S-10700-00015522 Payroll X-formation IQMS RFQ Ex 4-Business Case.pdf

Business Case

Version 1.0

November 25, 2025

Statewide Payroll Transformation

Oregon Department of Administrative Services Statewide Payroll Transformation Business Case

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Table of Contents Executive Summary

Background and Purpose

Current State

Solution Analysis

Assumptions and Constraints

Alternatives Assessment

Recommended Alternative

Solution Implementation

Conclusion and Next Steps

Approvals

Version History

Version Date Author Description

0.9 11/13/2025 Martin Kraal, Project Manager Version submitted to EIS-P3.

1.0 11/25/2025 Martin Kraal, Project Manager Aligned project cost estimates with project charter and IT investment form.

Business Case

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Executive Summary In December 2022, the Department of Administrative Services (DAS) rolled out the Workday solution for enterprise Payroll and Time Tracking as part of the Statewide Human Resource Information System (HRIS) Phase 2. The first paychecks issued in January 2023 experienced higher than expected issues that continued throughout the first several months. DAS worked to identify and correct errors caused by the transition, as well as to better understand the causes of those errors.

Aspects of the state’s historic pay practices have caused significant ongoing challenges to Workday’s effectiveness for processing the state of Oregon’s payroll. Workday Payroll has been particularly difficult for certain overtime eligible employees with irregular schedules and compensation structures governed by complex requirements. The efforts to configure Workday Payroll to align with the state’s historic pay practices – paying monthly, paying overtime-eligible employees a monthly salary, and forecasting time – have been problematic. To resolve these issues, it is crucial to align the state’s payroll practices with standard configurations supported by modern systems like Workday.

This business case addresses these current-state issues and proposes a path to resolution – implement structural changes to pay practices to move from monthly to biweekly pay periods, pay all overtime-eligible [Fair Labor Standards Act (FLSA) non-exempt]) employees on an hourly rather than salary basis, and pay based on actual time worked (i.e., in arrears) by using a lag period.

Transforming the state’s pay practices will require a significant, concerted effort – the Statewide Payroll Transformation – impacting people, processes, and technology (i.e., Workday, integrations and partner systems). These structural changes would be implemented on or before July 1, 2027. Expected overall benefits from the structural changes include improved pay transparency, predictability, and accuracy, alignment with industry standard payroll practices and core Workday Payroll functionality, and reduced workarounds and manual processes.

This business case provides further detail on the alternatives analysis, the recommendation approach – the Statewide Payroll Transformation – along with a high-level scope and budget, and next steps to plan and prepare for the project.

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Background and Purpose In December 2022, DAS rolled out the Workday solution for enterprise Payroll and Time Tracking as part of the Statewide Human Resource Information System (HRIS) Phase 2. This effort followed the Statewide HRIS Phase 1 for the Workday Human Capital Management (HCM) solution in 2019. Phase 2 focused on integrating payroll with Phase 1 deployments and modernizing legacy systems by replacing the outdated Oregon State Payroll Application (OSPA) with a modern software-as-a-service system (SaaS).

The first paychecks issued from Workday in January 2023 experienced higher than expected issues that continued throughout the first several months. DAS worked to identify and correct errors caused by the transition, as well as to better understand the causes of those errors.

Immediate action was taken to address inaccurate payments, including overpayments or underpayments.

DAS launched a Stabilization Project (February 2023 to April 2024) to focus on fixing inaccuracies with employee pay, as well as assessing the organization and processes to improve support for payroll and time tracking across the enterprise. The state contracted with Gartner for assessment and planning services and IBM to assist with structuring and stabilizing the post go-live support model. During stabilization, the project team established a case management process, release management process, operations and maintenance plan, and chartered a change advisory board (CAB).

Since stabilization, the Workday Oregon Program has continuously improved payroll operations and management of system releases.1 These improvements have focused on partnerships and governance;

issue and case management; change management, training, and communications; and operational maturity. The Workday Oregon system, as a SaaS, continues to evolve to adjust to new state requirements, agency-specific needs, and new features and updates from Workday, Inc., including semi-annual releases.

However, aspects of the state’s historic pay practices are causing significant ongoing challenges to the Workday system’s effectiveness for processing the state of Oregon’s payroll. This business cases addresses these pay practices, presents an analysis of solutions, and recommends a path forward.

Current State The Workday system is the state’s human resource (HR) and payroll system serving all three branches of Oregon state government (over 90 different agencies), including over 45,000 employees, 7,000 contingent workers (volunteers and contractors), over 100,000 external applicants, and approximately 65,000 extended enterprise learners (for agencies to provide learning to residents across the state in their unique program areas).

Workday functionality includes but is not limited to:

1 Workday Oregon is a newly established DAS division consolidating all Workday Human Capital Management (Workday HCM) and Workday Payroll and Time Tracking systems resources, staff, and expenses into one unit, reporting directly to the Chief Operating Officer. Workday functions were previously dispersed in the Chief Human Resources Office and Enterprise Goods and Services.

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• Human resources management

• Learning and development

• Payroll processing

• Time and attendance tracking

• Absence and leave management

• Recruitment

• Help and case management

To work efficiently, there are over 250 managed integrations that serve the enterprise systems that support all employee benefits (e.g., PEBB, PERS, etc.) and overall business operations (e.g., time integrations, deductions such as parking and charitable contributions, printing paper checks, statewide financial management, etc.).

The state configured the current Workday Payroll system to match practices and processes from the legacy payroll system (OSPA), as close to “status quo” as possible. The current practice is to pay employees once a month, salary, on forecasted time entry, and overtime based on their Fair Labor Standards Act (FLSA) eligibility.

Out of the roughly 45,000 individuals employed by the state, categorized based on their eligibility for overtime and their type of compensation as governed by state and federal laws:

• 30,000 employees are classified as FLSA non-exempt. This means they are eligible for overtime pay even though they receive a salary rather than hourly pay basis.

• 13,000 are classified as FLSA exempt. They are not eligible for overtime pay and receive a salary.

• 1,200 are exempt but overtime eligible per collective bargaining agreement or policy exception.

• 2,000 are non-exempt and eligible for overtime pay, but they are paid on an hourly basis instead of salary.

The state pays all salary employees a monthly salary on the first of the month based on predicted or “forecasted” hours. These forecasted hours include those hours expected to be worked after payroll cutoff, typically the last week of the month. This initial payroll run, known as Run 1, is the first of two payroll processing runs for a pay period.

Run 2 is a mid-month process that captures any new or updated data between Run 1 and the last day of the pay period. It processes mid-month of the following month to account for overtime hours worked but not entered before the initial payroll run, as well as some pay differentials if earned. Run 2 may include adjustments to ensure actual pay matches actual hours worked, or accounting for time missed but not predicted.

This practice of finalizing payroll on forecasted hours can lead to overpayments when employees do not work the predicted hours due to unexpected absences or an error in entering or approving time. This issue is a recurring problem, occurring every month in the legacy system even prior to transitioning payroll to Workday.

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These pay practices are unlike most employers. According to a Bureau of Labor Statistics Current Employment Statistics survey, “in February 2023, biweekly was the most common length of pay period, with an estimated 43.0 percent of U.S. private establishments paying their employees every 2 weeks.”

Private establishments with over 1,000 employees had a higher frequency of biweekly pay, with 66.6 percent of establishments paying biweekly compared to 1.5 percent of establishments paying monthly.2 Information from the National Association of State Auditors, Comptrollers, and Treasures (NASACT) show a similar pattern with the majority of states paying biweekly or semi-monthly.

Additionally, most employers do not process payroll with forecasted hours. Instead, they pay their employees biweekly or twice per month for actual hours worked using a “lag period.” This lag period is the time between the last day of work in a pay period and the pay date, allowing payroll to be processed based on the actual hours employees work, reducing overpayments or errors. Overtime and differentials are also paid on the regular pay date, eliminating the need for a separate or “mid-month” check.

DAS and its outside vendors have worked diligently to create and implement custom system configurations, manual processes, and updates to better integrate Workday Payroll with the state’s unusual pay practices. However, these efforts have not resolved the issues. Modern systems like Workday are not designed out-of-the-box to forecast time. Most Workday, Inc. clients pay employees for their actual work hours after the pay period ends.

The state’s current practices force the system to pay overtime-eligible employees both a salary and on an hourly basis. This highly unusual pay structure for overtime-eligible employees causes significant problems for modern payroll systems like Workday Payroll, which is not designed to pay overtime-eligible employees on a monthly salary basis.

To resolve these issues, it is crucial to align the state’s payroll practices with standard configurations supported by modern systems like Workday. This alignment will ensure accurate and efficient payroll processing, eliminating the complications and overpayments caused by the current forecasted hours approach.

Solution Analysis The efforts to configure Workday Payroll to align with the state’s historic pay practices to pay overtime-eligible employees a monthly salary and to continue to forecast time have been problematic. It has become clear that these configuration efforts are not practicable.

This section presents an analysis of the benefits, risks, and costs of two alternatives:

1) Transform pay practices

2) Maintain status quo

2 https://www.bls.gov/ces/publications/length-pay-period.htm

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Assumptions and Constraints The analysis of alternatives is guided by the following assumptions and constraints:

• The state will continue to use Workday as the HR and payroll system.

• State leadership and direction will remain stable throughout the project lifecycle, minimizing the need for significant changes or adjustments to pay practices.

• Any potential solution would need to be implemented no later than July 1, 2027.

• Resources will be added to staff the project and provide capacity to maintain operational support through the project lifecycle.

• Bargaining will result in collective bargaining agreements to support the changes to payroll practices.

Alternatives Assessment The evaluation of each alternative is based on information gathered from market research, conversations with or deliverables from vendors, and information received from discussions with other states and partners. Each alternative is evaluated using the following criteria:

• Degree of fit: This criterion reflects the extent to which the proposed alternative meets business needs and aligns with operational best practices.

• Strategic alignment: This criterion evaluates how well each alternative aligns with the enterprise goals and objectives, collective bargaining agreements, and other external factors.

• Implementation risks: This criterion is based upon the relative degree of risk of each alternative, including the risk associated during development and post-deployment.

• Operational risks: This criterion is based upon the long-term operational degree of risk of each alternative.

• Life-cycle cost: This criterion is based on a comparison of the costs to maintain and support the system and business operations.

Alternative 1: Transform pay practices

Under this alternative, the state would move from monthly to biweekly pay periods, pay all overtime-eligible (FLSA non-exempt) employees on an hourly rather than salary basis, and pay based on actual time worked (i.e., in arrears) by using a lag period.

This would require significant system modifications to current Workday Oregon configurations and change management efforts to support the cultural change.

Benefits

• Monthly to Biweekly: Biweekly pay offers a consistent number of hours each pay period. For instance, if an employee works 80 hours consistently, their pay will not vary (holding all else constant). Currently, with monthly pay, the number of days and hours varies per pay period.

Additionally, employees would receive pay more frequently (every other week on the same day of the week), offering employees more financial consistency and flexibility.

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Changing to biweekly pay would align the state with pay practices similar to private industry and most of the state government sector.

Biweekly pay also ensures the state’s payroll cycles comply with the varying rules of other states.

Each state has different rules regarding the frequency of employee pay. It is essential that Oregon have a payroll cycle that can be compliant in any state the state of Oregon’s employees may choose to live in.

• Pay FLSA non-exempt employees on an hourly basis: FLSA non-exempt (overtime-eligible) employees will be paid for the actual hours worked each pay period, including pay above regular time. Note, about 30,000 overtime eligible employees who receive a monthly salary would transition to hourly pay.

• Pay based on actual hours worked using a lag period: Eliminates system forecasting and situations where forecasted hours exceed actual hours worked, reducing the amount of retroactive pay and corrections due to overpayments, late time, etc.

Expected overall benefits from the structural changes include:

• Improved transparency, predictability, and accuracy of employee pay.

• Reduced administrative burden.

o Reduced overpayments including fewer payment plans, and administrative overhead needed when leave without pay is processed in real time.

o Reduced timesheet and payroll corrections.

o Reduced retro calculations and corrections.

o Fewer off-cycle payments.

• Aligns with standard payroll practices in both private and public sectors for modern payroll systems.

• More accurate costing, driven by actual hours versus monthly average hours of 173.33 hours.

• Supports long-term maintainability of Workday as a SaaS solution (e.g., core system releases). As the state learned during the Payroll and Time Tracking project, customizing against vendor best practices leads to delays, complexity, and costs. If the system is more aligned with industry standard payroll practices, this could facilitate long-term maintainability of the system as it leverages core configuration options rather than customized solutions.

• Removes risk to the state to recoup expenses.

Risks

• This change would impact all state employees, including judicial and legislative employees, that use the Workday payroll system. This is a significant culture change for employees, management, and agency HR and payroll offices. Employees would need to adjust their personal finances during this transition and payroll offices would need to adjust processes to accommodate the changes.

Communications, organizational change management, and training plans would need to be developed, executed and monitored to ensure employees throughout the enterprise are informed

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• Besides system configuration changes, the structural changes will impact operational processes, both centrally at DAS and at agencies, and will require updates to policy and procedure documentation.

• System configuration changes will need to be thoroughly tested to ensure accurate pay. A comprehensive test strategy and plan will need to be developed and successfully executed. DAS will need to partner with agencies to develop test scenarios covering a variety of employee types (e.g., hourly versus salary, exempt versus non-exempt, full-time versus part-time), shifts, pay inputs, and other use cases to ensure complete testing coverage. Furthermore, Workday is an integrated system so changes in one area will need to be fully tested to prevent impacts elsewhere.

• DAS has limited employees with the requisite technical knowledge of the Workday system configuration and tools. Additionally, DAS will need to manage capacity constraints carefully to support both day-to-day operational needs and project needs.

• Vendor services will need to be procured to guide and implement the pay practice technical changes.

• Short or compressed timeline to plan, architect and design, configure, test, and complete readiness activities by July 1, 2027.

Costs

It is estimated it would cost $13 million in the 2025-27 biennium to implement these structural changes, with additional resource needs to support the go-live and post-go-live activities in the next biennium. The Budget and Resources section below provides additional information.

Alternative 2: Maintain status quo

Under this alternative, the state would maintain current pay practices (i.e., paying monthly, paying FLSA non-exempt overtime eligible employees salary and forecasting). This practice requires a second monthly correction run.

Benefits

• No change for employees. Employees would still be paid monthly, so they would not have to adjust their personal finances because of a change in pay frequency.

• No change to PEBB, PERS or other integration partners.

Risks

• Overpayments and underpayments will remain an issue if the state does not pay on actual hours worked (direct and indirect costs of managing overpayments, significant risk to the state to recoup these funds).

• Large volume of retroactive and corrective transactions.

• Nonconformance with the statewide Workday Settlement and collective bargaining agreements.

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• Continued non-compliance with several other state payroll laws in locations where the state’s employees live and work from home outside of the state of Oregon.

• Continued risk exposure to the state (e.g., additional grievances and lawsuits relating to illegal pay practices).

Costs

There is no implementation cost for this alternative. However, maintaining current pay practices will prolong administrative costs related to correcting and managing over and underpayments.

Summary of Alternatives Analysis

Criteria Transform pay practices Maintain status quo Degree of fit

0 = Does not meet business needs nor align with operational best practices

1 = Meets business needs though with known inefficiencies and aligns minimally with best practices

3 = Meets business with minimal inefficiencies and aligns with operational best practices

5 = Efficiently meets business needs and aligns with operational best practices

Aligns with operational best practices and core system functionality.

Aligns with legacy practices and meets business needs with administrative inefficiencies.

Strategic alignment

0 = None

1 = Low

3 = Medium

5 = High

Aligns with leadership strategic direction.

Does not align with statewide direction and agreements.

Implementation risks

0 = Unknown

1 = High

3 = Medium

5 = Low

High risks due to system configuration and business process changes, and impacts on employees.

DAS would continue to seek system solutions, in partnership with Workday, Inc. and agencies, to resolve persistent issues with payroll.

Operational risks

3 1

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1 = High

3 = Medium

5 = Low

Transition to pay practices will require significant communication and training efforts.

Continues to expose the state to operational risks.

Life-cycle costs

1 = High

3 = Medium

5 = Low

Significant implementation costs, lower potential administrative costs.

No implementation costs, higher potential administrative costs. Long-term operational costs related to manual processes, administrative costs related to overpayments, and potential for additional grievances and lawsuits.

Total 17 5

Table 1. Summary of Alternatives Analysis

Recommended Alternative After consideration and consultation with internal partners, lessons learned activities with Gartner, analysis by IBM and with Workday, Inc. the state sees a path forward to update its historic pay practices by transitioning to hourly pay for FLSA non-exempt overtime eligible employees, moving to biweekly pay for all employees, and eliminating forecasting. Transforming the state’s pay practices will eliminate the current issues with Workday Payroll and improve the transparency, predictability, and accuracy of employee pay.

Updating these practices and the Workday Payroll system will require agreements with the state’s labor partners, through bargaining structural changes and, ultimately, working closely with employees to reassure and educate them on how to navigate the system updates.

Solution Implementation Transforming the state’s pay practices will require a significant, concerted effort – the Statewide Payroll Transformation – impacting people, processes, and technology (i.e., Workday, integrations and partner systems). The state anticipates the earliest it could implement the updates would be July 1, 2027.

The Statewide Payroll Transformation will follow project management standards, adhere to state oversight requirements (i.e., Stage Gate), and incorporate lessons learned from prior projects and experiences.

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The following sections outline the implementation approach, noting the high-level scope, schedule, and budget.

Scope

High-level scope for the Statewide Payroll Transformation includes:

• System configuration: Configuring or modifying the Workday system, including impacts on business rules, business processes, integrations, and reports, to support the pay practice changes and related improvements for accurate, transparent, and predictable pay.

• Testing and quality assurance: Conducting thorough testing of the system configuration changes to ensure they meet the requirements and function expected.

• Process redesign: Analyzing and redesigning payroll processes to streamline operations, reduce errors, and enhance user experience.

• Process documentation: Updating business process documentation and statewide policies resulting from changes to pay practices.

• Communications, organizational change management, and training: Providing training and communication to employees to help them adapt to the new processes and supporting employees through the go-live transition.

Schedule

The Statewide Payroll Transformation will be chartered and executed in the 2025-27 biennium, with the plan to go live no later than July 1, 2027. The project will close out in the 2027-29 biennium, tentatively in the first quarter of 2028, after a period of post-go live support.

Figure 1. Statewide Payroll Transformation Timeline

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Figure 1 provides a high-level overview of the schedule; a detailed schedule will be formed in collaboration with the implementation vendor. During the planning phase, the project team will establish the foundational structure, plans, and approach. This includes engaging with Workday, Inc. for a Phase 0 effort that will establish a technically grounded foundation to inform planning and implementation for the Statewide Payroll Transformation. Phase 0 includes validating current-state capabilities, identifying operational and system opportunities and constraints, developing performance benchmarks, and aligning business needs and transformation goals.

Budget and Resources

It’s estimated the Statewide Payroll Transformation will cost approximately $25 million (+/- 50%), with $13 million estimated in the 2025-27 biennium for initiating, planning, and executing the project, and $12 million in the 2027-29 biennium to support go-live and stabilization. The project will be funded through DAS assessments and legislatively approved Other Fund spending limitation. The funding for the 2025-27 biennium is included in the agency’s budget in Policy Option Package (POP) 155.

2025-27 Biennium

2027-29 Biennium Total

Personal Services $5,776,312 $5,197,099 $10,973,411 Services and Supplies (S&S) $7,223,688 $7,223,043 $14,446,731

Position S&S $273,687 $273,042 $546,729 Professional Services $6,950,001 $6,950,001 $13,900,002

Total $13,000,000 $12,420,142 $25,420,142 Table 2. Estimated Budget (as of 11/25/2025)

The project will be staffed by a team comprised of internal staff and vendor resources; resources will be dedicated to the project from planning and design through support and assistance for a period of time post go-live. POP 155 includes funding to staff the project team through backfill and capacity creation for existing staff from the Workday Oregon team by using limited duration positions. Many interagency employees will participate on a part-time basis as they assist with requirement validation, user acceptance testing, integration testing, communications and change management, and training. Vendor resources will be procured for implementation services, independent quality management services (IQMS), and potentially other professional services such as consulting. Consistent collaboration with the vendor is paramount for driving long-term success, optimizing system performance, and mitigating risks associated with knowledge gaps or transition delays.

Objectives and Benefits

Outcomes expected (in part) from the Statewide Payroll Transformation include:

• Improved payroll accuracy

• Improved pay transparency and consistency (employees know how they are paid, and each pay period is 80 hours)

• Alignment with industry standard payroll practices and core Workday Payroll functionality

• Reduced workarounds and manual processes (i.e., reduced administrative burden)

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• Improved system alignment in compliance with:

o Applicable laws, including FLSA o Individual collective bargaining agreements

Conclusion and Next Steps Structural changes to the state’s pay practices will eliminate the current issues with Workday Payroll and improve the transparency, predictability, and accuracy of employee pay. To ensure success, the project will follow project management best practices and leverage lessons learned from prior projects. Lessons learned from the Payroll and Time Tracking Project include:

• Stakeholder engagement: Engage key users early and address system readiness concerns before go-live.

• Customization risks: Customizing against vendor best practices leads to delays, complexity, and costs.

• End-user readiness: Ensure testing, training and documentation are fully supported before go-live.

• Cutover planning: Validate signoff criteria with leadership, oversight and vendors before go-live.

• Operational readiness: Validate that operational best practices are truly in place before launch.

Next steps include:

• Chartering the project and developing foundational documents.

• Developing a strong governance model.

• Engaging with staff and partners to gather and document requirements.

• Engaging with Enterprise Information Services (EIS) Project Portfolio Performance (P3) as part of the Stage Gate process.

• Engaging with the Statewide Quality Assurance program to determine the appropriate scope and timing for IQMS.

• Engaging procurement partners (i.e., DAS State Procurement Services, DOJ, EIS P3) to procure

IQMS and implementation vendor services.

• Communication and organizational change management strategy and plan development activities.

• Project management activities.

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Approvals

Betsy Imholt, Executive Sponsor Date Director, Department of Administrative Services

Rob Hamilton, Sponsor Date State Controller, Department of Administrative Services

Jessica Knieling, Sponsor Date Chief Human Resources Officer, Department of Administrative Services

Renee Royston, Sponsor Date Enterprise Workday System Director, Department of Administrative Services

11/25/2025

11/25/2025

12/1/2025

12/2/2025