Editor’s note: Part I of this article in the March Global Payroll addressed the basic decision between asset or equity purchase.
The transition team has determined that the acquisition will be an asset purchase that includes eight international locations with approximately 300 employees. A couple of locations only have a handful of people, and the largest has 70 employees. But currently, the company has no operations in these countries, and there will be no Transition Services Agreement (TSA). Thankfully, there is a long lead time until the close date. But typical of these situations, the close date is continually in play, which makes these payroll transitions even more difficult.
A good transition plan is critical to the success of the first payroll run after the transaction is completed. This plan should include at minimum the following five key areas:
- Payroll Provider Selection
- Data Acquisition
- HR Systems Integration
- Financial Reporting
Let’s look at each of these key areas in more depth.
A comprehensive plan for standing up payrolls in each of these new countries is step one. The plan must have cascading timelines for each of the main components of a payroll implementation:
- Data gathering
- Resource allocation
- Entity creation
- Payroll registration
- Vendor selection
- Bank account set-up
- Payment and deduction codes determination
- Gathering of financial reporting requirements
Timing of the transition is set by the deal constraints but whether an entity is needed in each country will determine if the timeline is feasible. After consulting the list of countries, it appears three of the countries can just be registered for payroll and the other five need an entity. The next critical step is selecting a payroll provider.
Payroll Provider Selection
There are many payroll providers, all with different strengths and capabilities. For some of the smaller locations, which also need entity set-up, a local accounting firm is a potential option. These firms also can do all of the corporate filing and taxes. But for the other five countries, a larger organization would be needed to support the infrastructure. So what is the process to finding the right partner?
First, it is important to determine the company’s most important requirements for these payrolls. For example, does the company just need processing? Or does it also need additional support for filing? Local payroll expertise? Language support? Integration with HRIS and/or finance? Is the company going to support these payrolls from the office in the United States or in each location with a local HR manager? The next step is to contact purchasing to help put together a short RFP to source the right partner.
This can be the tricky part. Often the acquirer cannot obtain any employee-specific data before the close date. This creates issues when, typically, the buyer is required to at minimum match the current compensation and benefits packages of the employees who are coming with the acquisition. Often the buying organization can obtain generic information on payment and deduction types, benefit programs, and compensation levels, but not on individual employees. This base information is crucial to setting up systems to be ready at date of close to execute payroll. Additionally, it may be difficult to obtain actual employee data from the divesting company, as these employees are part of greater employee populations in these countries. Therefore it might be difficult for the divesting company to separate the data of the employees going with the divestiture from the larger population that is staying behind, which may require it to compile and send the data manually. Also, the data must be sent in a secure manner, which is yet another program to be set up as part of the implementation. It is important to have good templates from the selected payroll partner to pull the correct information as soon as possible. This data will need to be current for vacation balances, deduction totals, address information, bank account details, and compensation elements at transaction close date.
HR Systems Integration
The company’s HR system has global capability, and the team wants to enter these employees into this system to have worldwide reporting capability. The United States was integrated for payroll, but there are no other countries outside the United States intergrated prior to the acquisition. It is important to ensure that the HR system is set up properly for these new international locations prior to entering employees. Different local requirements for payroll need to be gathered and entered, including tax identification numbers, copies of passports, multilingual employment contracts, even dependent details. If the system is configured properly and the data is complete, the integration to payroll will be smoother. Since these new populations are small and time is of the essence, the company decided the lift would be too great to try to integrate HRIS to payroll at the same time as implementing these new locations. They certainly can be integrated in the future, and the data gathered for each location can be back-filled into the HR system if necessary. This is often the safest option with short timelines, as the most important requirements are to pay the employees accurately and on time after close.
The company’s financial system also has global capability, but each country needs to be set up with financial codes that are in alignment with a global chart of accounts. Since the financial systems will be in the process of being implemented alongside the entity set-up, cost center reports should be sufficient for financial reporting at go-live on the transaction date. Data will need to be input manually into the financial systems for payroll costs until a general ledger report can be automated encompassing data from each location.
Acquisitions with no TSAs are like a high-wire act with no net. Everything has to be coordinated perfectly, and at the 11th hour, there can be no wind. It is critical that these new employees are paid on time and accurately the first pay cycle after close. There are many moving parts, including benefits, systems, financials, employee data, resource constraints, language, local customs, and the list goes on. A great transition plan and clear communication are the keys to ensuring all components are moving in concert to keep all the players on the high wire successfully forging their way to the far platform without so much as a glimpse of a storm on the horizon.