why is payroll not global yet?
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Over the past decade, a combination of new providers, technology, and capabilities have made global payroll administration a possibility – at least conceptually. The key stumbling block in this debate is the perceived need, on the one hand, for tailored services that are compliant with local regulations, and on the other hand standardization for cost reasons. So, where does that leave payroll?TRANSCRIPT
1 | Chazey’s Toolkit – Why is Payroll not “Global” Yet? - October 2014
Why is Payroll not “Global” Yet?
© Chazey Partners 2014
2 | Chazey’s Toolkit – Why is Payroll not “Global” Yet? - October 2014
This is actually a question that has been asked for pretty much the last twenty years. However, over the past 10 years, a combination of new providers entering the market, emerging technology, and increasingly broad-reaching capabilities have made global payroll administration a possibility – at least conceptually. Although, quite frankly, today the ability to offer global payroll administration from one location and/or provider is still not widespread. This really is a big gap and an untapped opportunity for both internal global Shared Services and third party Business Process Outsourcing providers.
In a survey1 last year, Ernst and Young examined the “myth or reality” of global payroll solutions. Unsurprisingly, but perhaps tellingly, payroll providers believed solutions exist, while most organizations were not so sure.
The key stumbling block in this debate is the perceived need, on the one hand, for localized services that are compliant with local regulations and offer flexibility, and on the other, the shift towards standardization driven by cost effective thinking. In fact, while budget pressures are driving more organizations to consider standardized solutions, local business demands for tailored refinements are pulling in the opposite direction.
So, where does that leave payroll?Historic practices and an unwillingness to tackle the fairly complex arrangements already in place seem to be dictating much of the status quo in payroll. Indeed, more than half of the respondents to Ernst & Young’s survey confirmed “historic practice” as the main reason for their existing model, irrespective of its effectiveness. More specifically, two-thirds of those asked managed payroll through either local or regional personnel. Only 16% of companies said they were at the stage where payroll was being organized by a single international enterprise. Reasons for this reticence in moving towards global services may include concerns about maintaining a local culture and meeting all local compliance requirements, resistance on the part of local businesses to cede control, and a lack of faith in the ability of technological solutions to manage the process end to end. Another factor is the well-known business axiom of “Don’t mess with people’s money”. A payroll issue could immediately impact every employee and businesses are reluctant to take this risk. Additionally, with the majority of organizations not having a single global payroll process owner, the challenge in pushing through a singular solution is made even more difficult.
3 | Chazey’s Toolkit – Why is Payroll not “Global” Yet? - October 2014
The challenge of going globalWhether true or false –and the jury is still out – the key stumbling block to a more global approach to payroll is the perceived inability of one solution to meet all local legal, regulatory and tax requirements. While payroll provider firms are emphasizing their ability to do just that, the majority of practitioners remain unconvinced. Other hurdles include the total cost of the overall solution, especially given current budget restraints; uncertainty with regards to vendors’ quality of service; lack of a business case demonstrating ROI; and insufficient talent. The critical last element is resistance from local country management/business units.
Another factor influencing the choice of a globalized solution is the maturity of a given country. The more mature a market, the more likely that standardized payroll processes may be an acceptable fit. In newly emerging economies, on the other hand, it is more likely that the relatively small scale of a start up, along with local regulations and idiosyncrasies, will drive companies towards a more tailored solution.
A global payroll process can mitigate compliance risks, and provide an overview of staff across countries and their respective costs to the business. Integration of payroll operations with other strategic initiatives can lead to new business opportunities and give management a view of the consolidated global workforce. With global processes, leaders are able to make decisions based on accurate data.At the end of the day, the ability to get C-suite sponsorship will also be a decisive factor. With so many projects vying for investment dollars, getting senior management to prioritize payroll will always be a challenge. A strong business case and ROI calculation, along with the clear benefits of making smarter decisions based on global payroll data, are keys to winning this sponsorship.
4 | Chazey’s Toolkit – Why is Payroll not “Global” Yet? - October 2014
OpportunitiesOpportunities for implementing a more standardized approach exist, however. Nearly 70% of respondents to Ernst & Young’s survey cite standardization levels of 60% or more within their payroll process, which would indicate the potential for a single global solution.
In addition, developments in technology solutions leveraging SaaS offer lower cost access and ongoing IT support, while ERP solutions offer more advanced and up to date global payroll functionality as well as reporting and analytics, automation, and standardization.
There are also a number of options for service delivery models that provide varying levels of control, access to talent and expertise, and technology to meet business requirements. These include reliance on inhouse delivery, outsourced delivery, or a hybrid model. Outsourcing, especially given SaaS solutions, potentially offers a cost effective approach to leveraging technology that was not always available in the past.
With today’s focus on data analytics, payroll, too, offers the potential to drive more business intelligence beyond the pure value of transactional efficiencies. This intelligence leverages global labor analytics, tax data, and workforce cost to help drive better decisions for the business. This is especially relevant where businesses are breaking into new markets, and where outsourcing providers are able to offer more cost-effective payroll services.
Improved quality is perhaps the single biggest opportunity for payroll and may present a convincing argument for transformation: In the survey referenced above, 85% of respondents described their current payroll policies and processes as “needing improvement.” Failures, where they exist, are most frequently associated with incorrect tax withholding (24%), followed by under- or overpayments. The costs in time, labor, and administrative effort to rectify these errors are significant, and form a strong argument in support of process improvement – whether through standardization, outsourcing, or a combination of both.
Best practicesCompanies seeking to improve their payroll operations by leveraging best practices are being driven by:
• The need to be able to accurately predict and lower costs
Whether as a result of investing in technology, rolling out global payroll processes, or through outsourcing partnerships, companies can gain a much better handle over where they are spending money and eliminate the complexities caused by multiple platforms.
• The need to focus on their business
A single global solution has the advantage of enabling businesses to focus on their growth, and eliminate the need for in-country specialists
• The need to make decisions based on accurate, real time multi-country payroll data
Access to global payroll processing data across the entire organization enables smarter decision-making. The cost of people is more often than not the largest single operating expense for any business, so getting better visibility, understanding and control of payroll across the entire business is becoming even more important.
5 | Chazey’s Toolkit – Why is Payroll not “Global” Yet? - October 2014
What are the outcomes of more effective payroll processing?Positive outcomes are found across a number of areas:
Business Partnering: Improved ability to take a collaborative and consultative approach with business partners, adding value to the business through strategic insights. Supporting corporate and commercial initiatives.
Continuous Improvement: Innovation and improvement of key capabilities and identification of internal / cross-functional process improvement opportunities.
Operational Excellence: Timely and accurate processing of Payroll.
People: Stretch projects for high performers with focus on development and retention and to optimise function and scale.
Compliance: Sufficient level of investment can be maintained to meet increasingly complex compliance requirements associated with growth of business and comply with tax authorities and labor law requirements at each level/location. Indeed, in our experience, it is often the case that compliance with local legal, statutory, tax and reporting requirements is actually worse when left to the specific location. This is due to factors such as not staying up to date with changes in rules and regulations, not having the right skillsets managing the process locally, and not having the best technology to support the payroll function in-country.
Resources:
1. Global Payroll: Myth or Reality? Ernst & Young, 2013
6 | Chazey’s Toolkit – Why is Payroll not “Global” Yet? - October 2014
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