Engaged WorkforcePayroll

Think Globally, Pay Locally

Service delivery models for multinationals are increasingly a blend of standardization and customization.

 

By Katie Kuehner-Hebert
 
 
Multinational companies are increasingly having to reconsider how they pay their employees, to ensure they can comply with disparate employment laws and tax codes—whilst also keeping payroll costs low and service levels high.
 
 
Rudi De Roeck, principal advisor at KPMG Equaterra and Jason Davenport, U.K. services director at NGA NorthgateArinso, outline various models that firms can employ to meet their payroll needs on an international scale.
 
 
“There is a common feeling that our incumbent systems and methods to deliver payroll are not up to dealing with an environment that is becoming ever more international, which actually puts our companies at risk,” De Roeck says.
 
 
Companies are being driven to reduce the liability and costs associated with multiple decentralised in-house payroll systems, which might not be able to adequately handle compliance with employment and data privacy laws, maintain tax tables, or provide consolidated reporting and analytics, he says. Moreover, the C-suite is demanding improved payroll service and employee satisfaction, whilst at the same time reducing headcounts and duplicative systems.
 
 
In response, many firms outsource complex payroll activities, such as compliance with tax regulations, calculations of working time variations, gross-to-net calculation, IT maintenance, payslip generation, and regulatory reporting. On the other hand, data entry is typically only outsourced in a fully managed or comprehensive payroll service model, but it can also be retained if organisations look to leverage their service centres, he says: “So if there is capacity, and if you need to have peaks and troughs in your internal services centres, you probably don’t want to pay a service provider to do your data entry, but maximise the resources that you already have in your shared services centres. But if you still need to start on the journey toward centralisation, then you may very well consider putting data entry with an external party.”
 
 
Time and attendance is also typically kept in house, as is general account ledger reconciliation. Payment of employees and third parties can vary and is often governed by local statute. Davenport says that an increasing number of companies are opting for a payroll services delivery model that has some type of global component to standardise processes, whilst deviating from the model when local laws necessitate it. “Global where we can, local where we must,” Davenport says.
 
 
Multinational companies historically have acquired a variety of local country bureau service providers, he adds. Global enterprise resource planning (ERP) payroll platforms have matured to include country-specific modules, but they can be costly to implement and maintain. As a result, outsourcers are expanding their global offerings in what Davenport refers to as “the ‘big head, long tail’ concept.” Human resource professionals, he notes, should weigh the pros and cons of a global, regional, or local payroll delivery service model.
 
 
A global model can offer consistent service that leverages shared services, simplification of governance, aggregate reporting, and accreditations. However, it can be expensive, particularly when integrating payroll with other systems, and companies often pay for rarely-used functionality. Companies can mitigate this by rationalizing pay processes, harmonizing and simplifying data, allowing the provider to have access to local country expertise, and contracting for required functionality only.
 
 
“On a global level, aspirations have to be met with a cost profile to either justify a return on investments or recognise the need to change,” Davenport says.
 
 
A regional model has relative consistency of service by leveraging regional shared services and accreditations, and companies can use existing supplier relations. However, reporting requires reconciliation, there are potential additional layers and costs, and governance is still decentralized. Companies can likewise limit the number of providers and institute tools for global reporting and strong governance.
 
 
“In each of these, the discipline of service-level agreements and key performance indicators—with regular governance meetings—really need to be in place in order to maintain control, both from a compliance and an accreditation perspective,” Davenport says.
 
 
De Roeck concedes that HR professionals might have “anxiety” when considering a change in their payroll delivery model.
 
 
“We all know there’s local forces that often fight against centralizing and making payroll become more international, but we think it’s a lost fight,” he says. “At the end of the day, payroll will not be different from other processes. We will need to rationalize our payroll service delivery and ensure that we’ll still be compliant at the end of this process.” 
 
 
The preceding was adapted from one in a series of webinars by the EMEA payroll workgroup of the Human Resources Outsourcing Association and can be found on the association’s site, hroassociation.org.

 

 
 

Tags: Engaged Workforce, Payroll

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