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Global payroll systems can cut expenses and improve information gathering.
Payroll consultant Steve Bogner remembers back in the 1990s when he helped big corporate clients such as Procter & Gamble and ConocoPhillips install payroll systems to pay employees scattered across the world.
Nowadays, the big players are not alone.
Bogner, managing partner at Insight Consulting Partners, a human resource technology consulting firm in Cincinnati, says an increasing number of small and medium-sized businesses are setting up global payroll systems to keep track of employees’ pay, benefits expenses and staffing levels in overseas offices.
“Some of the reasons companies do global payroll is to standardize policies, procedures and processes,” Bogner says.
Other companies implement global payroll systems to:
“Almost everybody is globalizing payroll to some extent,” says Felicia Cheek, global payroll practice leader for the Hackett Group, a consulting firm based in Miami.
However, there is no one-size-fits-all strategy when it comes to implementing a global payroll system.
Bogner and other experts say HR professionals who want to set up global payroll processes must first figure out the goals the organization wants to achieve. Then leaders must select the type of system that best fits their needs.
In the past, HR professionals in multinational companies often managed payroll country by country, leaving it up to administrators in branch offices to decide on the best vendor or software. But this can lead to administrative nightmares for the folks at headquarters.
Staff members can soon find themselves juggling hundreds of different systems and vendors because of regulatory requirements that govern how employees are paid in each country. That is because payroll taxes vary greatly depending on the country, province, state or city, experts say. In some countries, employers are even responsible for deducting church taxes from employees’ paychecks.
European countries can be some of the most difficult places to do payroll, experts say. For example, Germany requires that companies handle many government and legislative filings, Cheek says. And in France, the pay statements companies must give to employees can be so chock-full of details that they are pages long, she notes.
Adoption Criteria for Global Payroll Systems
Experts offer these tips to help human resource professionals avoid pitfalls:
Do the math. You must have a critical mass of employees to justify the expense, says Rajesh Ranjan, director of human resources outsourcing research at the Everest Research Institute. If you go forward, figure out what kind of global payroll model you can afford. Will the cost of moving from a country-by-country system to a global one pay for itself?
Recognize that saving money is not the only reason a company should go to a global payroll system, says Keith Rodgers, co-founder of Webster Buchanan Research. If you have a highly automated payroll system, you might not realize much cost savings. And the system might cost more to operate in countries where staff sizes are smaller. Yet the low savings and possibly higher costs in some locales are worth it if a global payroll system puts you into regulatory or legal compliance and helps avoid fines and lawsuits, he says.
Decide why you need to move to a more global payroll system, and select a vendor that specifically meets those needs. Are you trying to get into regulatory compliance in particular countries, make payroll administration easier or simply cut costs? You need to know before selecting the right vendor, says Cheryl Spielman, a partner in Ernst & Young's human capital practice.
Remember that payroll can get complicated and you need a vendor that can provide solutions on sticky issues, Spielman says. For instance, can a local provider you picked to do payroll in France handle the situation if you hire an employee for the French office who is from Nigeria and for whom you must follow Nigerian payroll tax rules and regulations?
Evaluate your existing payroll vendor or payroll software for a particular country. Can you build on the services, or do you have to start fresh? Talk to your current vendors for referrals because they may have connections to other companies that provide the services you seek, Ranjan says.
Do an inventory and determine where your employees are, what type of compensation they get and what kind of equity programs you offer before devising your global payroll plan, Spielman says.
Make sure the system you choose can support the languages in the countries that you operate in, Ranjan says.
Don't move too fast, Rodgers says. He has seen managers in multinational companies rush and shortlist potential global payroll vendors before adequately assessing where they are and where they want to go with payroll. "In the vendor selection cycle, we suggest they take a step backward, review some of their assumptions, and refine their strategy or business case."
Examine the regulatory requirements of each country where you are working to determine what level of service you need in each locale, Ranjan says.
Plan for expansion, says Felicia Cheek, global payroll practice leader for the Hackett Group. Select an agile global payroll vendor that can easily accommodate growth when, for example, the 10-person Argentina office suddenly grows to 100 employees.
Keep an eye on global payroll vendors that outsource to other companies, Cheek says. If something goes wrong and your workers don't get paid or there is a regulatory problem in a particular country, you don't want a vendor that is going to make excuses and pass the buck to a contractor, leaving your company in the lurch.
Select an accountable company that offers a single point of contact, especially if the vendor is serving an entire region, Cheek says.
Keeping up with all the payroll laws, taxes and regulations in different countries can be a formidable task for HR and accounting staffs, even with vendors in each location.
The problem can get so bad that some business leaders may not know exactly how much employees are being paid in salaries and benefits, who is being paid, or how many employees are on overseas payrolls, experts say. Hence, companies are adopting integrated, global payroll systems.
How to Choose a Model
While the market for global payroll systems remains highly fragmented with numerous local and regional companies, larger vendors such as Automatic Data Processing Inc. and Ceridian Corp. can handle payroll for companies that have thousands of employees. But finding one vendor or using one type of software to handle all your global payroll needs can be a tall order.
“Can you get one provider that does Europe and one provider that does Africa? We are seeing companies trying to find solutions along that line,” says Cheryl Spielman, a partner in Ernst & Young’s human capital practice.
Rajesh Ranjan describes two types of global payroll systems. The first is a single platform solution where one vendor does payroll for a particular region, explains the director of human resources outsourcing research at the Dallas-based Everest Research Institute. The second is an aggregate solution where local vendors do payroll country by country or regionally and the data are “aggregated” or collected and sent to headquarters.
Many companies are so large and operate in so many places that they use a hybrid of both models, Ranjan and other experts say. For instance, a company may use a payroll vendor such as Ceridian in countries where they have a large employee population and use local vendors or accounting firms in locales where they have an office with only 10 or 15 workers. Payroll data can then be aggregated in one place so business leaders can look at total payroll.
Setting up a global payroll system can be time-consuming and expensive. Experts say companies should be prepared to spend at least $100,000 and as much as $250,000 per country. Because payroll requirements vary greatly depending on the company, the cost depends on the number of locations and the number of employees in each place.
However, Spielman says the knowledge gained from implementing a global system can be worth the cost. Executives with detailed, up-to-the-minute data on what they are paying employees and what a country’s payroll tax rates and regulatory expenses are can more quickly determine whether the cost of doing business there is worth it or if the enterprise should pull up stakes and move to another country, she says.
Keith Rodgers says executives who decide to set up global payroll systems face a host of hurdles. Some of these hurdles involve practical issues, such as dealing with language and time zone issues.
However, the co-founder of Webster Buchanan Research has also encountered deeper, more-fundamental problems, including internal opposition to payroll system changes. His company, based in San Francisco, London and Singapore, specializes in multicountry payroll and international human resources.
“Multicountry payroll projects frequently run into resistance at a country level,” Rodgers says. “Aside from common fears about loss of control and reluctance to adapt the status quo, international centralization can seem counterintuitive to individuals who’ve built a career out of understanding the peculiarities of their local country requirements.”
HR leaders must consider whether their staffs have the experience to manage multicountry payroll projects, Rodgers adds.
The author is a Maryland-based freelance writer.
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