Global Payroll: The consequences of doing nothing
29th March 2023, Wednesday
Gartner published their 2022 Market Guide for Multi-Country Payroll Solutions on 5th September, and it contained some game changing revelations.
The timing could not have been better -helped shorten my long-haul flight to Las Vegas (for HR Tech conference) and I was gripped from page one.
So much to talk about but I’m going to narrow it down and focus on 2 massive statements they made.
Finally! Calling it like it is. And always was. The mystery is why this is a surprise to anyone.
Payroll is Local. It’s a fact of life. Every country does and will continue to own its own tax, social security, compliance filing, reporting, deduction and budgets. Countries will decide themselves and this dictates what companies have to do to meet their employee and employer compliance needs.
The myth, propagated for many years, that there could be one ‘truly global payroll solution’ defies all logic. Every country has its own labor laws and taxes but there is no clamor for a single labour law solution or single employment tax compliance solution.
Personally, I think this ‘one global payroll solution’ myth is based on an unrealistic comparison between the US domestic payroll management model and the rest of the world.
It is generally accepted that ADP were pioneers and led the US domestic payroll market by building out multi-state US payroll engines that could cater for the massive complexity of US Federal, State and Local taxes and all the intricacies that went with it. Result- massive complexity catered for in one engine.
Unfortunately, this model isn’t a cookie cutter for the rest of the world and just doesn’t work when applied to 51 EMEA states or 51 Asian states. It’s apples and hotdogs and a one size fits all model that, well, doesn’t fit.
Fundamentally the US payroll environment, although complex in itself, is built on a commonality of structure that lends itself to one unified US payroll engine. The diverse rules, regulations and requirements across the rest of the world don’t have the same structural commonality. So, there’s a different requirement.
The whole topic of ‘Global Payroll Management’ has been framed for years as a ‘Global Payroll Vendor Management’ question. How do we manage all the vendors – they are so different? All countries are different, it’s a diverse world. So how and why would local country providers be the same? There’s a church tax in Germany and would you expect local pension reporting in Japan to be the same in Luxembourg?
Gartner recognizing that global payroll has ‘complex regulatory requirements’ means we can all get on the same page and move forward. It’s about managing different country payrolls across these in-country complex regulatory requirements.
The report also has this gem of a statement on page 5 when describing that global employers will…
Completely logical-a global employer in more than 10 countries will use ‘a combination of two or more’ of these models. ABSOLUTELY.
Super large global companies may have 80 countries- maybe 20 countries with 2-5k employees each (head) and then another 60 countries with less than 2k each (tail). So, the natural strategy is to have In-House Payroll Administration Software on SAP/Oracle for as many of the top 20 countries as possible or to outsource to ADP Globalview.
But what about the rest? They have to have a second model. There has to be a strategy and a management plan.
What we see is that companies divide their countries into pillars and often have 3 or 4 pillars. After the super large countries, they then bucket them into regions or sizes (employee numbers), or they may have a ‘messy bucket’ of really complicated ones. Either way, payroll is STILL LOCAL, so they still need in-country expertise. And then a plan for managing these local providers they cannot do without.
Here’s how this plan often plays out: go with ADP Globalview and manage a bunch of countries on Streamline and opt for one of the Big Four Accounting firms or specialist payroll bureaus to provide the in-country expertise and service across the other countries.
Regardless of what model they may have, the complexities Gartner refers to feed into a myriad of data flows, payroll calendars, filing obligations and work across HR, Finance, benefits vendors and the global/local payroll teams. So, whether it is 2 or 4 service models, the global payroll process end-to-end still requires a central standardized management model.
It’s a massive recognition from Gartner that the one services size fits all approach has never really worked and global companies are embracing the reality of the hybrid model solution- they don’t really have a choice, the ‘truly global service solution’ is a myth, and every payroll country will need country specific expertise.
Payslip fully agree with these conclusions from Gartner, and we know that our clients are already aligned with the concept of covering half or more of their payroll process using a hybrid payroll services model.
What we see developing as best practice and a popular model mix is a contract with a Big Four accounting firm for some countries and other countries assigned to regional specialists, e.g., Tricor in Asia or country specific partners for high requirement / complex payrolls or those countries with the executive team.
In Payslip, our technology standardizes the global payroll management across all countries. It doesn’t matter to us what service or calculation models global companies choose to use. So, there is no need to seek out ‘one truly global services solution’, the diversity within each country can be accommodated and supported, while having one global management solution. Payslip delivers the ‘one truly standardized and automated global payroll management solution’ as recognized in the Gartner 2022 Report
Global payroll is finally being recognized as a mission critical global business process, standing equal to finance and HR processes. It deserves First Citizen technology for its global payroll operations and reporting. Hyperautomation and digital transformation is now an accepted requirement. Gartner have recognized this in its new category “Payroll Integration and Compliance Platforms” to reflect the changing landscape.
In a nutshell: We can all stop looking for the ‘one global services solution’- it does not exist.
Payroll is local. Hybrid is normal. And there is a way to make it all work.
*Gartner, Inc. “Market Guide for Multicountry Payroll Solutions,” by Ranadip Chandra, Ron Hanscome, Sam Grinter, John Kostoulas, 05 September 2022
Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.
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29th March 2023, Wednesday