Global Payroll Solutions: Understanding How to Overcome the Barriers
In 2007, when the global payroll technology (and service) market was still in its infancy, a Forrester Research report stated, “Adopting multi-country payroll undoubtedly makes sense in theory but many firms lack the scale to execute, find the economies of scale wanting, and fear resistance from local offices”. These issues and more are still plaguing this industry, which is why the second part of our Introduction to Global Payroll series will focus on the barriers organizations have to face when transitioning to multi-country payroll solutions. If you haven’t had the chance to read it just yet, take a minute to look over the first part of this global payroll article series; which delved into the potential benefits (and consequent building up of the business case) that can come from a unified payroll strategy. For now though, our second installment looks at the potential challenges to driving that business case through to completion.
Global Payroll Challenge #1: Creating a Convincing Business Case
As seen in our first installment, the business case for global payroll (i.e. reduced costs, centralization, streamlined systems and suppliers, mitigated risks, and a better payroll service) can be highly compelling. However, some of these drivers are hard to quantify and therefore challenging to measure objectively. Convincingly calculating the reduction in penalties for non-compliance with local legislation for example, is often a subjective exercise. Equally, the cost reductions must be offset against the initial expenditure of adding a layer of global management to the payroll function. Put simply, the business case for global payroll carries some unique complexities and this in itself can be off-putting to some organizations.
Global Payroll Challenge #2: Two-Tier Centralization
In countries where an organization maintains a smaller employee population, the cost of centralizing payroll management can climb (one factor is that outsourcing services work to minimum thresholds or fixed start-up costs) and so the organization may be tempted to introduce a two- (or even three-) tier strategy – a fully centralized set up for the territories in which it has a larger presence and continuing with a local approach or some sort of hybrid structure for the smaller locations. This may be practical but any dilution of the global strategy will limit the coordination and standardization benefits to be gained. The organization must carefully weigh this ‘dilution’ against the cost of a purely global strategy.
Global Payroll Challenge #3: The Varied Legislative Landscapes
Whether opting for an in-house management approach (e.g. Oracle, SAP, NuView, etc.) or choosing to select a single outsourced service provider, the organization that “goes global” with its payroll must be certain of being able to access a deep well of expertise that can navigate the differing and constantly-changing legislative landscapes of the different countries of operation. In fact, as a 2011 SHRM report observed, “When implementing… across national boundaries, issues associated with data privacy and data movement across these boundaries must be kept in mind. Different countries and regions have enacted laws and policies that can significantly affect the design and implementation... Global corporations must strike a balance between global consistency and local flexibility when implementing new technology”.
Global Payroll Challenge #4: Variances in Language and Culture
When implementing any organization-wide system across national boundaries, communication is critical to change management and the widespread acceptance of processes and available functions. Indeed, as a recent Pay & Benefits magazine article cited, “Payroll is not only affected by local laws, but also by regional languages, currencies and time zones”. As such, underpinning cultural norms can play a particularly influential role in the success of any HR or payroll system changes. The above-mentioned SHRM report noted, “A system designed for use in Europe or the United States may not work in other parts of the world [because] beliefs about the organization’s obligations to employees, data security and privacy, and the role of HR can differ dramatically from country to country and region to region”. So, just because your company may have effectively designed a payroll process in one location, that doesn’t mean you won’t be met with resistance in another.
A firm understanding of cultural overlaps and clashes must be part of the implementation strategy for global payroll. Building onto that strategy though, practical considerations such as time zones and their impact on the new workforce will come into play as well. For instance, research firm Webster Buchanan point out that it may be acceptable to demand flexible hours of senior managers when necessary, but it may not be so acceptable (either ethically or contractually) to expect the same of the more junior members of a team.
Global Payroll Benefit #4: Mitigated Risks
Taking a unified approach to payroll across national boundaries reduces operational risks that can result from over-reliance on both the local knowledge and expertise of key individuals as well as specialized or non-compatible software solutions. This lack of central clarity and control also creates a potential fraud risk; however, it can be reduced by a uniform system of controls (often aided by common software); which will consequently result in improved regulatory and statutory compliance.
Global Payroll Challenge #5: Managing the Change
A shift to global payroll will involve engaging the workforce in the change and managing the expectations and roles of various stakeholder groups; some of which will be defined by national borders. Of course the element of change management is challenging for any technology project, but when working across multiple business divisions and geographies (which means factoring in different working practices, processes, people and even differing organizational structures according to nationality), a whole new layer of complexity is likely to be encountered. As a joint Northgate Arinso/SAP presentation in 2011 emphasized, “Do not underestimate the resistance to change”. The main reason for this is that many employees (particularly those in Payroll and/or Finance) may feel threatened by a change that threatens the career that they have built on their expert and detailed understanding of the peculiarities of their local country requirements. Reassure them of the benefits that a unified global payroll solution will bring and the contributions that they will likely still be making. After all, a well-run centralization project will seek to utilize rather than minimize this potential resource.
An Introduction to Global Payroll: Part Two’s Final Thoughts
As Andrew Pearson, CEO of global payroll provider Patersons wrote in 2011, “Taking a centralized, global approach can simplify payroll process as a business expands internationally. A single vendor and a unified, though scalable, solution means greater intelligence and simplicity in the always complex payroll world”. Indeed, these benefits (which we covered a bit more extensively in part one of this article series) are fairly straightforward and clear. However, the challenges to driving through a global payroll strategy are clear as well. As such, it remains (as ever) for the individual organization to balance the opportunities and risks and make a pragmatic business decision on whether global payroll is the way to go and, if so, to what extent.
Whether opting for an in-house management approach (e.g. Oracle, SAP, NuView, etc.) or choosing to select a single outsourced service provider, the organization that “goes global” with its payroll must be certain of being able to access a deep well of expertise that can navigate the differing and constantly-changing legislative landscapes of the different countries of operation.”