A former boss used to say “Let’s worry about two things first: pay our people, and keep the company out of the papers. Then we can do all the fun stuff.” Obviously, she was talking about accurate pay and compliance.
One of the most important aspects of human capital management is handling payroll processing. It’s the lifeblood of every successful organisation. Payroll is challenging enough when we have to worry about a couple of legal entities in two or three states, each with their own tax rules and regulations. However, these challenges start to grow exponentially when companies grow in scale and begin administering payroll on a global scale. The problem is largely one of compliance. Every country has its own economic conditions, currencies, and laws about how employees can be compensated. Companies must manage their payroll in a way that not only keeps employees compensated and engaged with their jobs, but also measures up to various national and international challenges of payroll processing.
The majority of global HR systems do not include payroll-specific data, which causes employee data to be manually stored at each location. Storing sensitive employee data in emails and spreadsheets can create an insecure environment in which vulnerability results from manually storing employee HR and payroll data in numerous locations. It’s always important for companies to take good care of their payroll data, but this especially true when operating on the global scale; an organisation could face hefty fines for noncompliance. In a shared service or centralised payroll, companies need to ask the right questions about how employee data is stored and transmitted to the core system of record. The recent dismissal of the Safe Harbor Act by the European Union further magnifies the need for security and to keep track of those who have access.
Workforce management information is also critical to an accurate payroll, but often left to spreadsheets and manual processes for global tracking. Examples include vacation time, sick time, and the corresponding entitlement balances that are attached to each employee. Time and attendance information, especially for hourly workers, also falls into the workforce management category. In a perfect world, a payroll team would be able to view and approve “gross pay” before it is fed into payroll calculation, thereby greatly increasing the accuracy of the “net pay.” But few companies have realised harmonised zero-to-gross and gross-to-net processing outside the headquarters country, especially in hourly environments. Payroll elections are fixed, and variable pay elements attached to employees are fed into the payroll calculation. Examples include car allowances, private insurance elections, and bonus payments.
Many elements are assigned to employees outside HR systems and managed in spreadsheets around the globe. In order to address this, a company must understand which data inputs are required in each country to calculate payroll. Then it must identify the gap between required data and current capabilities before deciding on a single source of truth for all required categories across the different countries. Lastly, companies need to understand the processes and people that collect the data, especially data tracked outside of a global system.
Last year, Aaron Hurst of Ceridian wrote: “If payroll professionals were asked a few decades ago to predict the most commonly used global payroll technology in 2015, I’m guessing spreadsheets would not have been the most popular choice.” In reality, however, spreadsheets are used quite often to manage global payroll.
According to Ernst & Young’s Global Payroll: Myth or Reality survey, 85 per cent of multinational companies think their payroll practices need improvement. Wherever possible, companies should automate data collection processes and remove spreadsheets. Modern technology platforms can provide system workflow capabilities to allow for custom approval processes, data validation, and, most importantly, employee self-service. In fact, self-service is often underused outside the headquarters’ country and can provide a strong, achievable return on investment if executed properly. European organisations often underutilise self-service either due to system limitations, language or localisation requirements, and fear of change management within the workforce. Cloud-based HCM systems can help European organisations handle the various requirements for each country through system configuration instead of costly customisation.
In 2016, compliance will continue to be a huge challenge for global and multi-national organisations. Keeping up with changing payroll legislation across each country a company operates in is a complicated and timeconsuming endeavour. Add in the significant fines that organisations face when they’re not in compliance, and it’s something to keep one awake at night.
Many of the same principles that come into play with domestic payroll administration are also valid on a global scale, but managing payroll outside the headquartering country requires an understanding of the data requirements and a keen examination of processes and technology. Putting a premium on understanding data sources and collection processes is important, no matter which payroll provider or delivery model is chosen for each country.
Jayson Saba is the vice president of market strategy at Ceridian.