Global Payroll: The consequences of doing nothing
29th March 2023, Wednesday
Payroll is the central contract between employee and employer and involves a monthly or periodic payment. Payroll departments calculate the employee earnings, factor in tax elements, include any relevant benefits such as bonuses and commissions, deduct expenses where applicable and arrive at a final amount for bank transfer payment and payslip generation.
Global payroll is when this process is repeated for multiple countries and even continents. Additional complexity comes into play here in the form of local country nuances: labor laws, local country deductions, compliance obligations and international currency. This process really requires a technology-based payroll solutions to help global payroll teams manage all of the requirements in an efficient way
Local payroll focuses on a single country while global payroll is about payroll processing and delivery across multiple different countries at the same time- the ability to pay a globally dispersed workforce accurately and on time every pay period. It is often referred to as multicountry payroll.
This is the data gathering, cleansing and calculation stage. It is often the most laborious and time-consuming stage of the process as payroll data is often housed in multiple different systems inside an organization. Data is collected, checked and validated and then prepared for transfer to the payroll calculation software or engine.
This is the payroll processing stage where final confirmed payroll outputs are again checked and approved in preparation for the official payroll run.
This involves the process and scheduling of bank file payment transfers to a company’s employees along with the generation of payslips. This is also the reporting stage where mandatory statutory reporting is to be completed along with the preparation of financial account information and additional reporting.
The above illustrates a typical global payroll process at multinational companies today.
The delivery and management of global payroll at international organizations today is often defined by a range of challenges that have caused global payroll managers and business leaders to seek out a technology solution to help solve these challenges in the present day while preparing the payroll department for future challenges coming as a result of a much-changed working environment in a post pandemic world.
Complexity stems from multiple dataflows being required for global payroll and these data flows arriving from multiple different sources: HCMs, payroll software, finance applications, time and attendance software, benefits systems and local country payroll providers. There is a lot to manage and when you consider these complexities apply to each individual country, it is not hard to see how things can become difficult from an operational control angle.
A major challenge with global payroll processing is the reliance on manual data entry, excel spreadsheets, e-mail data transfer and legacy technology that is no longer fit for purpose. Payroll calculation tasks can be very slow and time consuming due to the manual nature of the process-there is also significant risk of human error. In 2023, a business-critical service like global payroll should not be processed via manual entry and excel spreadsheets. Hours and days can be spent on this time-consuming work and global payroll professionals working in these teams express a strong desire to have these processes replaced with automation technology which would free up their valuable time.
Global payroll delivery relies on data coming from multiple sources, especially related departments like finance and human resources. Receiving this data manually or being forced to duplicate data across systems is a significant challenge. Integrations connecting the payroll ecosystem are absolutely essential: bidirectional data flows should happen between payroll, HR and finance systems and powerful, automated integration technology is needed for this to happen in a seamless way. Without integrations, too much time is spent moving crucial payroll data between systems.
Global payroll is complex and nuanced-to achieve full visibility and control over multicountry payroll it is essential to have comprehensive and consolidated reporting. Data from multiple countries and sources needs to flow into a single location for data extraction and reporting/analytics. Reporting needs to be consolidated at a global level as well as comparative across countries so that labor costs can be analyzed and fully understood. The challenge at many organizations today is that this reporting does not exist. The reporting they receive from payroll partners and outsourced vendors tends to be basic and not fit for purpose. It is not able to meet increasing requests from leadership teams around payroll data.
Payroll is local to each country so there is always a need to engage with local country expertise in the form of payroll providers. They calculate payroll and pay employees on the ground in the specific countries. At a global level, the number of local vendors can be high, they need to be managed and this can be a challenge due to different culture, currency and time zones. Getting usable data back from these vendors is also a challenge as each local vendor will process payroll in a different way and you end up with non-standardized data.
Multicountry payroll compliance is becoming more complex and nuanced, especially in the new post COVID working environment which is attempting to create frameworks for a globally mixed workforce of permanent employees, remote workers and teams, contractors, temporary employees and expats as well as employment of record (EoR) workers. Labor and tax laws are unique to each country, there are different document filing deadlines and all of these are subject to change on a regular basis. Getting a clear handle on compliance at a global level is a major challenge for payroll teams but it is one that must be met as ultimately compliance is the responsibility of the global employer and there can be significant financial penalties as well as reputational damage for compliance failure.
Manual data entry and human error are major compliance risks which should be removed from the payroll process. Hugely sensitive payroll information being transferred via e-mail and spreadsheet is a glaring data security risk and a strong target for online fraud and cyber criminals.
Another big challenge in global payroll delivery and management is the urgent need to develop a single way of working across countries in terms of process, workforce management and data. If a company has to pay employees across 15 different countries, then it is essential that they standardize the process. Otherwise, they will end up with 15 different processes in 15 countries, non-standard data, disconnected systems and zero visibility and control over their payroll process from a country-specific or global perspective. If a payroll team member is on sick leave in one country, there is very limited ability for a colleague in another country to pick up that country’s payroll, because the process and data formats are completely different due to lack of standardization.
A common occurrence is for companies to set up running payroll in the beginning with in-house payroll software or payroll service provider and pay the employees they have in a single country. What happens next is they grow, sometimes on an extremely rapid basis-adding five to seven new countries in a single year. Then they have to find a way to pay all of the employees in these countries, so they go out and engage with local payroll experts & vendors to ensure they meet their payroll needs in a compliant way.
Many companies simply did this on an ad hoc basis without really considering how they would manage things on a global level. The result is lots of local providers, disconnected data flows, different processes in each country and no global view. This is the kind of scenario that makes it very difficult to manage multi-country payroll.
Payroll is essentially local-every country will have different employment laws, labor laws, tax laws, local laws, local regulations and nuances that need to be adhered to as well as cultural, language, currency and time zone differences. For these reasons, it becomes necessary for multinational companies to engage with local country global payroll providers or vendors-these are local payroll companies who understand the local country environment and take on the duty of paying the employees of the multinational in the specific countries in which they operate in.
Because payroll is local, complex and nuanced-there is really no way around this-companies with a global presence will simply have to engage with local vendors to make sure that their payroll operations are in full compliance with local labor and tax laws. Only local expertise can ensure that this happens in a way that mitigates the risk of non-compliance for the global employer, who is ultimately responsible for accurate tax filings and all local compliance.
From a centralized global payroll team perspective, there will be a strong desire to source and engage with the most competent and professional local country vendors out there. There is an opportunity here to build up positive relationships with local vendors and avoid local country payroll headaches. The ideal scenario is for the global company to maintain full control in terms of choice and selection of local country vendors. It is important to note that those who choose the aggregator services model route end up surrendering choice and control in this area-instead they are restricted to the number of local vendors that operate inside the aggregators network.
A technology solution in the form of a digital payroll platform is needed for efficient multicountry global payroll management. Technology is required to meet all of the challenges involved with global payroll and it is also needed to help multinational companies manage all of their payroll countries, employee types and choice of local country payroll providers in an efficient way. Here are some of the ways a technology platform can help:
Automation: Hyperautomation can be introduced to replace excel spreadsheets and manual data entry-this can result in huge time savings and productivity gains. Crucial payroll data workflows can be automated from pre payroll inputs right through to post payroll outputs such as reporting add bank file generation
Integrations: Technology can connect payroll with the wider ecosystem and ensure bidirectional data flows between payroll, HCM/HR, benefits, finance and local vendors. this can harmonize global payroll operations and ensure seamless data sharing between related departments
Reporting: Digital technology can pave the way for data extraction and consolidated multicountry reporting-this level of reporting ensures you can see exactly what is happening across all of your payroll countries and provide essential global payroll reporting to meet specific stakeholder needs across the business
Payslip is a digital SaaS platform and the leading automation technology for the delivery & management of global payroll at large multinational companies.
Payslip automates and standardizes all of the multi-source data flows so that they flow into a single platform. The data formats are the same across all countries and automated payroll workflows drives new levels of efficiency.
The platform integrates all the key players in the global payroll ecosystem so that data flows seamlessly between local country payroll providers, HCMs and finance applications. Payslip helps you create a unified work model across HR, Finance and Global Payroll, creating a single system for payroll execution.
Consolidated data produces multi-country reporting– this is detailed and comprehensive reporting where you can get a global overview while also being able to drill down into the micro details that tell the story behind the data. This is what business leaders need for actionable insights.
The payroll professionals using the platform benefit from dashboards, communication tools, system alerts and compliance calendars.
This is technology driven payroll: automation, integration and digital tools & reporting. All combine to eliminate errors and reduce manual work, making it easier for payroll professionals to run payrolls across several countries every month, for the entire workforce. A single way of working across countries with a clear dashboard view of what is happening.
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29th March 2023, Wednesday