Global Payroll Solutions: Unifying Your Payroll For Multiple Benefits
Although we’ve had a chance to delve into the topic of multi-country payroll solutions before, what we haven’t had a chance to do yet is provide a primer for those companies who are just now beginning to look into capitalizing on this trend. After all, as modern payroll technologies play their part in helping to create the proverbial “borderless” business environment, an increasing number of organizations are starting to look at moving into new territories. Indeed, as provider Northgate Arinso points out, “As companies expand internationally, they are challenged to find new and reliable ways to administer and pay their workforce in each country where they conduct business”. However, companies’ approaches to payroll tend to be all over the map (all pun intended); and advice on how best to complete this task is fragmented at best. So, here at Payrolllab.com, we decided to put together a primer for those businesses—broken down into two parts. This first installment covers the basics of the benefits of unifying payroll onto a global platform; with the second installment giving a cursory review of the challenges that are likely to be faced.
The Business Case for Unified Global Payroll
Whether a global conglomerate or a smaller multinational with employees in just a handful of different countries, the strategy is usually a case of addressing each set of national payroll issues on an individual basis. This logical but uncoordinated line of attack leads to a fragmented scenario, with various service providers and software vendors; service quality that varies from country to country; and a decentralized set up that does not lend itself to easy production of global payroll reporting. This last point means that top leadership can find it difficult to extract enough relevant data, or make meaningful comparisons between countries to start improving overall efficiencies.
The alternative is a strategy that takes payroll as a global function. Specialists Webster Buchanan Research point out in their paper, Multi-country Payroll: Analyzing the Business Benefits and Challenges, that it can be difficult to look past the local laws and collective bargaining agreements that create national level payroll environments but that, “in reality, while every legislative environment is different, 70% or more of the processes performed in a payroll operation are common regardless of where they take place. Payroll data is prepared and submitted, gross-to-net calculations are carried out, payments are made and the associated reports are completed”. The research firm then goes on to define multi-country payroll (also referred to as ‘global payroll’) as, “a discipline that takes advantage of these commonalities, enabling companies to centralize and standardize the core activities that underpin every payroll set-up, and then deal with local regulatory requirements and business rules on a country-by-country basis”. This approach enables multinational organizations to apply best practices across their workforce (regardless of geographical location), reduce vendor numbers, mitigate operational and compliance risks, improve information access, leverage economies of scale, and potentially cut costs. The following list of business benefits forms the basis of a business case for a global payroll strategy.
Global Payroll Benefit #1: Reduced Costs
As with any proposed system improvement, cost reduction is a key element of the business case. By reducing the number of licenses and/or service contracts, the up front, visible costs will in all likelihood be lessened. Not only that though, but organizations leveraging this streamlined approach stand a much better chance of improving compliance records and simplifying operational processes—which ultimately impact the bottom line by fostering cost-effectiveness. In fact, an Everest Group study, Multi-Country Payroll Outsourcing (MCPO): A New Approach to an Old Problem suggests that, “Buyers are achieving 10-20 percent direct cost savings and, in some cases, savings of more than 30 percent”. Granted, that research explicitly dealt with payroll outsourcing, but nevertheless the cost savings reflected in the study were driven by unification and consolidation rather than simply deployment choice.
Global Payroll Benefit #2: Centralization.
Companies operating in a single country usually centralize their payroll function (either with an in-house team or via an outsourced provider); and similar consolidation and standardization benefits can be accrued on a global, or worst-case regional, level. With options such as regional shared service centers (or offshoring), organizations can develop and implement their own best practices across multiple countries.
Global Payroll Benefit #3: Streamlined Systems and Suppliers
A fragmented, country-by-country approach tends to result not only in multiple software licenses and service providers but also custom functionality and workarounds—adding to the complexity of supporting the system and complicating future upgrades. As such, SaaS deployments (e.g. Workday, Meta4, Ultimate Software, etc.) are becoming increasingly popular for global payroll due to the fact that supporting a variety of on-premises systems simply multiplies the associated skills and overhead implications for IT departments. By contrast, as Webster Buchanan point out, “building relationships with a smaller number of software developers and service providers enables companies to tighten up supplier management, benefit from economies of scale (since one partner will process in multiple countries) and in some cases, share project risk”.
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 Benefit #2: Better Payroll Service
Finally, perhaps the most important benefit of global payroll for employees is the improved service capabilities that can be gained. A global approach to automation standardizes best practices; boosts accuracy and timeliness of payroll processing; and can enable a widespread introduction of current payroll tools such as electronic pay-slips, mobile access, and employee self-service that not only streamline the payroll function, but also drive up employee engagement on a global level.
An Introduction to Global Payroll: Part One’s Conclusion
As far back as 2007, Forrester Research penned a report highlighting the potential benefits of global payroll. In it the research firm indicated that, “The benefits of an integrated payroll — providing standardization, harmonization, and simplification – provide an antidote to problems such as failed compliance, payroll leakage, and inconsistent cross-border management information”. And while certainly dated, those words are just as applicable today as they were 5 years ago. Over recent years, multinationals have increasingly engaged with this multi-country model; but as Keith Rodgers recently pointed out, the multi-country payroll market is still relatively young. In other words, while the business benefits of global payroll are clear, it is not without its challenges. As such, our second (and concluding) part of this article will examine those issues—including concerns such as resistance to change, language and cultural barriers, and other limiting factors.
This logical but uncoordinated line of attack leads to a fragmented scenario—with various service providers and software vendors; service quality that varies from country to country; and a decentralized set up that does not lend itself to easy production of global payroll reporting.”