As multinationals push to standardise systems across their global operations, payroll is one function that has come under scrutiny. Keith Rodgers looks at the arguments for and against multi-country payroll systems, and exposes some of the associated challenges
As multinationals push to standardise systems across their global operations, payroll is one function that has come under scrutiny. Keith Rodgers looks at the arguments for and against multi-country payroll systems, and exposes some of the associated challenges
If someone were to tell your payroll team that the work they do in Australia is largely the same as their peers do in Hong Kong, the United States or the United Kingdom, you’d expect a fairly sceptical response. After all, much of what takes place within the pay environment is subject to country-specific legislation and local agreements, from tax calculations to the way that payroll errors are corrected. Likewise, the processes that support payroll-related functions tend to evolve in unique ways at each site, sometimes reflecting the preferences of individual managers, sometimes resulting from short-term fixes that just wound up being permanent. It’s not that payroll departments set out to be different – they simply end up that way.
Once you dig beneath these local requirements, however, there’s a surprising amount of commonality between the way different organisations run their payroll around the world. There may be significant differences in the legislation governing payroll in Australia and the United States – but at the heart of it many of the processes that link time reporting to cheque printing are very similar. In fact, one multinational organisation argues that three-quarters of its underlying processes are common – and that’s comparing Australia with what goes on at the other side of the globe in the UK. Whether you’re bringing a new hire onto the payroll system, handling an employee transfer or managing tax amendments, the story’s the same – the methodologies will differ site to site, but the same core practices apply around the world.
It’s this realisation that lies beneath the emergence of multi-country payroll, an approach taken by a growing number of multinational organisations looking to standardise the work carried out by their different country operations. The drivers for taking this approach vary, but they tend to stem from the same kinds of factors that have encouraged many multinationals to centralise their HR systems and processes in recent years. Standardisation offers numerous benefits, from improving management control and compliance to spreading payroll best practice between different sites, improving execution and cutting costs. There are significant challenges involved – and in many cases, there are good reasons to limit the scope of the rollouts rather than trying to standardise in every country. But there’s also enough evidence from companies who’ve already embarked on this kind of exercise to suggest it’s worth serious consideration.
What makes or breaks a multi-country approach is an organisation’s ability to maximise common processes and working practices, while providing sufficient flexibility to allow each country operation to meet its own unique needs. This is both a technology and a business challenge. From the technology perspective, it requires a system design that separates the underlying payroll ‘engine’ from the functionality that lets users write their own business rules. Instead of having to delve deep into the core system to change lines of software code each time a payroll team wants to amend a rule, this means the underlying engine can be left alone to drive core processes across multiple countries, while the country rules are layered on top and can be adjusted at will.
Multi-country payroll benefits
This approach can bring a number of benefits. To begin with, it cuts down on IT support requirements – instead of hiring different teams of IT and payroll experts to support each country’s application, it’s possible to centralise much of the ‘hardcore’ support and leave just a small number of specialists helping out at individual locations. Better still, the main support team will only be managing one technology ‘environment’ rather than keeping up-to-date with the wide variety of applications that tend to evolve when individual countries are given free rein to purchase their own systems. Given that support is one of the key overheads that contribute to the ongoing cost of running IT applications, this might transpire into a significant saving.
But the benefits extend well beyond the IT department. Firstly, centralisation and standardisation should improve overall management and control. Running multiple payroll applications or outsourced services makes for a relatively complex reporting environment, and it’s often hard to ensure that data is being collated and assessed in the same way. Where the same core engine and database is used, it’s easier to standardise reports, allowing senior management to compare the effectiveness of processes across different countries and also use payroll data to monitor key indicators such as employee costs. Likewise, introducing commonality in payroll processes makes it easier for organisations to conduct audits and ensure compliance.
In addition, standardisation provides an opportunity to replicate best practices across multiple domains. This doesn’t just happen during the initial rollout – rather, as individual country operations evolve new ways of streamlining processes and practices, they become a template for adoption elsewhere. Providers in the market point to the experiences of customers who’ve implemented a common framework for their HR operations. Even where a development request is generated by a single country, many choose to implement the solution globally so that it’s ready as other operations require it further down the line. As providers point out, customers have accepted these principles in HR – payroll is now at the beginning of a similar curve.
Multi-country payroll challenges
For all these benefits, however, it’s important not to overlook the challenges inherent in a multi-country approach. To begin with, any exercise designed to standardise processes and centralise control is likely to run into cultural problems at multiple levels of the organisational hierarchy. Because of the way systems and processes evolve, most departmental set-ups contain anomalies and undocumented practices that rely on the knowledge of experienced administrators – take that away, and you’re eroding a power base. Further up the management chain, there may be some resentment about control shifting away from departments to a central function, and about technologies being imposed from on high. And within both IT and payroll functions, it’s almost inevitable that there’ll be some disagreements over what constitutes best practice.
As with any major system or process change, the solution to many of these issues lies in getting buy-in from key players, both at senior management level and within the payroll function, and in generating quick wins. It’s remarkable how much easier it is to convince the sceptics when you can point to demonstrablebusiness benefits relatively early into a project.
International cultural differences are a further concern, especially where organisational structures determine business processes. In flatter management structures, for example, payroll approval processes will be different from countries that adhere to a more traditional, strictly hierarchical structure. In some European countries, for example, signoff may be possible at a more junior level than elsewhere. In addition, existing levels of automation will vary and it may take longer to encourage some operations to shift from manual processes to an automated central system. In practice, organisations will likely find that system adoption is slower in some countries than others.
In addition to these cultural factors, there are also a number of technical and practical issues, not least when it comes to managing support across multiple time zones and handling high volumes of transactions. While some systems will be sufficiently scalable to handle the largest employee bases, other organisations may prefer to run two or three central sites to avoid any danger of overloading. That doesn’t, of course, detract from the key benefits – two sites will almost certainly be more cost-effective than twenty. In addition, it won’t be practical to attempt to pull every country into the first series of global rollouts, so prioritisation is key. In some cases, particularly with smaller country operations where the existing payroll function performs satisfactorily, there may not be a sufficiently strong business case to support bringing every operation into the multi-country rollout.
Despite these kinds of challenges, however, the argument in favour of payroll standardisation is likely to get a wider airing as multinational organisations look to replicate what’s happening within the HR function. Ultimately, the standardisation paths may even merge – where vendors supply fully integrated human capital management and payroll suites, it’s possible to run multi-country payroll and HR on the same engine and database, giving both functions access to the same data, avoiding replication and allowing events in one discipline to trigger actions in another. That may be some way down the line for many organisations – but with the principles already proven by a number of multinational companies, the push to at least address the standardisation option will continue to grow.
Keith Rodgers is co-founder of Webster Buchanan Research, a market intelligence company specialising in Human Capital Management. For further information visit www.websterb.com.
