The World Ahead – International Employee Payroll
International is one of the fastest growing areas of payroll. Scott Beagrie discovers that huge leaps have been made in its development
The tight grip that legislation and regulation has on payroll around the world means that it was always going to be one of the hardest functions to internationalise. For some time, the cloud and software-as-a-service (SaaS) has made it technically possible for a payroll office in London to adopt the same system as its counterpart in the US – or pretty much anywhere else in the world – although the complexities of payroll in the different regions mean that global companies still tend to use a disparate mix of systems, service providers, payroll agents and consultants.
While a unified payroll system is still a little too far-fetched for many, huge leaps have been made when it comes to taking a more global approach to the function. Much of this can be credited to the Webster Buchanan Multi-country Payroll Forum, which has existed since 2004. The group has done a great deal to highlight the issues in this area, and
has been a welcome platform for discussion. As Simon Gleeson, from ADP Streamline points out, as companies expand overseas, their administration becomes more complex. Payroll is one function that can suffer if not managed properly, with each jurisdiction having different tax, legislative and regulatory requirements. “As companies continue to expand globally, they are increasingly looking for efficiencies, consolidation, and tighter alignment of processes,” Gleeson says. “Companies are increasingly looking for a payroll operating model that aligns with their culture and structure.”
Products such as ADP’s SaaS-based enterprise software and Patersons’ CloudPay enable organisations to take a consolidated approach and to streamline their payroll operations across geographical boundaries. A single platform can help an organisation establish more consistent processes and common automated workflows. Crucially, it can also provide a single view of multi-national payroll, with comprehensive analytics and reporting. Chris Klein, vice president of operations at Patersons, believes that as organisations expand into new countries, it is important that they understand the costs associated with hiring a global workforce, and SaaS payroll platforms provide the data and visibility they need to have greater control over their payroll operations.
“Patersons provides customers with real-time, in-country data that helps organisations adapt to changing market conditions,” Klein says. “For instance, by understanding the costs and processes associated with paying their employees, organisations can recognize the return on their people investments and make better-informed decisions about the amount of employees they need in each location, based on empirical data.”
Gleeson agrees that conducting business globally potentially reduces visibility into an organisation’s workforce and increases complexity, as well as introducing new risks. “As organisations grow and become increasingly complex, executives can struggle to gain a complete view of their global organisation while having to deal with the complexity of differing compliance regulations across the world,” he says. “For example, more than a third of multinationals currently manage headcount using manual processes.”
However, not everyone agrees that SaaS payroll solutions are the answer in an international environment. “The simple reason being that in order for SaaS to work, the employees entering the data need to understand the intricacies of the payroll in each country,” says Neil Lagden, head of Bond Payroll Services. “The cloud can be useful for companies that are looking for a single repository for information, but neither can replace the knowledge provided by quality individuals of a fully managed payroll bureau.”
He admits, though, that while companies would look for a solution on a per-country basis, organisations are now looking to cut costs through a shared service model for payroll and HR, with the procurement coming centrally.
“While this is very exciting, the procurement processes are becoming more complex as often the purchaser is basing their knowledge on local legislation, rather than legislation pertaining to those countries,” says Lagden. “In this instance we would look into a period of due diligence to ascertain the exact requirements on behalf of that customer.”
Keith Rodgers, co-founder of international payroll specialist Webster Buchanan Research and chair of the Multi-country Payroll Forum, suggests that when it comes to vendor selection there is a trend for companies to move into the selection process too early, issuing RFPs and even going through the shortlisting process before they’ve completed their upfront business planning.
“There are very few occasions elsewhere in business when multinationals will make a major investment without doing thorough research and having a comprehensive plan,” Rodgers says, “and there’s no reason why international payroll should be an exception.”
Rodgers advises that before “diving too deep” into discussions with vendors, payroll department heads need to establish their objectives. They should understand where they are today and where they want to be tomorrow, and assess the different ways of getting there.
“There are a number of different approaches you can take,” Rodgers says. “A lot of people start out thinking one ‘global vendor’ will solve all their problems. In practice, you might not be able to find one vendor that matches your business needs and international footprint, and even if you do, other options may be more cost-effective. So it’s really important to be pragmatic here,” he says.
The business planning also, of course, must look at fundamentals such as cost, benefits and risks.
NorthgateArinso payroll service delivery global process owner Jason Davenport indicates a growing desire from clients to reduce the procurement and commercial overhead of managing many vendors, which is driving the move towards single vendor management. Davenport adds that the landscape of multi-country payrolls is changing as more and more companies organise themselves into regional clusters.
“In doing this, they are seeking the benefit of aligning pay code structures to simplify reporting across countries,” Davenport says. “In an information-rich business, better decisions can be made from improved management reporting that consolidates a grouped view. In turn, where countries are reviewed regionally and globally, then best practice benefits realised in one area can be shared or explored in other territories.”
Clearly there will always be specific issues or pieces of legislation that affect the payroll function, and the propensity for this is multiplied on a global stage. For instance, a major current concern for European companies is the enforcement of social security regulations within each country.
Pam Skilton, business development director of international HR and payroll company FMP Europe explains that in previous years many British companies would second employees to another European host country without consideration or even payment of social security.
“While this was not correct,” Skilton explains, “EU countries have begun to enforce these regulations, and ensure employees pay social security within the country of employment rather than in their country of origin. With many companies which have existing employees, the effect of this has been the increase of social security contributions by 30%. This is having a severe effect on industries such as aviation due to the transient nature of their crews.” Clearly, international payroll is far from straightforward.
Managing payroll in small country operations can also throw up unique challenges. Rodgers says that multinationals sometimes get an unpleasant surprise on first looking into their smaller country operations. “Depending on which countries you’re in and how many employees you have, it can sometimes work out more expensive to process payroll through a multi-country provider than using your existing national vendor,” Rodgers says. “That’s actually logical. For one thing, with small employee populations you’re not getting economies of scale. For another, in a multi-country payroll set-up, you’re getting an extra layer of management control and visibility, and that doesn’t come free.”
Clearly, research and due diligence are vital in deciding on the best approach for a global payroll strategy. Although the ‘one size fits all’ idea should never be considered, there can still be some consolidation and streamlining of processes.
“It is practical and realistic to recognise the elements of the organisation that are global and therefore unified,” says Davenport, “and also to allow the local structure to complement that particular country with its regulatory reporting compliance and statutory requirements.”
The vendor landscape undergoes frequent change, and it is important that heads of payroll understand the different approaches that exist in the market which affect everything from quality to cost.
“Take the aggregator model, where an outsourcer uses a network of national or regional payroll providers to process payroll on its behalf, and then acts as a single interface to the customer,” says Keith Rodgers, co-founder of international payroll specialist Webster Buchanan Research. “And there’s a difference between ‘pure-play’ aggregators, who rely solely on partners, and hybrid aggregators, who use partners in most countries, but also process payroll in-house on their own systems.”
Rodgers adds that there are also differences in technology, since aggregators, for instance, are not all equal when it comes to the quality of their middleware and in the way they manage their partners. “So it’s worth carrying out some research into the market before leaping in.”
A unified solution for international payroll is not yet viable, but great progress has been made
A single platform can help organisations establish more consistent processes
The landscape of international payroll is changing as more companies are organising themselves into regional clusters
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