We just implemented a new global HR system, but our payroll processes are still very manual. What happened?
It is not uncommon for global HR system deployments to fall short of payroll’s expectations. And there are a couple of likely reasons:
- Payroll’s expectations are, to a degree, misplaced—the new HR system is not going to solve for all inputs to payroll. There will still be inputs that come from other sources, such as a fleet manager, a benefit vendor, or a sales compensation function.
- The HR system implementation focuses on the data elements that are common across countries, and for payroll, data requirements differ from country to country.
The best way to solve for the first item is to undertake a comprehensive process design review as part of the global HR system deployment. If the payroll function is not transforming as part of the HR initiative, the organization should still use the opportunity to take an end-to-end process view of payroll and determine what can be streamlined as part of the HR initiative, including an analysis of what can be migrated and maintained in the new HR platform. This leads us to the second item.
Leveraging Your Global HR System for Global Payroll
The three broad categories of data that can be maintained in a global HR system are:
- Demographic data—personal and employment data for the individual
- Compensation data—salary, allowances, one-time payments
- Benefits data—plan participation and premiums
Demographic data can be challenging. Some data elements that need to be tracked for payroll are fairly straightforward, although not universal. Data elements such as collective agreement participation, multiple national or tax identification numbers, and place of birth are fairly easy to maintain in a global HR system–but could be limited by data privacy concerns. But names of parents, tax dependent data, and job classification for statutory reporting purposes are often more difficult to maintain and may require some creative configuration.
Outside of some specialized compensation systems (e.g., sales commissions), it is desirable to leverage the HR system to the greatest extent possible for compensation elements. One-time payments, including non-cash awards, can fairly readily be configured in the HR system, which not only benefits payroll, but provides managers with access to their employees’ special bonuses and awards. Allowances (recurring payments) can be a bit more complex, as they often are dependent on other data, such as job grade, home and/or office location, work schedule, etc. But today’s global HR systems are enhancing their capabilities in this area.
There is one other complicating factor—the payroll system/vendor also can calculate some allowances and special pays (such as the 13th month payment). So there needs to be careful consideration regarding which system will calculate and maintain which compensation elements. Ideally, the HR system is the source of all compensation, but practically speaking, it is best to use the system that has the best capability and to create a reliable, repeatable end-to-end process.
Benefits data is often maintained by a third party. There can be multiple and varied sources—from a medical insurer to a pension provider to a vehicle fleet manager. On the other hand, programs can be straightforward, with eligibility and elections easily maintained in the HR system. Just as with compensation, the key is to consciously identify the appropriate source of data and create a process for delivering accurate and timely information to payroll.
When implementing or upgrading a global HR system, it is important for payroll to be actively involved in design sessions so there is a deliberate decision-making protocol around the flow of data from source to payroll. This approach will lead to greater standardization and efficiency in the payroll process.
Payroll Process Design
While implementing a global HR system, it is a good time to revisit payroll processes—starting with an end-to-end review, but then focusing on key areas that may be impacted, such as:
- New hires/rehires
- Time and absence inputs
- Other automated inputs
- Manual data inputs
- Payroll processing and approval
- Retroactive pay
- Imputed income
- Deductions in arrears
- Wage attachments (garnishments)
- Transfers – between legal entities/countries
- Post-payroll – third-party payments
- Post-payroll – tax reporting
- Post-payroll – accounting (general ledger)
- Off-cycle/manual check processing
Don’t let your global HR system deployments fall short of payroll’s expectations. Ensure you are involved through the entire design review process so you can help determine what can be maintained from the old system and what new elements need to be considered.
Mary St. Cyr is an Advisory Managing Director at KPMG LLP. She specializes in payroll strategy and operating model design, vendor sourcing/selection, and process design.