What is needed to successfully outsource a global payroll system?

Do you have the internal resources to implement a global payroll system and manage change – all whilst doing your day job?

Whether outsourcing or not, when someone is asked to project manage change within global payroll, they are generally expected to carry on with their ‘day job’.

In addition, any global payroll system or project such as this has to involve company experts, and there will be contributors from Finance, Tax, IT and HR, all of whom are also expected to stay on top of their regular daily tasks.

Nowadays it is a fact of life that we are all required to work as efficiently as possible. But those involved must ensure that they can make the time for such a project, and that this need is understood within the company.

If they cannot, then they need to involve an outside expert to do the ‘heavy lifting’.

Breadth of knowledge and experience

Is there the necessary breadth of knowledge and experience across Payroll, HR, Tax, Finance and IT to drive a successful implementation?

Global Payroll expertise is not a common resource; however, to drive a successful implementation, companies have to involve global experience within their HR, Tax, Finance and IT teams.

Not only is this global understanding essential for compliance and basic requirements in the set-up of the Payroll, but requirements in most countries are unalike, and there may be a need for very different information from what is expected or even allowed to be held in respective home counties.

Is the ‘tax treatment’ of the data understood and able to be collated? How are payments made? And are they tax efficient and compliant?

Generally, to a greater or lesser extent, ERP systems have the Global EE Data such as Name, Home Address, Family Details and EE Number (important for data processing). These ERP systems are commonly the System of Record for that information.

However, most systems do not have the ‘local data’ such as: local bank accounts; payroll elements; and data needed to calculate local payroll or the local element of expatriate/TCN payroll such as CPF, Church Tax (data which is not allowed to be held in the US), Provident Fund, Superannuation, and so on.

These local variations require an understanding within organisations which traverses Payroll, HR, Tax, Finance and IT. They all need to know the meaning and use of this information, how to handle and report it, and the ramifications of getting it wrong.

Though this information should be provided in the course of the transition to outsourcing, there is a need to understand how this will affect the company from the beginning.

How does Global Payroll work in the company currently?

Do you know exactly how global payroll works within the company now? – is it compliant with registrations, tax, immigration, data processing and payments, and aware of the full cost of the existing process?

The importance of this question cannot be overstated, and the details must be answerable. Is your company registered in-country with the authorities? And what is the immigration status of your employees?

This must all be understood to have confidence in the compliance and efficiency of your Global Payroll. When an organisation goes through rapid expansion, a costly oversight is a lack of compliance with the basic set up of operations.

Expansion can be great, but a lack of understanding of the local requirements can result in expulsion instead.

Companies have regularly asked Global EMS to fix a broken process or fit a standard company methodology into very different requirements across countries.

In one case, an organisation was spending additional millions in ‘over-payment’ of tax and unnecessary work through imposing bad process which had been used for many years.

Meanwhile, they were radically cutting costs throughout the business, that, in fact, amounted to less than the over-payments made.

This is never about ‘just give us the Gross’, but is about establishing if you are processing this data correctly, the cost and tax efficiency. Larger organisations often have ‘fiefdoms’ which can be difficult to penetrate.

You will need to establish what are the true costs and responsibilities: who is doing what and when in the process.

In another case, one very large company proudly stated that they spent little in IT software, and that it was done on spreadsheets in India: so, aside from compliance, why would they need an application to help them? In fact, when we went into the detail of that organisation, we found that the error rate and cost of errors far exceeded the cost of implementing even the most basic system.

Beware of false economies, and look carefully at the costs, the refinement of the process and necessary responsibilities within the company.

Again, this task requires experience and an overview of different approaches to be most successful. As stated already: Global Payroll experience is not a common or easily achieved skill.

Company ‘buy-in’

Do you have the company ‘buy-in’, and are you empowered to ensure full and timely responsiveness from all our departments?

I remember taking over a ‘household name’, and as the MD, getting involved in the first call with the Client Company in Russia, which is a complex payroll involving other HR and expense elements to support it. I was reminded by the CFO that he goes to jail if there are breaches, regardless of the prevailing outsourced model. In this case, the call I had was the first time the Russian entity had heard of the move to outsource, immediately making the project more of a challenge from the start.

In Asia, culturally, they are less inclined to outsource compared to the US. If they do, it is important that it is carried out locally as this is more about relationship and not just data processing.

Therefore, as with all areas of the world, they need to be involved in the decision making and ‘buy’ into the change, or it will not work. This means that the driving force within the organisation must understand, be respected, and lead the communications to get this essential support internally before making a change to the model at all.

Resources needed to outsource Global Payroll

Therefore, when deciding on a global payroll provider, organisations need to: define their aims; confirm that they have the necessary resources, skills and experience available; analyse what they are currently doing; and make sure that the outsourcing model is understood throughout the organisation. If there is a lack or shortage of these capabilities, to ensure the outsourcing goes well, external support may be required.

Preparing for BPO (Business Process Outsourcing) and managing the change requires analysis and acclimatisation before you get to it. A diver, pilot, engineer or any professional would establish the aim and supporting requirements before engaging in their respective processes. Similarly, BPO naturalisation prepares an organisation to outsource, progress, and remain in control of a smooth and efficient transition and implementation.

This critical requirement is the core of BPO naturalisation: supporting the internal change management required to prepare for outsourcing business processes.

To help you manage the process of change or to find out more, contact us today – enquiries@global-ems.com