More often than not, companies that see significant rapid growth often do not have time to put the proper payroll infrastructure in place.
Whether the growth is driven by acquisition or business demand, sometimes it’s easier to keep the current payroll solution in place or source a local solution while headquarters has a chance to catch up.
Where this is a good “band-aid” solution, it is not best practice or sustainable.
Let’s talk about the 5 key areas that break down when global organizations operate locally with no global oversight.
Generally, there is a tipping point of when local payroll management is effective for global organizations.
Organizations with operations in less than 5 countries and less than 300 global employees, can typically manage their local payroll compliance via the local solution. Operations of this size tend not to have much risk associated with their local payrolls. The local in-house solution or local provider can look after their employees and ensure that compliance is being upheld.
However, once organizations exceed this tipping point, compliance becomes a challenge and risk creeps in.
When employee headcount begins to increase, so does the employer burden in any given country. If you remember from previous articles in this series, the US is very different from most other countries. The challenge sets in when the headquarter office requires details and descriptions over employer burden, costs associated with increasing headcount and the reliability or speed of which the information becomes available.
- What if your payroll is being operated in-house on a home-grown system?
- What if the system is not being updated with the relevant local tax/payroll changes?
- What if the system is down and payroll cannot be run?
Some of the most recognizable global brands have suffered with exactly that and scramble to make payroll.
Risk to the organization doesn’t just come in the form of month end payroll compliance.
Having only one key person identified within the organization for payroll operations is a single-point-of-failure scenario.
This employee holds all the knowledge and understanding of the organization’s payroll. If this employee gets sick or leaves the organization because they are unable to advance in their career based on the need to keep them in their role, this creates a huge risk to the organization. iI they leave their position, are you confident that payroll can still operate?
With a global solution in place, organizations reduce their overall global payroll risk by 60%.
If you are working with a provider that takes responsibility for your in-country payroll compliance, that’s an 80% reduction.
Your organization will still have responsibility to provide relevant and consistent data, but the burden is than on the provider to execute and deliver. This ensures that your payroll will continue to run as your program grows, compliance is being updated and upheld and there is no-single-point-of-failure relying on a single employee.
How often does this happen? A request from the executive team for information involving headcount, burden of cost or proof of compliance.
Again, programs with under 20 employees, you can most likely piece together a semi-coherent picture of the happenings of the country. But organizations with more than 20 people often struggle with this task.
Having visibility into the operations of your global organization is key to ensuring compliance and the overall employee experience. Chances are, the executive team only hears about systemic issues, or those effecting other key personnel, not the day-to-day struggles of the delivery teams.
As your global organization grows, ask yourself:
- Do I have visibility to global employees?
- Can I quickly access employee data?
- Does it take more than 3 days to get information back from the local countries?
If you have answered yes to any of the questions above, it may be time to consider a consolidated global solution.
It goes without saying that payroll holds the most relevant and important information for any organization, regardless of size. With that said, why are we so complacent with not having visibility to that information?
Having all of your global payroll data in a single place allows for quick access to not only basic operational information, depending on the provider you work with, you now have access to insightful analytics that you can use to strengthen your decision-making efforts.
Understanding where you have operations, how many employees you have, and total burden of costs allows the executive team to make business decisions around the growth of the business.
Payments to global employees tends to be a significant challenge for a lot of global organizations.
Why? In the US, same or next day deposits are the norm and can be achieved relatively easy no matter the solution in place. The same cannot be said for international payments.
Differently complexities come into play when trying to make payments abroad.
- Do the funds have to generate from within the country?
- How long does it take to get local currency to your employees?
- Do you have split payment scenarios?
Not only does this add time into the payroll calendar, but complexity for the payroll teams as well.
Sending payments from the US to Europe can be done rather quickly, 2-3 days in advance depending on currency. What about sending payments to Africa?
For examples, on average, payments need to be initiated 7- 10 days in advance of payroll to allow for enough time for local currency payments to arrive in most African countries.
In some cases, payments must be managed at the local level.
In Mexico, payments must generate from an employer bank account.
In Madagascar, 100% of salaries must be paid in local currency in local bank accounts.
Each country has its own specific requirements around the payments of employees which employers are required to abide by.
If your organization struggles with global payments on a monthly basis, employees are being paid incorrectly or worse not at all, it may be time to look at your options with a global provider.
Centralizing payments to employees give organizations better visibility and control around the funding process. Working it into the payroll calendar takes payments from a ‘’reactive fire drill’’ to a scheduled and deliberate action.
There are a number of payment options available to your organization – for example Immedis offers 3 different funding options for our clients.
- Single International Payment Facility (SIPF) – a consolidated funding request, in a single currency, to cover all global net liabilities. Once the funds are received, Immedis manages all the translations and local deposits. *Best Practice*
- Regional Payment Facility (RPF) – multiple funding requests based on region of payments. Provided in a single currency to which Immedis manages translations and/or same currency local payments.
- Direct Payment Facilitiy (DPF) – providing bank file instructions on payments.
Work with a global payroll provider that has options that your organization can pick from to suit your needs best.
Remember – what works for one country might not work for them all. It’s critical to enlist a provider who has deep sector knowledge on low and high value payment rails.
Organizations with limited integration of systems, pulling together global reports for the board becomes a serious challenge.
It’s difficult and time consuming to get information gathered and once collected its either outdated or unreliable. When your global locations are operating on their own, with no global consolidation, reporting not only becomes a challenge but it’s almost non-existent.
A good friend of mine, who is a global payroll director that manages 25 countries with about 2,500 employees outside of the US, described global payroll reporting as “ransom -note reporting.” He explained how his organization operated each country independently and it was his responsibility on a monthly basis to cut-and-paste information from all the countries into a single report.
All the information was in different formats, local language, multiple currencies and an absolute nightmare to try to work with. It took him about 16-20 hours per month to compile a simple global headcount report.
Let’s split the difference, call it 18 hours per month. At that level, the company is actually spending roughly $2,000 per month for the payroll director to cut and paste data with no value add.
Make sure to look for hidden costs when evaluating a new solution.
I was also recently talking to a major US organization who has been operating for over 20 years. They have operations in over 30 countries worldwide and as their company grew, they turned on payroll locally and nothing was feeding back to headquarters. During our discussion, I asked for a headcount report so I could evaluate their program. It took three weeks to produce and required assistance from payroll, HR, and IT.
Our number 1 suggestion for global organizations looking to consolidate is, wherever you can, integrate and automate as much possible.
If you’re working with a global HRIS system, ask your provider if they can integrate with your local payroll systems. If they cannot, look for a global payroll provider that can integrate with your global HRIS.
Integration and automation is best way to ensure you have consistent and accurate reporting. Integration reduces the amount of duplicate entry for your internal resources, improves visibility and increases time back in the payroll calendar. When in doubt, ask to integrate!
I recently took part in a webinar in association with Kronos ‘Global Payroll Reporting – What Good Looks Like’’ where I go into more detail on global payroll reporting.
Now, it’s no secret, if you have been in the payroll industry long enough you know that payroll technology hasn’t changed much.
In a world where we have information at our fingertips 24 hours a day, why is it so difficult to get payroll information from around the world? I know what my international colleagues had for lunch thanks to Instagram seconds after its posted, however you don’t know how many employees you truly have in Germany.
At least 3 times a week, I have the following conversation,
Amber: “Tell me what you are looking for in a global payroll solution.”
Global Organization: “I’m looking for a single system that I can enter in all my payroll data, for all the countries we operate in, and it processes the payroll on the screen and spits out all the reports.”
Let me tell you as the VP of Commercial Development for a global payroll provider, that solution does not exist and if another provider tells you otherwise, approach with caution.
There is no single platform that can calculate payroll in every country around the world. That solution is much like a unicorn, it would be amazing if it was real but unfortunately, it’s not.
If your organization is operating under a desegregated model, I promise there is hope. There are solutions available that can consolidate and centralize your information. All is not lost; however, you must find the solution that works best for you.
You may be thinking now, so what does exist? Most global payroll consolidators or aggregators have the same basic offerings. They take your information from your global locations and summarize it different ways. Some provide reporting tools only, some a fully managed offering.
A few years ago, Immedis specifically went to the market to identify the gaps in the current technology offering.
Our solution? Immedis is an enterprise level, cloud based global payroll platform that centralizes payroll management and consolidates reporting into a single dashboard, giving you real time global oversight of your business.
One system, centrally managed, secure and reliable. Using process automation, data validation and information security to deliver global payroll in 160 countries worldwide. The focus of Immedis is to put clients in the driver seat of their data and their global payroll operations.
Best in class technology should include the following:
- Data Validation
- Process Automation
- Reporting & Analyics
- Information Security
Read more on – 5 Elements of Best in Class Global Payroll Technology
So, there you have it, the top 5 areas that break down when global organizations operate locally with no global oversight.
Whether you are moving into new territories, consolidating your global payrolls or expanding through mergers and acquisitions, a global oversight of your payroll around the world is critical to your success.