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Ten Global Payroll Challenges (and How to Overcome Them)
Thursday, May 7, 2009
Ten Global Payroll Challenges (and How to Overcome Them)
Shared Services & Outsourcing Network ( SSON) takes a look at ten of the biggest challenges associated with moving to a global payroll system – and gives a few suggestions on how to get around, over or straight through these challenges and move further down the path to payroll process perfection…By: Jamie Liddell,
As multinationals continue the search for process excellence and economies of scale, more and more processes are being standardized and centralized, whether within a true shared services organization or otherwise. One of the more recent entrants to this increasingly crowded stage is payroll: more and more organizations are making the move form disparate local, national or regional payroll systems to one global payroll operation, centralized and optimized and yielding significant cost savings. But its not without its challenges....
1. Optimizing local payroll operations
It’s all very well to make grand plans for optimized, perfectly smooth global payroll operations, but if your processes are a mess at a local level you’ve got little to no hope of moving everything global without a great deal of heartache. Furthermore, as one of the primary benefits of moving to a global operation is saving on cost, it’s vital to know where cuts can and can’t be made: where can you afford to drop staff numbers and where is some kind of presence absolutely indispensable?
The first step towards a truly global operation is to review your existing processes and operations (local, national, even regional) and get as complete as possible an understanding of how they relate to each other and how optimized they are in the first place.
“There’s a range of issues to look at including payroll efficiency, costs, risks (are any of the country operations dangerously dysfunctional, or are there compliance issues?) performance, supplier relationships and so on,” says Keith Rogers of Webster Buchanan Research, a market research and consultancy company focusing on people management and multi-country payroll. “This helps companies define their strategy – and in today’s climate, this is all about pragmatism rather than purism. We find that strategies are often developed on a regional rather than global basis and in larger-scale projects, companies tend to divide up their countries into different tiers, focusing their primary efforts on Tier One. The aim is to deliver quick wins – you need that of course to get initial project approval and to keep stakeholders on board.”
2. Ensuring compliance
No matter how pressing the cost drivers – or any other motive – no organization can afford to move to a global payroll system if this involves risking a lack of compliance with accounting legislation in any of its countries of operation – and of course this includes the audit requirements posed by Messrs Sarbanes and Oxley (SOX). Concerns over compliance have traditionally been one of the main inhibitors preventing firms from moving to a global operation; the need to keep a degree of local knowledge within the system has led many companies to maintain relatively broad and bottom-heavy payroll organizations, frequently leading processes far from best-practice scenarios.
However, improved technology, increased familiarity with the shared service center concept (particularly the rise of “hub-and-spoke”) and the rise of global outsourcing providers have all combined to ease the way to a compliance-friendly payroll model. Organizations looking to outsource payroll – whether to a single provider or numerous – should be confident (not forgetting the due diligence, of course) that their providers are able to ensure compliance for each and every jurisdiction they’re active in. Meanwhile firms looking to keep at least the majority of their payroll in-house can turn to a number of existing methodologies to ensure compliance doesn’t inhibit best practice.
“A balanced scorecard approach can work well in this instance. Using the BSC nine steps of success can be used to map a high level scorecard and build lower levels from this, in order to align local best practice and KPIs with a global one. This should include audit requirements for Sox and any other countries requirements such as the Data Protection Act in the UK,” says Jeanette Hibbert, UK Payroll Manager at the Kerry Group.
10. Getting the right structure: how many centers and why?
Again, the precise structure of an organization’s global payroll operation depends on a great many factors. Firstly, of course, as with any shared service-type operation there are significant risks associated with putting all organizational eggs into a single basket: merely for safety’s sake it may be considered more sensible to have at least two processing centers each capable of taking over the other’s workload in case of disaster. Too many centers, at the other end of the spectrum, mean inefficiency, a lack of competitiveness and a reduction of many of the gains that the move to a global system is intended to generate.
As a result of the local compliance requirements - and the value in retaining local knowledge - mentioned earlier some degree of payroll presence in each country of operation is all but unavoidable and, as a result, whatever the global structure, total centralization is pretty much a pipedream at this juncture. However, the greater the degree of centralization the greater the cost savings so it’s vital to ensure the organization has a firm stance on point 3 (above) right from the beginning of the planning stage.
In Jeannette Hibbert’s opinion, “the ideal solution is to have a centrally managed global payroll, split regionally, with at least one subject matter expert in each country (depending on levels of automation). The central global office should really be used to manage the whole process and provide data analysis to the organisation (if a central office is not in place it would be difficult to operate global policies, best practice, KPI’s, benchmarking etc). With video conferencing, Web-ex and other technical facilities this should not prove too much of a challenge – although face-to-face support for remote sites should always be provided periodically. Dotted-line management at remote sites can help the in-country payroller feel supported – which can be a problem typically in these circumstances. In terms of disaster recovery – there should always be a secondary support at the remote sites, and technical disaster recovery would depend on which method the organization chooses to explore.”
For those organizations looking to outsource global payroll this is all somewhat less of an issue. However, the structure of the provider’s organization may remain a lesser or greater factor (for reasons such as timezone compatibility, linguistic capabilities etc) depending on the degree of interaction between buyer and provider. It’s important to make a full assessment of how any potential provider’s structure is going to impact upon your own needs as an organization before going any further down the line towards a deal.
Intercomp Global Services are payroll delivery specialists with an extensive client base of more than 420 companies, including businesses listed among the Fortune Global 500. Intercomp Global Services supports payroll processing in countries located in Europe, the Middle East and North Africa, Asia Pacific, and the Commonwealth of Independent States (CIS). In key countries, we also provide local services that include human resources (HR) administration, accounting, and labor consulting. www.intercompglobal.com