Worldwide organisational structures are generating new challenges for payroll and HR managers. But can payroll be truly global - and should it? Calum Robson explores the issues and potential solutions.
'Global payroll system implementation isn't just a big company issue any more,' declares Bill Thomas, president of multinational services for Ceridian, an HR and payroll provider. 'W hat's remarkable is how many young businesses are becoming international - and in need of payroll solutions.'
Operating as a multinational is no longer the preserve of blue chips. And organisations without well-resourced IT, HR or finance teams must turn to external support to identify the most effective ways to implement systems.
'If a company has footprints in 10 countries and already has centralised HR, then payroll needs to talk to it,' says Tim Lacey, business development director for Applications Lynx , an implementation partner for Oracle's human capital management software. 'But building and maintaining 10 different interfaces isn't practical.
'If you want automated salary management - covering bonuses, salary reviews, stocks and shares - then certain qualifying information belongs to HR, but what people are awarded is payroll's. Similarly, more European companies are now opting for flexible benefits - but for fully integrated reporting, where you can see cost benefits in each country, HR and payroll need to work together as a system.'
Lack of cross-border co-ordination and poor communication can lead to misinformation and inefficiency. Martin Stockton, director of sales at Patersons, which designs, develops and supplies web-based payroll and HR software, says few HR managers understand their international cost base: 'If they don't know how much payroll costs, they don't know how to achieve better efficiencies,' he says, 'There's so much pressure to report from a global perspective but they're falling at the first hurdle. I recently addressed a payroll conference in Europe and asked the audience to provide me with last month's country-by-country commission payments in the next 30 minutes. Most of them said they couldn't do in 30 days. Payroll is often so parochial that they don't know where to start.'
Bill Thomas believes centralising payroll systems is key to issues of control: 'Touching and seeing your people and culturally resonating with them is hard enough even in one country where you all speak the same language - but when you're in 30 countries on four continents, it's even tougher,' he says. 'You need to have as few vendors as possible serving your needs. You could spend a lot of money investing in implementing in a system such as SAP but multinationals share a common challenge, which is that no country is ever the same. You might have thousands of staff in your home country and about three or four in smaller nations, which makes SAP economic only in certain markets. And irrespective of the technology, you need processes and people to execute the system properly - people who speak the language of the countries you're operating in and who're trained in the local tax system and corporate legislation.'
Ed Ramshaw, a partner with Red Centre Consulting , which advises organisations seeking HR strategies, believes global platforms are not all they're cracked up to be: 'Chasing after the holy grail of a common payroll system might not make that much sense,' he says. 'Technically, it's not an issue. But many employers go for it for cultural or political reasons internally. Big organisations may simply want the best platform across the world - they don't want local employees to feel like second-class citizens, especially in an acquisition situation. But there are probably more pragmatic ways of achieving that - for instance, there are accounting firms in every country that can pick up your payroll needs and ensure they meet your head office's data requirements. Then it's simply a matter of management - getting the right service level agreements in each country.'
An alternative to opting for a global outsourcer or trying to join up different country-specific systems is to appoint one company that can co-ordinate the administrative and management activities associated with a worldwide system. However, many of the larger outsourcing firms may only be interested if other HR-related processes are included in the contract.
'Payroll is a single process deal - and the major outsourcers aren't interested unless it's multi-process,' says Martin Stockton. 'When only payroll is up for grabs, the big players don't want to know.
'But if a company wants to put 60 countries on their payroll, we give it to them under one overall contract. Clients say to us that they only want to deal with one supplier as they just want one person to kick. We look for best-of-breed processes in each country, ensuring we have the right partners and that we manage them in great detail. It can make large companies nervous - but they can put the whole process through due diligence and it's still easier than managing 60 relationships.'
Martin Puttick is HR operations director at UGS, an international employer providing product lifecycle management (PLM) software and services from over 20 countries. It recently standardised its payroll systems across Asia, and is now rolling out the system, working with Patersons , in Europe, the Middle East and Africa . 'We ideally wanted to choose one vendor with a single payroll solution but that doesn't exist,' he explains. 'So we decided the best route would be to centralise with a payroll management company on a single contract, where they'd take responsibility for managing local vendors and ensure we got the service we required, so that we didn't have individual agreements in each country. Each country had previously had its own local agreements but we wanted drive usage of our employee records and needed to access all that information centrally. Previously, nobody had a true understanding of where payroll stood or what people were being paid in total compensation.'
This highlights a common challenge for companies looking to centralise global payroll - the existence of rogue local contracts. 'Many employers have a big misconception of their own internal governance structure,' says Bill Thomas of Ceridian. 'A head office may set out to refresh the payroll environment in full certainty that they're running a global sourcing project - and they'll find lots of the countries involved are operating within or have re-signed local contracts. One of the issues that impede the selection process is that half the workforce is tied up with existing, domestic-only solutions.'
For smaller organisations attempting to expand internationally, problems with payroll can create huge management headaches. 'It can really burn up administrative time disproportionately, especially with language and travel implications,' says Stockton . 'That's why they often say they're less bothered about specifics of the technology and more interested in the overall service. The market is moving to software as a service, as opposed to software as a solution. We almost never get involved in functionality arguments - it's more a case of providing the service without getting bogged down in complex outsourcing contracts that focus purely on technical issues.'
Ed Ramshaw agrees that business issues are more important than those of a technological nature: 'You don't want to be swabbing out the system every five minutes - but nor do you want to be at war with your supplier,' he concludes. 'It's all about understanding the management culture of your organisation and working closely with your people on the ground. When things go wrong, everyone blames the system - but it's often because not enough time has been spent by both sides on getting the processes correct.
'It's something every employer - large or small - should consider before deciding to globalise.'
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