A beginner’s guide to building a case for global payroll – Part two A beginner’s guide to building a case for global payroll – Part two

A beginner’s guide to building a case for global payroll – Part two
13 Dec 2017

If you are keen to encourage your organisation to adopt a global payroll system, it will probably make sense to prepare a business case to back your arguments up. If you are already being asked questions such as “can you make the case for global payroll?” or “how would we pay for it?”, you will definitely need one.

How will this article help?

The aim of this article is to help you prepare a business case for introducing a global payroll initiative. In the first article of the series last month, we explored the basic concepts behind putting together an appropriate business case. This second piece will discuss not only how to write the business case, but also how to measure the true costs and savings that your project will generate.

How to measure savings

In order to understand how much your project will cost or save the organisation, it is necessary to compare current against future costs. Therefore, it is a good idea to create three columns in your business case, namely:
- Future steady state: How much a new global payroll vendor will cost for a full year; - Baseline: How much it currently costs to run your existing payroll for a full year; and - Setup: The project’s proposed one-time implementation costs.

Going through this exercise will help you see whether your proposed global payroll initiative is likely to save money by enabling you to compare future costs against the current baseline. It should also give you a clearer insight into the one-time costs required to make global payroll a reality.

These two facts should provide the organisation with all of the financial data it needs to evaluate whether a global payroll project is worthwhile or not.

As such initiatives can take a number of years to complete, it can also prove useful to break out the business case into monthly and financial yearly chunks so that you can clearly track the transition between baseline and future costs. The finance team should be able to help you set this up in the business case model.

Ongoing costs

A global payroll project is likely to have an impact on ongoing business ones. Here are some of the typical costs that should be included in your business case:

1. New global payroll vendor costs

Your business case should include the full cost of taking on and working with a new global payroll vendor. All payroll costs must be included, including any ad hoc charges that may occur from time to time.

Top Tip: Try to reconcile the numbers in your business case with those in your new global payroll vendor contract to ensure no possible future costs have been omitted.

2. Current payroll vendor costs

The costs associated with your current vendors will cease once you transfer to a global payroll provider. But they should be included in your baseline costs

so you can see whether working with your new supplier is more cost-effective or expensive than doing so with current suppliers.

Also remember there may be contract termination costs if you finish with your current providers. If any of them continue to provide services after the global payroll system has been introduced, these service costs should be taken account of in your business case.

3. Payroll organisation costs

If you need to hire any new employees, for example, to work in a new payroll service centre, these costs should be included in your business case. To offset them, calculate the cost of any staff cuts relating to existing payroll teams and display this cost as a reducing item against your baseline.

4. Payroll-related support costs

There may be other regular costs that are incurred to support your current payroll activities. For example, it may be possible to eradicate licence costs for software that will no longer be required when you move to a global solution. Any costs here should be included in your baseline and removed once they end.

Set up costs

One-time setup costs will likely be necessary to implement your project successfully and can fall into a number of categories depending upon their nature. Here are some of the most common ones that may need to be included in your business case:

1. Payroll vendor setup costs

Global payroll vendors usually require an upfront fee for setting up their systems and processes, which includes the costs of configuration to meet your requirements. The larger and more complex the project, the higher these fees will be.

2. IT setup costs

The IT department may need to be involved in the project in several ways. It might be required to build interfaces between existing company applications and the new payroll system. It could also be asked to help with implementation and to review the new vendor’s systems and data privacy standards.

3. Project team setup costs

If you do not have access to a dedicated project implementation team, it will fall to payroll to deliver a complex project without any additional help or resources. A dedicated team will provide more focus on implementing the initiative on time and without disrupting your routine payroll activities.

4. Restructuring costs

You may be thinking about restructuring the payroll function as part of your wider global payroll project. If the aim is to relocate local teams into a global or regional service centre, it may be necessary to make some existing staff redundant. If the initiative is intended to make your payroll processes more automated and efficient, you may also need to cut the size of some existing teams.

If it is possible to find alternative roles for any displaced payroll staff, no redundancies will be required. But if they are unavoidable, such costs should be included in the business case as part of the project setup costs.

As soon as staff know they are at risk of redundancy, they are likely to look for other jobs. In order to counter this, one option is to offer retention bonuses to give people an incentive to stay and complete the project. Any retention bonuses also need to be included in the project setup cost section.

What is capitalisation and can my project benefit from it?

It is easier to get organisations to accept oneoff costs if they can be capitalised. This means that the costs are written off against profits over the lifetime of the project rather than taken as a single lump sum cost upfront. For accounting reasons, it is rare for payroll projects to be capitalised, but check with your finance team to obtain definitive guidance on this situation.

What about benefits that cannot be measured?

Global payroll offers many benefits that cannot be easily quantified and included in a business case. We will discuss this scenario in a future article.

 

John Galvin is CEO of awardwinning Galvin International, which provides independent, costeffective 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 are keen to encourage your organisation to adopt a global payroll system, it will probably make sense to prepare a business case to back your arguments up. If you are already being asked questions such as “can you make the case for global payroll?” or “how would we pay for it?”, you will definitely need one.

How will this article help?

The aim of this article is to help you prepare a business case for introducing a global payroll initiative. In the first article of the series last month, we explored the basic concepts behind putting together an appropriate business case. This second piece will discuss not only how to write the business case, but also how to measure the true costs and savings that your project will generate.

How to measure savings

In order to understand how much your project will cost or save the organisation, it is necessary to compare current against future costs. Therefore, it is a good idea to create three columns in your business case, namely:
- Future steady state: How much a new global payroll vendor will cost for a full year; - Baseline: How much it currently costs to run your existing payroll for a full year; and - Setup: The project’s proposed one-time implementation costs.

Going through this exercise will help you see whether your proposed global payroll initiative is likely to save money by enabling you to compare future costs against the current baseline. It should also give you a clearer insight into the one-time costs required to make global payroll a reality.

These two facts should provide the organisation with all of the financial data it needs to evaluate whether a global payroll project is worthwhile or not.

As such initiatives can take a number of years to complete, it can also prove useful to break out the business case into monthly and financial yearly chunks so that you can clearly track the transition between baseline and future costs. The finance team should be able to help you set this up in the business case model.

Ongoing costs

A global payroll project is likely to have an impact on ongoing business ones. Here are some of the typical costs that should be included in your business case:

1. New global payroll vendor costs

Your business case should include the full cost of taking on and working with a new global payroll vendor. All payroll costs must be included, including any ad hoc charges that may occur from time to time.

Top Tip: Try to reconcile the numbers in your business case with those in your new global payroll vendor contract to ensure no possible future costs have been omitted.

2. Current payroll vendor costs

The costs associated with your current vendors will cease once you transfer to a global payroll provider. But they should be included in your baseline costs

so you can see whether working with your new supplier is more cost-effective or expensive than doing so with current suppliers.

Also remember there may be contract termination costs if you finish with your current providers. If any of them continue to provide services after the global payroll system has been introduced, these service costs should be taken account of in your business case.

3. Payroll organisation costs

If you need to hire any new employees, for example, to work in a new payroll service centre, these costs should be included in your business case. To offset them, calculate the cost of any staff cuts relating to existing payroll teams and display this cost as a reducing item against your baseline.

4. Payroll-related support costs

There may be other regular costs that are incurred to support your current payroll activities. For example, it may be possible to eradicate licence costs for software that will no longer be required when you move to a global solution. Any costs here should be included in your baseline and removed once they end.

Set up costs

One-time setup costs will likely be necessary to implement your project successfully and can fall into a number of categories depending upon their nature. Here are some of the most common ones that may need to be included in your business case:

1. Payroll vendor setup costs

Global payroll vendors usually require an upfront fee for setting up their systems and processes, which includes the costs of configuration to meet your requirements. The larger and more complex the project, the higher these fees will be.

2. IT setup costs

The IT department may need to be involved in the project in several ways. It might be required to build interfaces between existing company applications and the new payroll system. It could also be asked to help with implementation and to review the new vendor’s systems and data privacy standards.

3. Project team setup costs

If you do not have access to a dedicated project implementation team, it will fall to payroll to deliver a complex project without any additional help or resources. A dedicated team will provide more focus on implementing the initiative on time and without disrupting your routine payroll activities.

4. Restructuring costs

You may be thinking about restructuring the payroll function as part of your wider global payroll project. If the aim is to relocate local teams into a global or regional service centre, it may be necessary to make some existing staff redundant. If the initiative is intended to make your payroll processes more automated and efficient, you may also need to cut the size of some existing teams.

If it is possible to find alternative roles for any displaced payroll staff, no redundancies will be required. But if they are unavoidable, such costs should be included in the business case as part of the project setup costs.

As soon as staff know they are at risk of redundancy, they are likely to look for other jobs. In order to counter this, one option is to offer retention bonuses to give people an incentive to stay and complete the project. Any retention bonuses also need to be included in the project setup cost section.

What is capitalisation and can my project benefit from it?

It is easier to get organisations to accept oneoff costs if they can be capitalised. This means that the costs are written off against profits over the lifetime of the project rather than taken as a single lump sum cost upfront. For accounting reasons, it is rare for payroll projects to be capitalised, but check with your finance team to obtain definitive guidance on this situation.

What about benefits that cannot be measured?

Global payroll offers many benefits that cannot be easily quantified and included in a business case. We will discuss this scenario in a future article.

 

John Galvin is CEO of awardwinning Galvin International, which provides independent, costeffective 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.

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