If you have ever purchased a diamond you know the 4-C’s are very important to the process. The diamond industry has done an excellent job defining their customer and product and educating the buyer on exactly what to look for! The global payroll industry has been trying to accomplish the same buyer awareness for about a decade, but there is still a great amount of opinion and difference over what is really important so we thought we would try to give our view of the global payroll 4-C’s to help you figure out your diamond solution to paying your workforce!
Over the past decade, the global economy has exploded and many companies have expanded their global operations, resulting in new performance demands and challenges to standardize processes and efficiencies. Multinational organizations are striving to come to terms with enterprise-wide payroll. Companies have historically employed decentralized models to pay employees in different countries, but several key factors are emerging to drive fresh, consolidated approaches to paying employees.
Governments need money and the primary source of it is taxes. Legislatures within countries continuously change their tax laws to match political circumstances and shifting budgets. Challenges in how you structure, account for, and pay foreign taxes can have significant compliance and financial impact on a company. Are there compliance guarantees in local contracts? Probably not. Audit risks and fines can weigh heavily on a company’s risk posture and financial performance. It’s not unusual to have employees in one country closely monitored by an attorney or accountant, but no monitoring happening in another. Many companies don’t pay enough attention until they’re in deep trouble. Fines and penalties can add up quickly and end up costing as much or more than the payroll costs in a country. An optimal global payroll provider pays attention−staying on top of legislative changes, ensuring systems and processes remain compliant, and provide contractual guarantees to support it.
- Consistency & Consolidation:
Payroll is usually one of the top corporate expenses. Whether multinational companies have grown organically or through acquisition, the environment can expand to an unmanageable size, with too many vendors and contracts to effectively navigate. Different regions require different contracts using in-country payroll services, leaving no clear line of sight into aggregate payroll. Many multinational companies currently do not have enterprise-wide reporting capabilities. With a single payroll vendor comes a single contract, invoice, and reporting, providing a comprehensive view of enterprise-wide payroll data. This allows HR and finance leaders to analyze critical data, such as compensation rates, benefits, and paid time off for the enterprise and provides for comparison across multiple views of the organization. This ultimately leads to better forecasting, an enhanced negotiating position with global providers, increased reporting capabilities, and greater insight into where the payroll expense is going.
In an effort to reduce costs, a company may build a shared service model in a lower cost location or a Center of Excellence where back office business processes are to be consolidated. Poland, Hungary, India, Philippines, Costa Rica, and Mexico are examples of common locations for shared services because of lower labor costs and an educated, multi-lingual labor force.
In additional to execution, what most multinationals want is true payroll transformation. This is complex and to be accomplished properly will require expertise and manpower. Global payroll providers focus on offering leading technology and ongoing service and support to help address Human Capital Management in a way that is compliant and value added. However, they rely heavily on the customer for key up-front information to define an effective payroll strategy. The end game is only as good pre-implementation strategy and planning. Additionally, global payroll providers are typically not in the business of transforming how a company does things, a.k.a. Organizational Change Management, but rather in recreating existing paradigms and getting people paid as quickly as possible. This is where engagement with an experienced third-party payroll advisor comes into play. Yes, there is a cost associated with engaging with a third-party payroll advisor, but the cost is often greater when you go it alone. Doing it alone often leads to delays, frustration, headaches and tears. Simply put, early engagement with the right third-party is an investment in the success of the payroll transformation initiative.
4 Areas in which a Third-Party Global Payroll Advisor can Provide a Significant Amount of Assistance:
Advisors have deep relationships in the “global” payroll vendor marketplace and possess unsurpassed product knowledge. They have insight into vendor capability, can help build the RFP and help select the right vendor for the organization.
- Shared Service Center:
An advisor will guide a company in building a strategic, long-term shared services model and help manage the integration with internal teams and processes. They can also provide industry expertise on how to best complement the global payroll provider’s service center footprint.
An advisor does this for you! Global payroll companies sometimes over-promise what will be delivered, leading to expectation gaps (i.e., you don’t get what you thought you were getting). Companies need a realistic assessment of readiness to take on a project that considers competing budgets, priorities and projects to align the company for success, accompanied by a timeline to achieve that success. The customer’s role in successful implementation is robust and requires significant commitment and resources. Global payroll providers will request voluminous amounts of key data to accurately implement their system and someone has to gather this information for the company. This process includes details such as: talking with the current payroll vendor in every single country. You’ll need to be able to read the contract (is it in English?), know when contracts expire, additional “beyond payroll” services being provided. Another critical and often overlooked area is the harmonization of key data elements within the organization. Most likely each country will have their own earnings codes, deductions, departments, job titles, etc. A global payroll project provides an excellent opportunity to standardize these factors, resulting in easier reporting. The global payroll provider won’t do that for the company.
- Cultural Differences:
A good third-party Global Payroll Advisor has deep experience working within each region of the world and understands how to define strategies to fully engage resources around cultural availabilities and tendencies. From examples like extended summer vacations in Europe, holidays in Latin America, and Chinese New Year in the APAC region, various events around the world can and will impact the project timeline. Each region brings unique nuances that may not be taken into account by a global payroll provider.
Payroll is one of the top corporate expenses and errors associated with it can add more expense quickly, weighing heavily on a company’s risk posture and financial performance. Many companies don’t pay enough attention until it's too late. This is where engagement with an experienced third-party payroll advisor comes into play. A third-party Global Payroll Advisor has experience and understands how to define strategies to fully engage resources that make sense for your needs. They have deep relationships in the “global” payroll vendor marketplace and possess unsurpassed product knowledge and can also provide industry expertise on how to best complement the global payroll provider’s service center footprint. Save yourself the frustration, an early engagement with the right third-party is an investment in the success of the payroll transformation initiative.