The multi-country payroll model can deliver significant business benefits to international organisations, but it is not without challenges, as analyst Keith Rogers explains to FSN contributing editor Lesley Meall.
There was a time in the dim and distant past when all payroll processes were handled manually, but this was one of the first areas of business to be outsourced and automated, and it’s not hard to understand why. Payroll is inherently complex, whether you are an employer with a handful of employees or a multinational with thousands, and over the years, an entire industry has grown up around its simplification, spawning myriad managed services offerings, outsourced process providers, and suppliers of software and systems.
Choice is a good thing, isn’t it? But wading through all of the available options can seem like a never-ending nightmare of confusion, and although finding the right approach is a challenge for any organisation, it is particularly arduous for those with international operations. Because each country has its own unique (and ever-changing) set of regulatory requirements, payroll functions (and the associated software and services) have evolved nationally, on a country-by-country basis, with little standardisation of practices or processes – and all of the associated problems.
‘Lack of visibility into individual payroll operations, key person dependencies, limited control, operational and compliance risks, variations in quality of service, and the inability to introduce efficiencies or exploit economies of scale are among the many reasons for taking a less haphazard approach to international payroll management,’ suggests Keith Rogers, co-founder of Webster Buchanan Research. So replacing the traditional ‘one country, one provider’ approach with a multi-country payroll solution can has a lot to recommend it.
‘Many of the processes performed in payroll operation are common wherever they take place,’ says Rogers: payroll data is prepared, the necessary calculations are carried out, physical payment is made, and the associated reports are completed. ‘A multi-country payroll model can take advantages of these commonalities,’ he explains, and Webster Buchanan defines multi-country payroll management as ‘the ability to provide a centralised approach to payroll across multiple countries, while meeting local legislative, business and cultural requirements’.
The theoretical Utopia is a single global payroll set-up, where companies can run six, sixteen or sixty countries through a single software system or outsourcing arrangement. So specialist suppliers should, theoretically, be able to provide customers with a single view of their international payroll activities, a single customer contract, and (ideally), a single point for data entry. But according to research from Webster Buchanan, very few can meet these criteria, and most are still ‘fleshing out their coverage’ (of which more, later).
Over the years, various products and services have emerged to support the multinational dream of multi-country payroll. On-premise software providers (including SAP and Oracle) have built central engines to manage the core processing across multiple countries, with national regulations and sets of business rules layered on top, while outsourcing service providers (from giants such as ADP and Ceridian to smaller organisations) have developed offerings based on a number of different models.
According to Webster Buchanan these break down into five main groups:
Backbone outsourcers provide a traditional managed services payroll model, that uses the outsourcer’s own IT infrastructure - which may or may not be built on a commercially available software product.
Brokers or aggregators (such as Celergo and Patersons) build a network of third party service providers top operate on their behalf – and often choose country-specific or regional specialists.
Software as a Service or hosted service providers offer an IT-only approach: the outsourcer owns, maintains, upgrades and runs the software, but the customer is responsible for every other aspect of the payroll cycle, including processing.
Business process outsourcing providers take control of the bulk of the customer’s payroll operation, often along with functions such as human resources (HR) and finance: some use their own infrastructure; some take over the customer’s existing systems; some do both.
Hybrid providers offer services that span multiple categories, offering a range of outsourcing services and sometimes (organisations such as Logica and NorthgateArinso) offer on-premise and outsourced payroll solutions.
If you want to consider (and compare) the various approaches, the 2009 Multi-country Payroll Review from Webster Buchanan could help. It’s an independent research report assessing the capability of 10 leading software and outsourced service providers in the multi-country payroll field, considering factors including vendor strategy, geographical coverage, and summarising any particular strengths and weaknesses. Multi-country payroll market research reports and support are also available from the Everest Research Institute and Forrester.
In addition, Webster Buchanan offers a Payroll Performance Scorecard. This is a set of tools designed to help managers in payroll, HR and finance to measure the efficiency and effectiveness of their existing payroll operations, compare them against internal goals, or external benchmarks, and enable organisations to assess the interdependencies and other factors that can potentially impact on payroll performance. ‘This can arm you with the information you need to make changes or justify the status quo,’ explains Rogers
But before you set off down the road towards multi-country payroll, take a deep breath, plant your feet firmly on the ground, and try to keep your expectations realistic. ‘For all the fine words spoken about the potential for managing payroll across multiple countries, the reality is usually a compromise between grand vision and harsh practicalities,’ says Rogers. ‘To start with, no single vendor can handle payroll in every country in the world,’ he explains, so for many organisations the single global model is ‘more a statement of intent than a short-term deliverable’.
Some multi-country payroll brokers have extensive coverage, while other vendors are limited to between 20 and 50 countries. ‘This doesn’t mean that only a quarter of the world’s payroll population is covered,’ clarifies Rogers. Some vendors are constrained by history, and may be particularly strong in Asia or Europe, for example, while others go where the money is. ‘You can expect a fair proportion of your major country operations to be covered,’ he adds, but don’t expect to find a vendor with an offering for every country where you have employees.
Finding a vendor that can meet most (if not all) of your needs will not be the only hurdle you must jump on your journey from theory to reality. ‘You can’t just pick a global payroll model off the shelf, plonk it into your country operations and move onto the next project,’ says Rogers: managing the transition from where you are to where you want to be may be less like project management and more like organised chaos. ‘The process involves significant change management, with all kinds of people, process, system, cultural and other challenges lying in wait,’ he cautions.
‘Developing a strategy, building a business case, and driving through the necessary changes presents many challenges,’ says Rogers. These include: lack of change management experience and skills shortages, a shortage of information on local legislative requirements, resistance to change, the lack of a single vendor ‘magic bullet’, the difficulties of building a meaningful business case. ‘Running an international project invariably involves practical operational issues, he adds, ‘and differences in language, culture and time zones all need taking into account.’
As if all of this were not enough to contend with, recent economic conditions have created additional challenges and complexities for those considering or moving towards a multi-country payroll model. ‘Some vendors have witnessed a shift in customer priorities, with the focus falling harder on cutting costs and away from the global model,’ reports Rogers, as pragmatism becomes the order of the day. ‘It may be great to have one single payroll set-up managing all of your country operations,’ he observes, ‘but if you can do it cheaper on a regional basis with a mix of vendors, who’s complaining?’
