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Emerging Trends

Trends in Global Payroll— SSCs, Standardization

By Frank J. Mendelson and Paul Bartlett

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1. How is the changing role of the global payroll professional—typified by greater interaction with the HR department, data analysis, and strategic planning—making an impact in the field?

For a long time, payroll was taken for granted. Organizations viewed it as no more than a utility, and most either didn’t understand or didn’t see the strategic potential of the payroll function and professional. However, we now see a shift in perception and opportunity for payroll professionals historically relegated to the back office. There are two major catalysts for that change: the continued adoption and optimization of shared service centers (SSC), and the globalization and standardization of payroll solutions.

With shared service centers, the benefits gained from centralized functions and integration bring greater visibility for payroll and more exposure to associated business functions such as human resources (HR), legal, and finance. Take, for instance, the ability for payroll professionals to work side by side with finance. Payroll professionals can relate processing errors, late and supplemental runs, and turnover directly to business costs that finance professionals can examine. The payroll process and its relation to costs no longer needs to be a mystery to other functions in the organization. The same applies to HR and payroll, which can, for instance, work together to improve employee adoption of an organization’s HR systems through tighter integration with payroll data and software.

The second catalyst for change is really about data and standardization. It’s widely accepted that payroll data is the most trustworthy source of employee information within an organization. This is because it’s in the interest of both the employer (who doesn’t wish to overpay) and the employee (who doesn’t want to be underpaid) to ensure the ongoing integrity of the data.

If aggregated, payroll data can be of great value to senior management, but it has historically been a challenge for many organizations to pull this information together. By centralizing and standardizing payroll data, and by making it more accessible, payroll professionals can move from processing to analysis. That requires a willingness to learn, and a desire to participate in the strategic discourse of process improvement, cost reduction, and workforce optimization. It is incumbent on global payroll practitioners to elevate the role of payroll data and use it to rally around common business objectives.

2. How would you advise someone whose company is just beginning to expand to a global payroll with regard to risk management and compliance?

If you’re growing globally, and moving from having your workforce in one country to possibly two or three, then the value of a global payroll solution may not be immediately apparent. Unfortunately for organizations, there is no binary event at which it becomes immediately clear that an organization needs to move from a fragmented payroll to a consolidated global solution. However, organizations should anticipate and prepare for servicing a global workforce well ahead of requiring global payroll.

Historically, a lot of companies didn’t see the need for global payroll if they operated in one or two countries. But at some point, staying compliant, aggregating data, and maintaining cost transparency became too difficult for them to manage. The pain of a fractured solution became too high, and organizations then found themselves expeditiously trying to move to global payroll. That approach involves significant barriers, internal biases, objections, and high implementation costs, not to mention change management and adoption issues.

My advice to organizations starting to grow globally is to better anticipate their needs and put in place processes and systems that can scale as they do. If done right, an organization’s eventual adoption of global payroll can be a seamless evolution instead of a large-scale transformation project.

3. How can a global payroll department integrate on a strategic level with corporate finance, HR, and other departments to provide a competitive advantage?

Payroll was traditionally its own world. It was too fragmented for centralized finance, HR, legal, and IT organizations to understand and incorporate into their processes. All those other functions could do was get pay slips or GL files to upload into their software. Other than that, they couldn’t deal with the disparate data formats, local agents, different workflows, compliance, and multiple systems.

But what automation, standardization, and analytics have done for payroll goes far beyond process improvement. They simplify global payroll and mark a watershed in the perception and capabilities of the function. Statutory compliance tracking, process, and cost data, along with centralized command of payroll, allow other departments in the organization to come into payroll. It also allows payroll professionals to extend themselves into other functions. With some of our customers, we’re seeing payroll gaining new visibility and access to strategic business decisions. We see workforce and payment data go far beyond headcount reports. We see payroll directly engaging the CFO and influencing hiring and expansion decisions. The systems and processes are now in place for strategic payroll—and it is now a matter of adoption and education.

4. What is the one thing that happened in the past year that you didn’t see coming but has had a most profound impact on global payroll?

The velocity of SaaS (software-as-a-service) adoption in cloud-based HCM and payroll. That has been the trajectory for organizations for a while, but the speed of deployment has picked up in the past year. There are several reasons for it. For most, cost-efficiencies are a key driver in that decision, but the potential for better compliance and shared service centers feature highly on the agenda, too. Organizations that adopted cloud solutions are deploying shared service centers (SSC) at a faster pace. They’re uncovering the power of predictive analytics and achieving greater reliability and visibility into their local and global compliance requirements.

Indeed, 93% of businesses now use the cloud “in some form or another,” according to Rightscale’s 2015 State of the Cloud report. And Constellation Research suggests that more than 40% of businesses looking to invest in payroll technology would be seeking to leverage cloud platforms.

From a pure compliance perspective, the opportunities afforded by cloud technology are vast. SaaS helps to consolidate global data from multiple country payrolls into a single system, providing real-time information on both global and local compliance while enabling organizations to monitor and measure the performance of their payroll and payments processes. That increased visibility means seamless access to statutory filings, the ability to maintain records more easily online, and the ability to make legislative updates country by country across the globe.

5. Is it possible to have a single global payroll solution and service?

The idea that payroll can’t truly be global and that a single solution can’t account for all the local requirements has persisted in the industry for a long time. I find that this notion arose from local bias, which was established through historical relationships managed by in-country leadership.

But we firmly disagree, and the fact that vendor platforms and a library of standard processes exist proves that it is indeed possible to have one global platform for an organization’s needs. SaaS is a foundational element for a single global payroll solution and can account for local, global, and corporate requirements and regulations. It can also do it much better than any multi-vendor solution.

However, changing that notion—that global payroll can’t be achieved through one solution—takes time. I think it starts by illustrating how such a solution is built.

I’ll give you a recent example with one of our customers. This customer was running payroll in more than 20 countries and had close to 30 payroll calendars—each with unique steps and milestones. It was managing 4,000 calendar steps with 400 different definitions across their global footprint, all seemingly specific to each region.

When they approached us for help, we tackled it the same way we help all of our customers consolidate and standardize. We started by finding ways of extracting local requirements and translating them into standard global processes. When we were done, we were able to bring their 4,000 events down to about 30 global events. We then added another 10 country-specific steps. So we took their 4,000 steps and many calendars and were able to consolidate them into 40 steps, in one centralized online calendar that was able to accommodate all of their countries.

That’s really what enables us to build a global solution. We first extract local requirements into global standards and controls, we then create workflows that include local standards, and then we layer on top of it customer-specific standards. Our platform, for example, has a library that mostly consists of global standards. We do have unique elements for some countries, but with today’s technology and automation, that’s easy to accommodate. People were at one point skeptical that a single application could deal with global finance needs, but that’s no longer an issue. I think it’s time we realized that payroll is not above global processes and standards.

6. What are the biggest challenges for global payroll teams?

A lot of the issues I see global practitioners struggle with are internal communication and buy-in. It’s managing in-house constituencies, getting local managers to understand the value of global payroll, and buy into its benefits even when the value isn’t apparent at a local level. Local managers don’t initially see the benefits of new global processes. In fact, initially, global initiatives and processes may look worse for them. Why should an office with 20 employees in Brazil follow the same standards outlined for an office with 200 employees in Poland?

That failure to sell the organization on global processes and standards creates a lot of upstream issues for global practitioners. That stems from two things: first, the way that global payroll was initially introduced and implemented in the organization, and second, the way requirements and benefits are communicated to stakeholders.

Implementation and change management are tough. That’s why we’ve built an entire practice and methodology around implementation. If you’re not getting internal buy-in, then you’re just passing the buck to your global payroll practitioners. We see this when global teams start spending exorbitant amounts of time fixing issues that should have been communicated and addressed at the local level.

But the value must be clearly demonstrated during and after implementation. You first have to show the Brazil country manager the global processes, then you have him agree to change his process to accommodate global timelines, and then you need to ensure that his data is up to date if you’re to take advantage of centralized and reliable employee and process data.

Communication and change management are always fluid. Whether you’re bringing new countries into scope, acquiring another company, or just training new employees, global processes require constant communication and reinforcement. Otherwise, the value of global initiatives and systems will be lost on local teams.

7. How would you describe your present strategy with regard to managing risk and compliance on a global basis? Have you taken different approaches over time before adopting your current strategy?

We always believed in giving our customers a centralized and instant view of their statutory filings, local regulations, and overall payroll compliance. This year we plan to evolve our capabilities around that with a new application. We think it’s going to have a huge impact on how organizations understand, track, and react to regulatory requirements across their global footprint.

The benefits of cloud payroll are well documented—with cost savings, process efficiencies, boardroom insights, and payment accuracy among the primary reasons for more and more businesses making the switch. But purely from a compliance perspective, the argument is compelling as well. Cloud payroll can give customers greater visibility and real-time tracking of their compliance status, sometimes even coupled with an integrated library of local regulations and corporate policies.

Take, for instance, local requirements. How often is that knowledge carried around in one person’s head, and what happens if he or she doesn’t turn up for work one day? Or how many countries are processing payroll on systems that are no longer supported by the vendors that developed them? By centralizing that information, building audit trails around how the data is handled and updated, and making it available across the globe, we’re giving organizations visibility at all levels.