days of SAP and Oracle sales staff in Canberra driving to client appointments in sports cars with nine digit price tags may yet be numbered.