Like all functions that act as an overhead, global payroll departments are under constant pressure to cut costs. Doing so is particularly difficult for global payroll managers as they need to keep paying employees while maintaining, or even improving, quality of service, but it is possible.
How this article will help The aim of this article is to give global payroll managers some helpful hints on how to reduce their costs in the short-term. To this end, it will explore four options and the advantages and disadvantages of each:
1 Outsourcing
In recent years, many more multinationals and growing organisations have started outsourcing part, or all, of their global payroll function. This growth is driven by two factors – cost and quality. Outsourcing firms are often not just cost-effective, but also provide proven expertise in delivering services.
Pros
If you have country or regional payroll teams that are less productive than others, it is likely that the costs of delivering services in these locations will be relatively high. Such a scenario is an indicator that outsourcing could reduce your costs here. A good way to establish global payroll productivity is to calculate the number of employees per head that are being looked after by each payroll team around the world.
But sometimes cost and quality go hand-in-hand. For example, you may be worried about the quality of payroll delivery in some territories because there are too few payroll staff to provide a specialist service. In this case, outsourcing could help you improve quality and cut costs at the same time.
Cons
Outsourcing is not as easy as it sounds, and outsourcing global payroll often fails to deliver all of the benefits expected by the business. To deliver on scope and to budget, a project will typically require upfront expenditure as payroll managers cannot usually do their day job and handle a complex new initiative at the same time.
Also remember that success depends just as much on the make-up of your own organisation as on the behavior of your chosen outsourcer. For example, if your processes are bespoke and manual rather than standardised, outsourcers will require more staff to handle your account. As a result, the contract will inevitably be more expensive and there will be more possibilities for error.
Tip
If you are not sure whether outsourcing is right for you, test it out first. Consider outsourcing payroll when you employ staff in new countries or when existing workers leave the business. It can be a useful way of assessing third party providers before you make a large-scale commitment.
2 Reporting
Improving payroll cost reporting is not necessarily the first idea that comes to mind when managers are asked to cut costs. But it does enable you to gain new insights into your expenditure, which in turn can generate useful efficiencies.
As a measure of good practice, managers should review their spend on a country-by-country basis, ideally looking at quarterly figures produced over the last two years. This approach will help identify countries that cost more per employee than others and where costs are increasing faster than average. Pros
If managers are finding it difficult to gain any insight into their costs, it is all the more reason why they should work with their finance colleagues in order to improve the reports they receive. It is even more likely in this situation that reporting on new areas will shine a light on inefficient practices that present good opportunities to cut costs without reducing quality.
Tip
Ask a helpful finance colleague to assist you in reviewing your payroll costs. A fresh pair of eyes can help provide objective, new insights in order to spot trends that you may otherwise miss.
3 Procurement
If you outsource all or part of your global payroll and already have an in-house procurement function, speak to your procurement colleagues. They can help you reduce spend in relation to existing suppliers, which will mean less pressure to make savings elsewhere.
Pros
If you have long-standing contracts that have not been revised in the last three years or more, your procurement team may advise you to renegotiate or put them out to tender again. They may also be able to employ their analytics tools to identify areas of high expenditure, known as cost outliers, which offer good opportunities for relatively easy savings.
Cons
Be wary about renegotiating with your suppliers too often as it can have unproductive side effects. Outsourcers normally invest heavily in your business at the setup phase so if you continually change vendors they may charge you more and put less effort into your account.
Tip
It can be difficult to discuss costs with a supplier that you know well and depend on heavily. When you begin negotiations, ask your procurement colleagues to join you. This approach makes it easier to raise cost issues in an objective manner without disrupting a good relationship.
4 Reviewing outputs
As any chief financial officer will tell you, the easiest way to cut costs is to reduce output, in other words, to do less. This suggestion may sound impractical for global payroll functions as you cannot simply stop paying staff. But there may be certain tasks you perform that could be cut back upon.
Pros
If your payroll teams provide any non-core services such as answering employee queries or handling pension and benefit matters, there may be ways to reduce them without affecting the payroll operation itself. It might be that they could be handled better elsewhere and you could save on staffing costs.
Cons
Be aware that any changes you make may simply push the workload onto other departments or third party suppliers. Sometimes, this situation will be welcomed by everyone as it may help improve processes and the employee experience. But global payroll managers should always consult with others who may be affected first before making changes.
Tip
Make sure any action that incurs a one-off charge from your payroll suppliers is authorised by a manager first. For example, if retrospective salary changes incur an additional cost, ensure they have been approved. You will be surprised how quickly these items add up - and how quickly they stop if a manager has to sanction them.
Conclusion
The methods outlined can contribute to reducing your global payroll costs in the short term in order to help you meet your targets in the next budget cycle. But if you are concerned over how to make more sustainable cost savings, there are also various techniques to reduce expenditure over the medium- and long-term. We will explore them in the next article.
John Galvin is CEO of awardwinning Galvin International, which provides independent, cost-effective and compliant advice for clients setting up global payroll. John was awarded Global Consultant of the Year at the inaugural Global Payroll Awards. He and his team provide straightforward, fast advice and set-up support for a fixed price in over 70 countries. If you have any queries about the information in this article, or would like to know more, please contact John at john.galvin@galvininternational.com.
Like all functions that act as an overhead, global payroll departments are under constant pressure to cut costs. Doing so is particularly difficult for global payroll managers as they need to keep paying employees while maintaining, or even improving, quality of service, but it is possible.
How this article will help The aim of this article is to give global payroll managers some helpful hints on how to reduce their costs in the short-term. To this end, it will explore four options and the advantages and disadvantages of each:
1 Outsourcing
In recent years, many more multinationals and growing organisations have started outsourcing part, or all, of their global payroll function. This growth is driven by two factors – cost and quality. Outsourcing firms are often not just cost-effective, but also provide proven expertise in delivering services.
Pros
If you have country or regional payroll teams that are less productive than others, it is likely that the costs of delivering services in these locations will be relatively high. Such a scenario is an indicator that outsourcing could reduce your costs here. A good way to establish global payroll productivity is to calculate the number of employees per head that are being looked after by each payroll team around the world.
But sometimes cost and quality go hand-in-hand. For example, you may be worried about the quality of payroll delivery in some territories because there are too few payroll staff to provide a specialist service. In this case, outsourcing could help you improve quality and cut costs at the same time.
Cons
Outsourcing is not as easy as it sounds, and outsourcing global payroll often fails to deliver all of the benefits expected by the business. To deliver on scope and to budget, a project will typically require upfront expenditure as payroll managers cannot usually do their day job and handle a complex new initiative at the same time.
Also remember that success depends just as much on the make-up of your own organisation as on the behavior of your chosen outsourcer. For example, if your processes are bespoke and manual rather than standardised, outsourcers will require more staff to handle your account. As a result, the contract will inevitably be more expensive and there will be more possibilities for error.
Tip
If you are not sure whether outsourcing is right for you, test it out first. Consider outsourcing payroll when you employ staff in new countries or when existing workers leave the business. It can be a useful way of assessing third party providers before you make a large-scale commitment.
2 Reporting
Improving payroll cost reporting is not necessarily the first idea that comes to mind when managers are asked to cut costs. But it does enable you to gain new insights into your expenditure, which in turn can generate useful efficiencies.
As a measure of good practice, managers should review their spend on a country-by-country basis, ideally looking at quarterly figures produced over the last two years. This approach will help identify countries that cost more per employee than others and where costs are increasing faster than average. Pros
If managers are finding it difficult to gain any insight into their costs, it is all the more reason why they should work with their finance colleagues in order to improve the reports they receive. It is even more likely in this situation that reporting on new areas will shine a light on inefficient practices that present good opportunities to cut costs without reducing quality.
Tip
Ask a helpful finance colleague to assist you in reviewing your payroll costs. A fresh pair of eyes can help provide objective, new insights in order to spot trends that you may otherwise miss.
3 Procurement
If you outsource all or part of your global payroll and already have an in-house procurement function, speak to your procurement colleagues. They can help you reduce spend in relation to existing suppliers, which will mean less pressure to make savings elsewhere.
Pros
If you have long-standing contracts that have not been revised in the last three years or more, your procurement team may advise you to renegotiate or put them out to tender again. They may also be able to employ their analytics tools to identify areas of high expenditure, known as cost outliers, which offer good opportunities for relatively easy savings.
Cons
Be wary about renegotiating with your suppliers too often as it can have unproductive side effects. Outsourcers normally invest heavily in your business at the setup phase so if you continually change vendors they may charge you more and put less effort into your account.
Tip
It can be difficult to discuss costs with a supplier that you know well and depend on heavily. When you begin negotiations, ask your procurement colleagues to join you. This approach makes it easier to raise cost issues in an objective manner without disrupting a good relationship.
4 Reviewing outputs
As any chief financial officer will tell you, the easiest way to cut costs is to reduce output, in other words, to do less. This suggestion may sound impractical for global payroll functions as you cannot simply stop paying staff. But there may be certain tasks you perform that could be cut back upon.
Pros
If your payroll teams provide any non-core services such as answering employee queries or handling pension and benefit matters, there may be ways to reduce them without affecting the payroll operation itself. It might be that they could be handled better elsewhere and you could save on staffing costs.
Cons
Be aware that any changes you make may simply push the workload onto other departments or third party suppliers. Sometimes, this situation will be welcomed by everyone as it may help improve processes and the employee experience. But global payroll managers should always consult with others who may be affected first before making changes.
Tip
Make sure any action that incurs a one-off charge from your payroll suppliers is authorised by a manager first. For example, if retrospective salary changes incur an additional cost, ensure they have been approved. You will be surprised how quickly these items add up - and how quickly they stop if a manager has to sanction them.
Conclusion
The methods outlined can contribute to reducing your global payroll costs in the short term in order to help you meet your targets in the next budget cycle. But if you are concerned over how to make more sustainable cost savings, there are also various techniques to reduce expenditure over the medium- and long-term. We will explore them in the next article.
John Galvin is CEO of awardwinning Galvin International, which provides independent, cost-effective and compliant advice for clients setting up global payroll. John was awarded Global Consultant of the Year at the inaugural Global Payroll Awards. He and his team provide straightforward, fast advice and set-up support for a fixed price in over 70 countries. If you have any queries about the information in this article, or would like to know more, please contact John at john.galvin@galvininternational.com.
