The world continues to experience the most interesting and disruptive period in recent memory. Political upheaval and the economic and social fallout from the global pandemic have changed society dramatically. In the workplace, these changes translate to everything from a shift to remote working to an acceleration in the transition of business operations and systems to the cloud.
Every sector is affected, and some, like aviation, may never fully recover. Other sectors such as restaurants and cafés have undergone a metamorphosis. They are reinventing their business model, moving away from sit-down table service to offering delivery and takeout. Throughout it all, CFOs have had to work hard to navigate the turbulence, adopting and promoting an agile approach while continuing to ensure their company’s viability.
However, versatility and innovation have long been stalwart fundamentals for financial leaders. CFOs are under constant pressure to look for new and creative ways to reduce costs and increase efficiency. While there are many paths to meet these goals, one area demands attention—global payroll.
As one of the largest operational expenses, approximately 25% of revenue, global payroll’s high cost makes it the ideal target for process improvement and optimization. Unfortunately, many CFOs lack the insight and data to understand its labyrinthine operations fully. Challenges such as the lack of a single currency, inconsistent reporting and tracking, complex and evolving country legislation, and compliance concerns all combine to obfuscate the situation further.
Time for CFOs to Focus on Global Payroll
Human Resource’s (HR) connection and relationship to payroll have in the past been seen as one of the many reasons that CFOs took a backseat when it came to global payroll oversight. This is now changing. There are some obvious reasons for this shift. International expansion is driving a greater emphasis on achieving consistency and predictability of payroll execution across time zones, currencies, and country- and region-specific benefits. Plus, many CFOs are now tasked with managing the governance and compliance risk associated with finance and accounting transactions and are responsible for governmental regulation, industry regulations, and organized labor agreements. All these help organizations to facilitate reconciliation and audit activities.
In addition, some of the areas CFOs identified as focus areas for 2021, including digital transformation—especially automation and data analytics—further reinforce that global payroll is becoming a top CFO priority, according to a Forbes.com recent article. As the role of financial leader transitions to a more strategic one, CFOs need the technology and workforce data to change and positively impact global payroll management realistically.
As mentioned earlier, we also know CFOs are under pressure in the aftermath of 2020 and the impact of COVID-19 to develop an agile approach to business operations; one that enables the business to rethink its business model to pivot to new business opportunities. CFOs must now look for answers to how best the organization can grow and what the company needs to enable this growth to happen seamlessly. Expansion will be a critical enabler for much of this growth, and taking a proactive strategic approach to operating and delivering payroll in new jurisdictions is a prerequisite if the project is to succeed. It is also vital that financial leaders have the data necessary to envision these scenarios through organic and inorganic growth. According to a recent PwC study, 28% of CFOs expect an increase in revenue in the next 12 months, an increase that an investment in data analytics and automation will help spur.
Another CFO priority for 2021 is diversity equity and inclusion (DE&I). PwC’s research shows that 49% of CFOs say their company is planning to increase employee diversity and inclusion training, with a particular nod to attracting Gen Z workers, the most racially and ethnically diverse generation in the United States. To best understand and prepare for this, CFOs will need to introduce and promote a more diverse and inclusive workplace. However, the success of these efforts often requires some visibility into the cost basis for hiring, payroll analytics, and relevant employee counts across departments, geography, seniority, longevity, and performance to ensure that these efforts lead to intended results.
We also know that 67% of CFOs say policy and regulatory risks will be more pressing over the next four years with a Biden administration. The strategic CFO must have the visibility to identify the potential for risk and disruption across the company and define the return on investment across corporate spend categories. The ability to support global payroll consistently allows organizations to maintain cohesion and continuity across compensation, benefits, and related compliance issues.
The Global Payroll Solution
Global enterprises often get stuck trying to manage complicated payroll, tax, expense compensation, and reporting tasks due to the variety of siloed and inconsistent management tools. An alternative approach focused on running a consistent global payroll enables organizations to reduce the total cost of ownership for payroll teams. At the same time, it increases the governance, compliance, and consistency of payroll execution across countries, all while meeting governmental and corporate standards.
Executing all these strategic goals is no small feat. However, centralizing and standardizing international payroll with a global payroll solution ameliorates the task and offers immense benefits that will contribute to successfully completing many of the other priorities for 2021. Having a single source of global payroll truth means that CFOs can access with ease data and workforce analytics that facilitates workflow governance, optimize workforce and skill portfolios, operations, performance management, business analytics, and even more seemingly qualitative aspects of business management such as culture, diversity, and inclusion.
In short, it offers global oversight with a local granularity so organizations can compare apples to apples. With a shared currency, the data associated with payroll managed at a worldwide level can provide a consistent view for understanding the cost basis of key labor capabilities, opportunities for geographic arbitrage, alignment of payroll to productivity across departments and geographies, and the opportunity to identify areas where additional investment, training, and attention may lead to outsized benefit.
What to Look for in a Global Payroll Solution
CFOs should first work with their global operations to identify payroll-related software, employees, external resources, banking relationships, governmental relationships, and other regional considerations that must be taken into account. In conducting this discovery exercise, it is not uncommon to find that a seemingly straightforward set of payroll policies are carried out in a wide variety of ways that often lack rigor, consistency, and repeatability.
Once payroll policies, processes, and tools have been identified, the organization can move forward to identify a solution that will automate payroll processing and payments while reducing the need for manual correction. In this process, the CFO office will need to play a role in helping to coordinate global resources, identify the necessary financial and business software tools that need to be integrated into this process, and provide guidance on the level of governance and reporting that may be necessary to support higher-level issues, such as strategic planning and advice for publicly traded companies.
In addition to the raw reporting and integration capabilities needed to support existing business needs, the CFO may also play a part in identifying the need for additional analytics to support diversity and inclusion efforts, succession planning, and other payroll-related analytics and modeling exercises that extend beyond the basic reporting of payroll as an operational expense. When planning how payroll delivery, cost per employee, potential currency or payment float, conditional compensation and bonuses, and other payroll metrics should be used to support more detailed business analysis, the CFO office should consider how payroll data is presented as an analytic output by a potential payroll solution.
And from a practical perspective, the CFO office should be aware that global payroll solutions typically can execute broadly across more than 100 countries, but that projects usually start by prioritizing an initial cohort of 10-20 countries. By prioritizing groups of countries in multiple waves while initially running parallel payrolls, organizations can ensure business continuity and governance while switching from legacy to modernized payroll practices.
Providing a consistent payroll process allows organizations to develop compensation practices that are more tightly related to a shared global culture and community. International payroll practices can help all employees know that they are treated similarly and share working aspects while avoiding the inconsistencies of off-cycle pay corrections or expectations that a headquartered country is favored over others in some fundamental way from a payroll execution perspective. Although this sounds like an HR topic, this issue can also affect the CFO regarding the reporting of diversity initiatives and global strategic execution needed as part of ongoing reporting.
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Ruairi Kelleher, Chief Executive Officer at Immedis, is responsible for the corporate direction and strategy activity at Immedis, ensuring employees and customers are a top priority in all decisions taken by the organization.