By the end of 2027, as many as 14,000 Alaska state workers could be paid by someone outside the state.
After years of trouble within the payroll department within the Alaska Department of Administration, the agency is planning to outsource the state’s public employee payroll to an outside company.
Proposals from interested companies were due Thursday, and in an internal letter, DOA Commissioner Paula Vrana said “it likely will be several weeks before a final decision is made.”
Vrana implied that if the proposals aren’t affordable or are otherwise unfavorable, the state will not proceed with outsourcing.
“As of now, we are exploring what options are available to the state and what value may be realized by this approach,” she wrote. “The final decision will be based on the proposals we receive.”
Vrana wrote that the department will begin talking with unions “to explore the options for transfers/placements of employees displaced by outsourcing” and if DOA does choose to outsource, “we will also work with the vendor to include as many existing state payroll employees as possible in their staffing plan.”
The state’s payroll department has struggled with staffing issues for years, leading to times when employees missed paychecks or encountered other problems with their pay.
In April, DOA published a request for information from companies that might be interested in providing “comprehensive payroll processing” for the state.
A three-page feasibility study dated Sept. 28 states that payroll work involves 78 employees in different agencies; all would be affected by outsourcing.
According to the state’s formal request for proposals, it is prepared to pay $4 million per year for a company to handle payroll. It currently spends about $10 million per year on payroll employees and functions, the feasibility study stated.
According to the study, in fiscal year 2025, state employees filed more than 1,500 “notice of pay problem” reports, and reducing the number of problems could make employees in other departments happier.
The first outsourced paychecks would come to a handful of departments on April 1, 2027, and other departments would be transferred to the outsourced payroll company through the rest of the year.
The outsourcing company would have to use the state’s existing payroll software programs, the document states, and the work would have to be done in the United States, but the contractor could get a waiver from the state that would allow payroll work to be done in a foreign country.
“The goal is not to change the system used to process payroll but to make payroll processing more efficient and ensure the state’s existing systems and processes are supported by qualified contracted professionals who can maintain continuity, reduce errors, and uphold the state’s obligations to its employees and the public,” the document states.
DOA provided a copy of the RFP documents to the Beacon this week; they were not previously published on the state’s public notice system, and the two public employee unions whose members would be affected by the outsourcing said they also had not previously seen the documents.
The Beacon asked DOA for an interview with Vrana or someone else involved with the outsourcing decision but was turned down.
In response to a written question asking why the department is planning to outsource, a spokesperson said by email: “Ensuring that employees are paid correctly and on time is the essential duty of payroll. Challenges stemming from high turnover and persistent vacancies within the Department have resulted in pay problems for some state employees. The administration has determined that outsourcing payroll may both provide significant recurring cost-savings to the State and improve services to its employees. However, no final decision on outsourcing payroll will be made until responses to the RFP issued earlier are evaluated.”
Jeff Kasper is the business manager of the Alaska Public Employees Association, which represents payroll workers. He’s not a fan of outsourcing.
“It usually costs more and doesn’t provide the efficiencies that you’re looking for. When you’re talking about public services, you’re essentially having the public pay more for something that’s probably not as good,” he said.
Kasper isn’t convinced that the Department of Administration has done enough to fix the problems that have deterred Alaskans from working for the payroll department.
“If people aren’t applying for jobs and accepting jobs, it’s usually because it doesn’t pay enough or it doesn’t provide benefits or it’s bad working conditions. This one could be all three, and I don’t think any of them have been addressed,” he said.
The state’s own feasibility study acknowledged those problems.
“Payroll processing occurs on a bi-weekly basis and does not have down time. This work environment and the entry level pay range are likely reasons for low retention and high staff turnover,” the study concluded.
As of last month, the study said, 58% of all payroll positions in the state are vacant, and it can take as long as a year of training before a new worker is capable of working independently.
MaryAnn Ganacias is the interim executive director of the Alaska State Employees Association, whose members are paid by the payroll department.
“Alaskans deserve to know what the problem is with the state and what they’re trying to solve by privatizing payroll,” she said.
Ganacias said state money spent outside Alaska is money that doesn’t benefit Alaskans.
“We need to do better investing in our own employees here in Alaska, and not outsourcing where the money actually goes,” she said.
Kasper said he doesn’t think the timeline described in the state’s RFP follows collective bargaining agreements or is realistic.
“The union’s not just gonna sit down and let this happen,” he said. “We don’t think the state has been following the process that’s in the contract.”
Kasper said his union’s contract with the state requires a 30-day consultation period before any outsourcing takes place, and even though the state’s RFP calls for a contract in November, he doesn’t think one is likely before Gov. Mike Dunleavy leaves office in the first week of December.
Kate Sheehan, policy adviser for the Department of Administration, said by email in response to Kasper’s comments, “The State engaged the Confidential Employees Association (CEA) on September 25th, and we have entered into the 30-day period for the union to submit any alternate plans to be considered during this process. DOA does not intend to contract out prior to the Union’s response and analysis of their input.”