There has been tremendous growth in the number and size of multinational companies today, leading to significant challenges in the areas of human resources and payroll.
With the increasing number of employees and office locations, it has become more difficult to control internal processes and establish communication between different parts of an organization. According to Intercomp Global Services research, the number of employees employed by the typical multinational company is 3,500. The average multinational company has offices in seven countries.
Issues concerning human resources (HR) and payroll can become true pain points for multinational companies, especially when a firm"s headcount is spread over 10 or more countries, with fewer than 100 employees in each location. A global payroll system can help.
Implementing a
global payroll system offers these companies many advantages in terms of economies of scale, easy and accurate reporting and general efficiency improvements that come along with any centralization program of this nature. Moving from a disaggregated, local-facing payroll structure to a single global system can drive an organization toward a state of true globalization that might not otherwise have been possible.
There are two main goals of a global payroll system. First, it must help the company comply with local regulations. In addition, the system must be able to ensure compliance with the firm"s global corporate policies, rules and regulations. If an organization is to operate globally, executive management must be assured that the firm is complying with all relevant requirements. This means that the company must stay abreast of and comply with regulations in multiple companies, but it must also make sure it is receiving accurate and swift reports from various offices back to corporate headquarters.
Organizations may choose to outsource the payroll function or keep it in-house. In-house payroll enables companies to comply with both local legislation and adhere to global corporate policies. However, keeping the payroll function in-house can be time-consuming and inefficient, especially in situations where companies have few employees in some locations or where payroll is not one of a company"s core competencies. Hiring and managing a local payroll specialist can be expensive and ineffective.
With an outsourcing option, companies can choose to work with local service providers and manage the specialists themselves, or work with a
global payroll provider. Managing local payroll providers in-house provides several benefits. These firms are familiar with local tax and legal regulations and are likely to complete payroll tasks correctly and on time. However, these firms may not be as adept at meeting global corporate compliance. Local providers are generally less familiar with corporate rules and regulations as an in-house corporate payroll department might be. In addition, if a firm hires a series of local payroll providers, each will provide information in different formats and even in different languages, making it virtually impossible to get any consistent multi-country reports or information analysis, for instance.
If companies manage local providers on their own, they still must control all the processes by themselves and dedicate time and resources to this function. This is precisely what you are trying to avoid.
At first look, a global payroll provider seems to be a better solution. This provider is able to manage all payroll-related questions, comply with local laws and meet global corporate policies. However, many providers are not yet prepared to provide truly seamless global payroll services. Global payroll outsourcing is a relatively new business, and global payroll outsourcing models are not always effective and reliable.
Solution
Payroll incorporates components of both human resources and finance. From data-gathering to compiling, the payroll process includes calculations and reporting as well as integrating the data back into the organization.
Corporate compliance and legal compliance are two separate areas. In general, HR policies can differ significantly from one organization to the next. Complying with corporate rules and regulations will impact payroll as a constraint and not as a driver "" specifically when calculating the gross but not necessarily the net. There are often corporate compliance challenges, and there are often differences in expectations between provider and client. Providers cannot be responsible for corporate rules; they can merely take these rules into account when applying them in any given local legislative context.
Local compliance could be guaranteed by many controls. Facing higher volumes as a core activity allows more easily and systematically spotting compliance inconsistencies. A provider must comply with client policies cross-country. Clients can set up strong messages of integration internally. Providers are able to provide better service and comply with policies in a better integrated and systematic way with a one team/one location approach.
It is possible to achieve both regulatory compliance and adhere to corporate rules and policies. However, the main challenge is miscommunication between provider and company. The comment from an HR manager from a multinational company underscores this issue. "We do have compliance issues. And they mostly come down to the communication between the provider and our company," he says.
A provider with a centralize team and processes, one with strictly defined and highly effective processes, can help. This provider must offer both high-quality services and effective communication. An ideal model is a provider that offers services through a shared service center. Shared service center includes payroll specialists who are familiar with the different payroll-related rules and regulations of that region. And having an entire team in a single place makes it easier to control business processes and manage the team. Shared service centers are widely used in many industries. However, they are typically not widely used in the area of
payroll outsourcing. Few providers use this model for service delivery.
A series of local partners assures that the local provider is up-to-date with all local legislative and regulatory changes. The local partners" special team provides all legislative updates to a service provider on a regular basis. Additional cost savings are possible with outsourced pay slips delivery, even though core functions like gross-to-net calculation are done in house.
Current Payroll Outsourcing Market
Currently, there are essentially two types of companies that deliver services globally. One type uses the vendor management model. These firms hire local providers to manage payroll in each local country. These firms typically only gather information, manage the information flow and provide the data to the client. All gross-to-net calculations and most of the reports are performed locally by hired organizations. While the time to implementation for a company is relatively low since it requires only finding a partner and setting up a working relationship, this model has some weak points. Local providers are difficult to control, so it"s difficult to assure high quality and reliability of each local partner. In addition, not all local providers have a good solution for data gathering. And finally, this model typically proves too expensive for the end client.
Another model is the vendor that provides all services in-house, and has local offices in each country. While the company still must gather all information, this model is more reliable since all calculations are performed in-house. Cost is still a problem, however. Opening and maintaining new offices is expensive and complicated by having to implement standard processes in each location. It"s difficult to control payroll teams and assure high-quality services at each location. These companies typically also have low scalability; they cannot easily cover new countries with their service provision. As a result, more and more companies are moving to the vendor management model, even with its problems.
However a new service delivery model for global payroll outsourcing was suggested by
Intercomp Global Services. Shared service centers are used for service delivery in this model. Service center is located in a selected region and service is delivered from it to a number of countries. This model is likely to manage most of the issues from the two models mentioned above: service provider processes all calculations in-house, that quarantines high quality of services. Cost is cut down since there are no additional margins and no need to maintain own offices in each country. Scalability of the model is high since only new personnel needs to be hired and trained to cover new country. This model also provides easy communications with end client as all team is located in one place. Add proprietary software used by company which delivers state of art technology combined with reporting tools and employee services and you will get a next generation of global payroll outsourcing.
Global payroll outsourcing is a relatively new field, one that is still in the process of development. With multinational companies growing in size, number and scope, there is clearly a need for a new model for payroll outsourcing. Service delivery through local service centers, along with local support, might be a positive next step in this service evolution.
For more information about how Intercomp Global Services can assist you, please contact us:
www.intercompglobal.com
+ 36 21 380 1900
info@intercompglobal.com
