Mergers and acquisitions are common in the business world. They happen all the time as multinational companies look to expand activities into new markets and take over other companies whose products and services are aligned with the parent company’s overall strategy for growth and global expansion.
One interesting consequence of an acquisition is the range of challenges it presents to a global payroll department. All of a sudden, they find themselves with an entirely new company or entity on their books and they are now responsible for paying what could be thousands of new employees scattered across different countries.
All of these employees were previously paid by the origin company, this origin company had their own global payroll process and their own payroll system and software. Now it all falls to the new owner to integrate these new employees into the parent company and make sure employees are paid accurately and on time every month.
In this article, we will take a look at a few of the payroll challenges that can arise for international payroll professionals as a result of acquisition activity at enterprise companies around the world.
New local country vendors
So, the global payroll department now has to get down to the daily business of delivering and managing payroll for a whole new group of employees who are located in different regions around the world. Inevitably, this means engaging with new local country global payroll providers in these countries. There is a need to engage with these local payroll vendors as they will have the local expertise and knowledge of all the local country nuances, labor and tax laws, compliance, and regulatory obligations.
Local country vendors will also likely have the local country banking connections to ensure that the payments are transferred to the employees accurately and correctly. The parent company is already likely to have a large network of local country vendors to manage, now the global payroll department is faced with the challenge of on-boarding and integrating these new local country vendors with whatever existing payroll model and process they follow.
This could be a real challenge for the payroll function as the local country vendors will be operating with their own payroll management software and data. This data and software may not easily integrate or connect with what the parent company has, so there is a data, integrations, and standardization challenge that needs to be managed. There is also the day-to-day handling of payroll operations with these local vendors, time zones, currency differences, cultural differences and varying levels of customer support come in to play here.
It can be a challenging time for payroll services , especially for the first few months as payroll teams from the parent company’s global payroll department get used to their counterparts in the local country vendor operations. Strategy and plans need to be in place to ensure a smooth transition and ensure that there are no delays or errors with payroll for the employees of the newly acquired company.
International global payroll compliance
Compliance is always a tricky subject; it can be something of a moving target as legislation changes all the time. Once again, local country knowledge and expertise is essential here. The centralized global payroll department of the parent company needs to fully understand and be aware of the legal and regulatory compliance obligations when moving into new countries where they are going to be paying the employees of the newly acquired company.
The parent company need a compliance calendar of significant compliance dates as well as full awareness of labor law legal obligations, plus key filing dates for tax returns and other essential employee pay related documentation. Depending on the size of the company, they may or may not have a compliance department who can help them monitor this, it is quite likely that the parent company will need to engage with a local country legal or accounting firm that can provide advice and best practice in the new countries they are providing payroll in.
One thing is for certain, compliance needs to be taken very seriously. Financial penalties are on the rise for compliance failures. The last thing that any company wants is to fail in their compliance responsibilities and damage their reputation or public image. If these mistakes are made, then the company might become known for its inability to uphold their compliance obligations and deter any future companies from working with them or merging with them. Compliance must not be neglected, otherwise these potential compliance issues and failures could become a reality.
Compliance is both local and global these days and a parent company is ultimately responsible for global compliance regardless of how much outsourcing of services it does. Constant vigilance is needed to make sure no mistakes are made and that the parent company is always on top of its compliance obligations.
Standardizing the global payroll data
The global payroll department at the parent company may find themselves with over a thousand new employees to pay- they will then engage with local country vendors to make sure that this happens. One challenge that comes with this is employee data coming back into the global payroll team in non-standard formats. When you have a data standardization issue, you also have a subsequent reporting problem, if data is arriving from multiple sources in different formats, it makes it very difficult to create digestible and understandable real-time reporting on what is happening across your payroll countries.
This is a problem because leadership teams need to be able to compare payroll and labor costs across countries in a standardized way and ideally view figures in a single currency. This is needed to get a handle on payroll and labor costs so that they can make strategic decisions about recruitment. A digital technology platform with integration capability is usually required here, this is about consolidating all of the data from all of the different vendors into one place so that this data can be extracted and then converted into standardized reporting which can deliver some meaningful analysis and insight.
More employees mean more data and more systems, you will always need local country vendors, so vendors are not the problem. Essentially, you are left with a data challenge, you need to consolidate all of the data onto a single platform and make it comparable. Integration software can really add value here, it has the capacity to connect different software systems and allow the data to flow into a single location for reporting and analysis. When an acquisition happens, there will always be a need for integration functionality to help consolidate the new employee payroll data that is coming in as a result of the acquisition activity.
Acquisitions can create challenges for an organization’s global payroll department, such as the ones that have been discussed in this article, but there are ways to deal with these challenges. Engaging with any new local country vendors will help provide important knowledge about local country labor and tax laws, but a strategy and plan need to be in place to ensure a smooth transition with these new vendors. Upholding compliance responsibilities, as well as standardizing data to access valuable reporting and insights, are key elements for payroll professionals to consider in the aftermath of a company acquisition.
For more information about our Global Payroll Control Platform contact us today.