Costs are keeping global companies from moving closer to a truly global payroll solution, along with concerns that the vendor will not be able to meet the company’s needs and requirements, and that legal and regulatory hurdles will be too high to clear.
As organizations expand their reach and operations globally, many of the processes necessary to running a successful business become more complicated. One of those processes is payroll. Few things are more important to a business than paying employees on time, in the right amount, and in a way that complies with national, regional and local laws and regulations.
For a global organization, developing a similarly global payroll process is often a challenge. In fact, it is a challenge most companies have not yet overcome, according to a survey of 161 global companies conducted by Ernst & Young.
More than half of these companies (54%) continue to use their existing payroll model simply because that is what they have always done. A much smaller group maintains its current process because of concerns about cost (15%), a lack of confidence in available alternatives (7%), and out of concern over risk and control (6%).
Although 12% of responding companies have found a vendor able to handle their fully outsourced global payroll process, the vast majority of companies have a mix of in-house and outsourced payroll (60%) and a process that is handled completely in-house (28%). The researchers attribute this lack of a full outsourcing to a few issues in the marketplace:
• a lack of confidence that payroll providers can deliver end-to-end solutions,
• lack of operational footprints in all of the geographies in which the company operates, and
• a too-low level of maturity in the payroll outsourcing market.
As a result of this fragmentation in payroll requirements, processes and solutions, companies with global operations use various payroll outsourcing models based on the needs of the local operations and the capabilities of available vendors. About one-third of global companies allow local employees to manage payroll and treat the subsidiary as a separate entity. Another third manage payroll on a regional basis with communication and coordination within the region rather than between locations. Among the remaining third, 19% maintain centralized control over international payroll operations with little autonomy at the local level and 16% manage their entire enterprise, including payroll, as a single global entity.
So what is keeping global companies from moving closer to a truly global payroll solution? Costs, naturally, are the top concern, followed closely by concerns that the vendor will not be able to meet the company’s needs and requirements and that legal and regulatory hurdles will be too high to clear. One respondent noted the difficulty in quantifying the return on investment from such an initiative, making the move toward global payroll a hard sell to the CFO and other senior executives.
Regardless of where they stand on outsourcing or the need to develop a global payroll process, there are a few common issues facing these companies when it comes to payroll, including the ongoing challenge of legal compliance and developing consistent payroll processes across the organization. Resistance to process change at the local level and difficulty in getting buy-in from different parts of the company are also key issues.