Over the last few years in the payroll industry, there have been more and more multi-national companies, industry analysts, and market providers jumping onto the “global payroll” bandwagon. Companies are touting the benefits of having greater visibility and control over their payroll by harmonizing and standardizing pay practices while reducing cost and maintenance of systems and providers. Industry analysts are providing insight and consulting services to achieve “best practices” for improving accuracy and timeliness while transforming processing to decrease expenses globally. And, market providers are delivering systems, solutions, and services to meet the expectations of both groups.
But is globalization of payroll the real answer or just the latest trend?
Let’s face it, at a minimum, payroll is required to meet local compliance and statutory requirements of cities, provinces, states, and/or countries. Few, if any, of these local statutory bodies have any interest in what is occurring outside of their local domain and even less with regard to multiple countries, regions or the entire world. Payroll rules, requirements, and remittances are dictated by local governing bodies and frequently change in accordance with local customary practices. Equally important, companies that are operating in these areas have a desire to assimilate to the local pay customs of their surrounding areas to attract and retain the best possible talent to remain competitive. Adopting payroll practices and nomenclature that are consistent with other local companies allow the biggest companies to “feel local” and ensures their local employees clearly comprehend their compensation structure.
So why does there continue to be so much momentum toward the globalization of payroll services? Transparency and control are two of the predominant driving forces. Let’s explore each of them further.
Multi-national organizations are subjected to a broader array of legal and financial regulations than companies based in a single country. These broader obligations require compliance within the local areas in which they hire, retain, and pay employees. Failure to achieve compliance can result in highly visible penalties, fines, and even criminal prosecutions which also can lead to public embarrassment. Visibility and transparency by the corporate entity into the payroll activities occurring within each country provides multi-national organizations with greater comprehension on their risks and their ability to remain compliant with local requirements. In addition, transparency allows companies to comprehend how their payroll dollars are being applied differently across multiple geographies. Tracking items such as cost of headcount, employer related costs, social benefits, and supplemental payments allow the business to develop HR and payroll strategies that are globally and locally competitive which can motivate employee performance and improve employee retention.
Multi-national companies also want to know that the proper controls exist within their local payroll practices and processes to ensure compliance and accuracy. Defining and managing global payroll standards and practices allow companies to establish more consistent controls over the end to end process of payroll activities thereby improving transparency, accuracy and quality. These types of controls and oversight reduce the risk that payroll activities are being conducted locally without proper division of authority and/or appropriate checks and balances. They also provide insight into areas in which payroll results may be negatively impacted by “upstream” factors such as completeness, timeliness and accuracy of payroll related data provided to the payroll team. This can include HR demographic information, internal subsystems that supply pay data such as commission or bonus feeds, and/or third party data feeds. By applying proper controls to these environments, the accuracy of payroll processing improves while the overall cost of processing is reduced. A “win-win” scenario for the employer and employees.
In summary, to develop an effective strategy to “think globally and pay locally”, multi-national companies are seeking more centralized oversight, transparency and control of the local payroll performance by developing global payroll standards and practices. These standards and practices are not designed to hinder the company’s ability to “pay locally” according to compliance or competitive standards in the respective country. But, they are designed to lower financial risks and improve accuracy while controlling costs more effectively.