Multinationals failing to adopt transformative payroll techniques to compete and expand in the global marketplace

May 10, 2013

The global payroll landscape has continued to change dramatically over the last 10 years. New providers, technology, vendor service delivery models and global capabilities have made payroll administration possible, at least conceptually, across complex global organizations.

Given this environment, our clients often ask us if one organization can provide a truly global payroll solution. In other words, is global payroll a myth or a reality?

We decided to seek some answers by starting with just a single question on LinkedIn to find out if client and vendor organizations believe a single, consistent global payroll model exists:

Do you believe there is a single provider in the market today, regardless of the service delivery model, that can support the payroll needs of a global enterprise actively engaged in 90+ countries?

The responses were almost evenly divided: while service providers strongly believe that global payroll was a reality, most organizations (or buyers) strongly disagree.

One could easily debate the point from both sides:

  • Organizations (buyers) are looking for the confidence delivered by a truly global service delivery model using standard, consistent systems and processes that are compliant with local regulations delivered by a single global company.
  • Service providers (vendors), however, argue that they can deliver the best solution for their customers by diligently managing and overseeing their global network.

As a result of these opposing perspectives, Ernst & Young sponsored this survey to gain a better understanding of how organizations perceive global payroll within the context of their cultures and governance models.

The survey focused on the experience of organizations with delivering payroll either in-house, via external vendors, or a hybrid of both. It was designed to understand the operations and processes currently in place in multinational organizations and to explore what might be needed in the future.

Whether global payroll is a myth or reality, the fact is organizations, both public and private, need to pay their employees in a timely, accurate and compliant manner.

Thus a question remains: what are the best practices for multinational organizations, especially those entering new or perhaps emerging markets?

Conclusions

As the survey revealed, many organizations continue to be skeptical about whether any payroll provider can deliver a comprehensive global payroll solution. While that skepticism has some validity, the survey results also suggest that some organizations do not see the value add in straying from historical payroll practices.

We find that attitude somewhat surprising considering that 85% of all respondents desired improvement in their current payroll policies and practices. Almost any other business process that had similar levels of dissatisfaction would witness transformative initiatives to address the issue.

Accepting the status quo in payroll solutions may have worked in the past, but it is no longer adequate for companies that need to compete and expand in the global marketplace. Managers responsible for global payroll need to build the business case based on risk and compliance to improve payroll operations.

To that end, it may be time for organizations to begin viewing payroll as a critical business process that requires a global solution with local flexibility. As organizations debate whether to run payroll in-house or with an outsourcing provider, there are a number of questions to consider:

Your business strategy

  • Is your global payroll model aligned with the overall business strategy and vision for support services?
  • Do you have a five-year plan for your payroll operations, and do you have buy-in from HR and/or finance (dependent on your structure)?

If you operate an in-house model

  • Do you have a good source of skilled payroll technicians with both traditional and newly required payroll competencies?
  • Have you championed the implementation of employee selfservice, remembering that self-service will not absolve you of responsibility for errors in the eyes of your employees?

If you have a hybrid model

  • When was your model last reviewed? Do you have sufficient governance in place to validate the effectiveness of retained and outsourced processes? You should be seeking to enhance effectiveness, mitigate risk and produce efficiencies.
  • Have you validated the art of the possible? In other words, have you fully assessed which aspects of your operations can be outsourced and which should — for strategic or risk management reasons — be kept in-house?

If you have a fully outsourced model

  • Has your outsourcing approach yielded the anticipated savings and/or process improvements?
  • Are your key performance indicators and SLAs measuring things you believe to be truly indicative of your payroll’s quality?
  • Are there any other governance steps you need to put in place to ensure you are getting the value and effectiveness of the services provided?

Read more: Global payroll: myth or reality?

Questions or comments? Contact T Magazine and Ernst & Young

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