Growing Into The Cloud

Global payroll trends focus on compliance, cloud integration, and growth growth growth

By Bill Hatton

No tree grows to the sky, the old saying goes. But trees do grow rapidly under certain conditions. In the case of global payroll, that is exactly what’s happening, and the industry is growing to the Cloud, if not to the sky.

Payroll services have been growing at about a 6.6 percent Compounded Average Annual Growth Rate since 2014, and that is expected to continue until 2019 across all global regions. The quickest regional growth is expected in Asia Pacifi, followed by Latin America and EMEA. That’s according to Gary Bragar, HR Outsourcing Research Director at BPO research and analysis firm NelsonHall.

“Growth will come from the need to drive increased efficiencies in HR/payroll service delivery through HR transformation projects,” Bragar says.

Also driving growth is practitioners’ needs to comply with ever-changing regulations across multiple regions and the increasing demand for cloud integration.

Similarly, Jill Goldstein, the global practice lead, talent and HR operations for Accenture, says, “We predict more companies will have their payroll systems delivered as a service. A cloud platform offers accessibility and automation while reducing the cost of maintaining payroll systems on premise. They will explore the potential of cloud applications that offer a much smoother onboarding process for new employees that can reconcile data, scale operations, support a balanced scorecard, and improve productivity.”

The Cloud

As in many business-process outsourcing (BPO) industries, payroll software vendors are scaling back (if not entirely stopping) investments in on-premises software. On the “pull” side of the equation, governments are seeking to increase e-filing and digital services. The combination means client companies are more likely to adopt cloud-based payroll services and move away from on-premise services.

“In the next year, we are likely to see retail and energy and utility sectors with the greatest growth, as margin pressures drive these industries to maximize payroll efficiencies through greater digital services. Manufacturing will sustain its growth, and service industries will show moderate growth as employees are typically their biggest assets and they look for payroll consolidations,” explains Bragar.

One implication: The Cloud means more entrants more vendors entering the field.

“Traditional software providers are expanding into the payroll services market, with investments stopped or minimized in on-premise software, and these vendors are now offering payroll hosting, software updates, ongoing compliance and regulations updates, as well as online client forums,” says Bragar. “Ramco, Oracle SAP/SuccessFactors and others are expanding these services geographically; new cloud entrants like Workday expanded payroll services offerings into the U.K. in 2014.”

Bottom line: You’ll have more options for cloud-based services with your current vendor, and come contract-renewal time, you’ll have a more crowded field of competitors offering enhanced services.

Aaron Hurst, Vice President of Global Solutions, Ceridian, says, “I think the good news there is that many companies are moving towards cloud technology within the HR and payroll environment. That is something that our company, Ceridian, is investing a lot in through our flagship product Dayforce HCM. But it is nonetheless a challenge because customers often have very fragmented data sources. And so, moving toward a centralized, most likely cloud-based technology system takes a lot of effort on the part of companies and the vendors that they’re working with.”

In emerging markets like China, there are close to 700 million smartphone users. They are used to an app-based world. They have expectations about being able to use apps to look at schedules, request time off, update addresses, and track their pay on a smartphone or tablet.

“The reality in the market is that when it comes to human capital management technology and payroll technology, it sometimes looks more like 1990 or maybe 2000,” says Hurst. “That becomes a challenge for payroll professionals. How do you keep up with the demands of a workforce that expects quite a lot from the tools and the technology that the companies they go to work for have. So it actually can become, I think, a competitive advantage for companies if they are able to quickly adopt newer technology like the Cloud, in order to make sure they’re attracting really good employees and keeping employee engagement high.”

Andrew Pearson, Co-CEO of CloudPay, says the Cloud improves visibility and is a crucial part of his company’s strategy for 2016: “We have some interesting product plans to bring more transparency and visibility using our global payroll platform so the customers can actually see what’s actually happening in real time in all of these countries. Our Cloud platform allows you to do that for the first time, and we’re investing more in R&D into doing it the next year.”

Compliance

For many organizations, compliance drives the need for outsourcing, particularly in a global environment. Managing compliance in numerous countries is a logistical challenge, but keeping up-to-date with payroll regulatory legislation can also be a hassle many companies prefer to avoid. Complicating matters are the regulatory changes that can impact both payroll and HR, such as shared parental leave in the United Kingdom, with significant fines for noncompliance. And buyers may outsource a service provider as they lose payroll expertise to retirement. It may be easier to outsource than rehire and retrain.

“For smaller clients with few resources, there is an increased risk in terms of payments, accuracy, compliance and backup of data, as payroll skills cannot be easily filled by HR generalists,” adds Bragar.

Compliance also remains a top vendor-selection criterion, especially in multi-country contracts, along with quality of service, high payroll accuracy, and timeliness. Also, keep an eye on the following pair of vendor challenges:

• “Payroll changes need to be applied according to the local legislation for payroll compliance, so if the HR technology vendor is not concerned with local payroll compliance, then this could lead to a suboptimal solution.”

• “Vendors may be challenged to provide multi-country payroll where there is no multi-country local presence: Understanding local compliance issues and obtaining local country buy-in can be a challenge for vendors when the provider does not have a local presence.”

Jason Davenport is Chief Operating Officer for Capita’s HR solutions Division at Capita and non-executive director for Chartered Institute of Payroll Professionals.

“Compliance is incredibly important right across the globe,” Davenport says. “That’s where the outsource providers can really help to challenge each business it serves to be better. Because of working to standards they have to adhere with in the industries that they serve. If you think of a globalized project with the HR systems, that are available. In my experience the single vendor doesn’t actually exist with a single contract. Where there’s an aggregated model with smaller third party vendors being managed by an overall outsourced arrangement. That actually is the most favoured model and probably the most current model. And that’s a real benefit to business because the overall main contract is managed by a single vendor and that vendor will challenge the third party to raise their standards, and in raising their standards and meeting the appropriate ISO standards, this in turn benefits the third party and the broader clients it may already serve. And that in turn is a benefit for the client in terms of quality and management.”

Hurst of Ceridian says the biggest challenge for 2016 will be HR and payroll professionals’ ability to manage compliance, especially on a global scale. These include city-based regulations in the U.S., such as the Retail Workers Bill of Rights in San Francisco, as well as big changes across the globe. For example, Brazil’s eSocial project is consolidating numerous federal agencies to which payroll professionals have to report.

‘They are consolidating six to eight different federal agencies that payroll professionals have to report out to into one,” explains Hurst. “But the requirements for this new reporting regime are very onerous on a company. Spain has something similar going on, where the government is really taking a strong approach to what it wants to see out of a payroll and payroll data from companies in order to be able to operate within compliance in the Spanish market.”

In Brazil’s case, the consolidation means that depending on the specifics, companies have to report between 100 to 2,000 data elements to the government on a monthly basis. And there’s always the threat of audits.

Hurst adds, “Governments are getting more strict in terms of how they account for their revenue. And those sorts of macroeconomic activities will likely make legislation harder to operate within.”

Sometimes, the compliance environment becomes ambiguous. The European Union’s Safe Harbor ruling, for example, invalidated the U.S. safe harbor agreement with the European Union. As the details of compliance continue to be worked out, security issues, which are especially important in the Cloud, will become a bigger priority.

CloudPay’s Pearson adds: “The external environment is increasingly focused on compliance; therefore in a global payroll context, the multinationals of the world are looking to vendors to prove compliance.”

Global Visibility

Some of the biggest trendlines from the client company side show a need for improving global visibility. Explains Accenture’s Goldstein: “Organizations are increasingly focused on improving global visibility and control across their organization, which includes payroll. However, as businesses grow internationally, it becomes much harder to manage on both the macro and micro level.”

Goldstein continues: “Since historically payroll has been managed locally, shifting the paradigm to regional and/ or global level can be a challenge. As a result, many organizations have turned to global payroll outsourcers for help and support with mixed success. Organizations continue to struggle with adequate geographic coverage and well as global perspectives on service management, risk management, and reporting /analytics.”

Because of the scale of a transformation to global payroll models, many organizations, are looking for support in transforming their retained organizations and processes, too.

“To address these challenges, HR and finance need to evaluate their current payroll operations across the international and national levels and ascertain how these pieces can work better together,” says Goldstein.

“Their focus should be on the broader business value. If the scale of the payroll operation is too big to manage on their own, they should look towards outsourcers with the international and regional assets to manage this process on their behalf. Outsourcers can provide transactional pricing that best fit a company’s business requirements and provide balanced governance control on global, local and regional levels. Outsourcer and client should work towards the creation of a single source system covering the company’s entire payroll. One unified system will improve the accuracy of the data, better meet compliance, and improve operational speed.”

Ceridian’s Hurst adds that Cloud technology allows for increased global visibility and provides an important strategic role: Table stakes are the basic KPIs such as paying everyone on time, accurately, re-runs of payroll, etc.

“If you think about the data that’s inside of payroll round the world, you can get a lot of deep insights into what is going on within your company,” explains Hurst. “For example, if I am paying overtime in certain locations more than others – why is that? Am I seeing my corporate taxes go up in certain areas? As an executive, should I start to think about whether I want to open the next plant in that country.”

CloudPay’s Pearson adds: “It’s really all around using all of the data that we have, which is a very significant amount, and using it for analytical reporting capabilities to bring this visibility for the first time to an entire global payroll solution. And then, what we do with it from there will be in the realms of predictive analytics, guidance and a real-time approach to how to manage your payroll across the globe than people have ever had before.”

Capita’s Davenport explains that many clients who’ve come to review their global requirements didn’t have a single view of what they have, where they have it, and importantly– why they have it. They may not know how many payrolls they have in each country in which they operate. It might be running a number of payrolls because of different workforce arrangements. Result: “You end up doing due diligence as part of the project rather than having that information to begin with. And of course you don’t want to get into analysis paralysis. But it is really important from a very high-level perspective to both know what you have and where you have it, and what are the underlying costs of delivery before you embark on a program of improvements.”

Posted February 2, 2016 in Enabling Technology

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