Finance: How to simplify global payroll processing

And still give your users the system they want...

Organisations looking to streamline their global payroll operations should look beyond big bang projects such as the rollout of a worldwide system, according to new research.

"If you once thought your only option was to buy into a costly global platform that would push countries large and small into a one-size-fits-all model, think again," Julie Fernandez, director at global sourcing advisory firm TPI, wrote in a research note published on Friday.

When seeking to streamline global payroll processing, businesses are increasingly avoiding centrally chosen systems or service providers, TPI said.

"Rather than seeking order by issuing global vendor RFPs [request for proposals] or country-by-country enterprise resource planning (ERP) build-outs, more and more global companies are starting with a purposeful global payroll strategy and governance model," Fernandez said.

"Visions of a single provider or system are replaced with a global framework that is designed to identify optimal payroll deliver models and the service providers best suited to the scale, complexity and regional footprint."

Organisations looking to simplify their global payroll processing should take time to consider the needs of local operations
(Photo credit: Shutterstock)

Have a clear idea of where savings can be made
When looking at their global payroll process, organisations need to ensure they have a clear picture of where savings can be made, according to Fernandez.

"The burning questions for many organisations is whether instituting a global payroll strategy will create savings, and the candid answer is 'it depends'," she said.

"Savings at the individual country level are difficult to realise - unless the strategy displaces costly processes or systems, or unless the global organisation taps into its greater purchasing power.

"Savings from consolidating interfaces, vendors, and reporting are often...

...easier to value, followed by 'softer' savings of increased compliance, greater visibility, reduced risk and leakage, and enhanced decision making."

Swot up on what changes are possible
When deciding what payroll efficiencies can be achieved in a particular region, try to identify certain characteristics - such as the number of employees, types of regulations and payroll practices - that can affect the types of changes can be made, Fernandez said.

"The number of employees in each country provides the best insight into the likely payroll scope and available systems and providers.

"Large countries are better suited to fuller-scope, centralised solutions that may include in-house ERP systems or outsourced, fully managed payroll services," she said.

Organisations should also look at what changes can be made to existing multi-country ERP platforms or existing relationships with payroll providers across different countries to realise further efficiencies, she added.

Don't be caught out by the small print
When reforming any local payroll operation there will be many important local details to take into account, ranging from local regulations to the frequency of pay cycles.

"Addressing payroll complexities is not optional, and there is reason to be concerned for the risk and expense of non-compliance in each and every location of operations," Fernandez said.

"Many important payroll complexities can be inventoried by country by undertaking a data request process - the key to making this process manageable is knowing what to ask for and whom to ask.

"Consider the following key indicators of payroll complexity: frequency of pay cycles, percentage of electronic funds transfers, number of taxing authorities and banks, number of interfaces, and types of special pay runs, such as bonus, off-cycle and manual checks."

If any one region or country has a long list of payroll complexities that need to be taken into account then the best option may be to buy in a payroll service from a provider that sells a package tailored to local needs, Fernandez said.

Bring in local help
When drawing up a global payroll strategy, a finance manager shouldn't be afraid to ask for help from payroll experts based in the various countries where the organisation operates.

"While a first pass to assess your payroll scale and leverage can be completed centrally, enlisting the participation of in-country payroll experts will ultimately help you balance central ideas with local delivery requirements," said Fernandez.

"As you develop the local payroll perspective, you will refine your perspective on where payroll services can be broadened, what systems can be leveraged, which vendors can be consolidated, and where to stand up active governance and reporting of payroll across multiple countries or regions."

TPI's research note Bring Order to Global Payroll Chaos, can be downloaded here as a PDF.