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TechOutsourcing

Why Technology Platforms Are Critical Differentiators When Selecting Payroll Outsourcers

By David Longworth

TechOutsourcing_insideTechnology operating platforms are becoming a critical differentiator between global payroll providers and a major factor in vendor selection. That’s why it’s so important for global payroll managers to dig deep and understand how the different offerings measure up.

You wouldn’t be without your cell phone today, yet if you went back 40 years, you probably wouldn’t have known what a cell phone was. And if you went back just 15 years, there’d be a world of difference between the phone you would have been using and today’s smartphone. We don’t always know we need modern technology, but once we’re using it, it’s hard to imagine how we coped without it.

This is particularly true in the global payroll business where parts of the industry continue to work with rudimentary first-generation technology setups, while others have moved on and become much “smarter.” But the differences between a glorified web portal and a sophisticated payroll operating environment are not always obvious, nor is it immediately clear which aspects of any technology are necessary for which purposes. No one wants to waste money on a system with bells and whistles they’ll never use. The payroll manager’s natural inclination to make do with what they have can be their worst enemy.

Payroll professionals may be reluctant to dig down into the deep plumbing of a global payroll system, thinking this is something reserved for IT specialists. In reality, however, all those pipes are vital to everything in the system—from the volume of errors you deal with to the speed of payroll processing. You don’t need to get bogged down in code and technical jargon to understand how your payroll system is helping—or hindering—your work.

 

Platform Capabilities

In a newly published research paper, Webster Buchanan Research has categorized the capabilities of global payroll platforms in seven interlinked areas to help purchasers of systems and outsourced services determine their strengths and weaknesses. These platform areas are the following:

  1. Data stores that hold all the data for processing
  2. Interfaces that connect systems and services together
  3. Workflow that manages the way tasks are passed around
  4. Portals for payroll and employee access
  5. Document management
  6. Reporting
  7. Customer service ticket management

If we look at the first three of these—the basic building blocks for any global payroll technology platform—we can see how important the technology can be. At a rudimentary level, it is still possible for payroll changes to be put on a spreadsheet (please, never send in an email) and uploaded to a Microsoft SharePoint portal or other file forwarding system, from which your in-country vendor can download the changes and copy them into its local system, run the payroll, and post the results back.

You can feasibly manage multiple payrolls in different jurisdictions around the world like this using nothing more than a paper checklist and pulling results together in a spreadsheet. In fact, the payroll industry has been doing that for many years. Even today, many multinationals continue to rely on these kinds of semi-manual setups for their smaller country operations. 

Apart from the productivity overhead of having to cut and paste hundreds and thousands of payroll changes each period, the risk of errors and lack of accessibility to the data means that if anything goes wrong in this process, it’s laborious to find out where it happened and very difficult to stop it from happening again. Did our employee not get paid her bonus correctly this month because the company sent the wrong instruction or because the instruction came in late and missed the cut off? Did the vendor make a mistake when re-keying the amount in their system or because the wage type wasn’t set up correctly to calculate the bonus in the first place?

 

Advantages of a Smart Database

With a smart database, validations can be run before changes even get to the global or in-country processor. Changes can be forwarded through automated integrations to country processing platforms so manual keying errors can’t happen. There’s a clear audit trail, so if anything does go wrong, it’s easier to see why and put controls or policies in place to ensure it doesn’t happen again.

The benefits of managing payroll in this way are not just related to productivity. It means you can manage your day-to-day work with fewer people and transform the work of payroll administrators from doers bogged down with entering changes and checking payroll results to gatekeepers overseeing the flow of work and managing exceptions. It also means you should get much better results and be able to keep employees happier by paying their bonuses on time and accurately, which in turn reduces the volume of queries coming back to payroll.

But the extent to which vendors can deliver these kinds of benefits differs from one operating platform to another. That’s why we believe the technology platform is a critical differentiator in selecting payroll outsourcers. For example, how rigorous are the payroll validations the system runs? If they are too high level, you could spend as much time checking the exceptions as you would have done checking pay slips in the past. Can you really expect your vendor to train an AI bot to validate every country legislative change as it happens? And when they talk about automated integrations, do they mean all of them are automated or just some of them? How realistic is it that a vendor working with third-party processing partners will have gone to the expense of automating integrations in every one of the countries they operate in?

Ironically, given the rudimentary nature of some of today’s technology platforms, payroll has always been an early adopter of technology. The payroll bureau grew out of the need for multiple companies’ payrolls to share the processing power of massive IBM mainframe computers—a form of timesharing that was far less glamorous than sharing a holiday villa in Miami. Fast forward a few years to the payroll control center (PCC) environment around SAP’s global payroll platform, and SAP has effectively built its own timeshare business. With PCC, you can monitor the steps in processing SAP payrolls in multiple countries and run reports, validations, and controls. You will never need to get your hands dirty by going under the covers to deal with SAP data types again.

However, if you move out of the SAP world and start looking at the coordinating tools used by global payroll “aggregators” and accounting networks, the picture gets a little more uneven. These payroll outsourcers often combine services from third-party partners with their own country platforms, and the platforms they use to coordinate all these activities have evolved in very different ways. Some have built their own sophisticated platforms for coordinating global payrolls. Some use independent third-party platforms. Some are still passing around files manually and copying and pasting data into spreadsheets.

 

Future of Global Payroll Services

These kinds of underlying technology developments will help determine the future shape of global payroll services. For example, as technology has improved, it’s increasingly feasible to add or remove processing partners in individual countries—a kind of “plug and play” approach to building your global network of vendors. This is partly down to advances in programming interfaces, which given a certain level of sophistication in the partner’s IT set up, mean it’s theoretically far easier for a new in-country partner to use a global vendor’s integration specification to plug into its existing technology platform.

It’s also a different way of thinking about global payroll. Several independent global payroll technology platform providers have emerged over the past few years that make this a feature of their offering. Their proposition—similar to that of more progressive aggregators and accounting networks—is that you don’t have to “rip and replace” every country provider you use today. You can simply plug them into this new backbone.

Another critical area global payroll technology is enabling is providing access to near real-time information. Going back to those timesharing days, payroll has always been a cyclical, batch-driven process. Administrators assemble the data during the pay period and then send it off at payroll cut off so the system can calculate the gross to net pay. This means all the work is concentrated into a few days at the end of the month. And worse, you don’t really know what your payment liability is until the payments are nearly due. Equally, the employee doesn’t really know how much they are getting paid until they get their pay slip. With variable pay, those liabilities and payments can fluctuate widely.

Flip that around and have the data be assembled as it’s available and you can move to near real-time processing and model payments in advance. Not only that, but in principle, you can move closer to on-demand pay, where employees build up an earned income and can request money whenever they need it.

 

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David_Longworth

David Longworth is a Director of Webster Buchanan Research, a market research and consulting company specializing in global payroll. Based in California and the U.K., Webster Buchanan helps multinationals of all sizes and at any stage of their global payroll journey from starting out to vendor selection and implementation. To find our more, visit www.websterb.com. Visit our Vendor Listings for more information about Webster Buchanan Research.