Common problems with payroll providers - and how to fix them Common problems with payroll providers - and how to fix them

Common problems with payroll providers - and how to fix them
31 Aug 2014

In this article, Peter Holland CEO OF EMS Ltd discusses some of the common issues that companies face, which cause them to switch payroll providers, and the importance of fixing underlying problems. 

It is entirely natural for companies not to broadcast their issues and the reasons for changing payroll providers. It is a relationship and thus there is likely to be fault on ‘both sides’. However, their problems, once provided, are usually commonplace.

Companies usually only change payroll providers if there is a problem, for example with communication, cost, IT or compliance. Most will not fully understand the specifics but will know it is ‘not working’.

Communication is central for international companies because strong communication between all parties involved is essential to run a successful payroll. It is obvious, but companies that are growing fast and globally are often are very disparate in the ‘back office’ with the focus being on operations. 

Cultural differences

Late response and time zone delays are problematic, as some issues require immediate attention, which is impossible if the vendor’s office is shut. We recently had to open an office in Houston as cultural differences were affecting the clients’ level of satisfaction with communication and client relations.

For instance, we noticed that Texan people like to do business face-to-face, rather than by phone call or emails and our office in Houston caters for this preference. A single point of contact is essential so the client is clear who addresses questions and co-ordinates the payroll.

When multiple contacts are used, time is wasted and information is often duplicated unnecessarily. International payroll involves a multiplicity of differing processes and both strong communication and an appropriate supporting structure are critical.

Compliance

Compliance and the associated control is arguably the toughest challenge faced when managing global payroll and it is another issue companies commonly share. Security measures are heightening across the globe and it is increasingly difficult for companies to ensure that they are keeping in line with local tax and social security legislation. 

We have noticed that authorities are increasingly auditing companies to ensure that taxes and social security premiums are correctly withheld and paid, particularly in Latin American countries. For example, from January 2014, the Mexican authority requires electronic payroll receipts from any domestic entity paying employees salaries. Taxes are not deductible if the company is not CFDI compliant.

Some companies choose to switch providers if they are unable to meet the local requirements. Non-compliance opens a company up to fines and penalties, which are not only avoidable costs but can lead to reputational damage and even expulsion of the company from that country.

Automated processes

In rapidly expanding businesses, the volume of employees necessitates an automated rather than a manual payroll process. This increases accuracy, speed of processing and compliance.

One of the problems encountered is that the companies’ or providers’ IT system is unable to cater for the large numbers or they have a predominately manual process for data input and validations.

Automated processes remove the chance of errors affecting employees’ payment and reduce the likelihood of sending sensitive data insecurely or via email to the wrong distribution. It is important that data is transferred securely in accordance with EU and US data protection and Safe Harbour legislation. Companies must change providers to move to a compliant process and automation will improve the accuracy and costs. 

Cutting costs

Cash flow is important to all companies and is frequently discussed during transitions. This is particularly the case for small to medium businesses. Organisations are always looking for savings and for processes that are more efficient and reduce the time cash is tied up.

Companies often check to ensure they are up-todate with industry standards by sending out RFIs to discover what is available and to see if there is a cheaper or more comprehensive alternative. To cut costs, some providers are able to interlink items. For example, interlinking expenses with payroll can reduce cost for data transfer, as much of the information is exchangeable. 

The payroll process is part of and directly affected by the business process and providers have to be prepared that there is more than just the payslip price when addressing savings and quality. We have noticed that sometimes the sales stages of the process are disconnected from the transition and hidden costs are exposed for the company and provider once the process commences in earnest.

‘Procurement based on payslip price’ runs into difficulty when vendors charge additionally for emails, conference calls or reporting and what initially seemed like a ‘bargain’ is actually very expensive. The key to this is to have an upfront discussion about all the costs and where savings can be made within the business process and not just based on payslip price. In our experience, the payslip price represents a small fraction of the costs and indeed the possible savings.

With the increased emphasis on compliance and data security, costs and efficiency, running a global payroll is progressively more challenging. Most problems faced by companies are common to others and their issues can be resolved with greater communication and a ‘smarter approach’ during the sales stage and constantly thereafter.

The payroll outsourcing business is growing and global processes need to be refined and not commoditised, as all companies are necessarily different. 

 

In this article, Peter Holland CEO OF EMS Ltd discusses some of the common issues that companies face, which cause them to switch payroll providers, and the importance of fixing underlying problems. 

It is entirely natural for companies not to broadcast their issues and the reasons for changing payroll providers. It is a relationship and thus there is likely to be fault on ‘both sides’. However, their problems, once provided, are usually commonplace.

Companies usually only change payroll providers if there is a problem, for example with communication, cost, IT or compliance. Most will not fully understand the specifics but will know it is ‘not working’.

Communication is central for international companies because strong communication between all parties involved is essential to run a successful payroll. It is obvious, but companies that are growing fast and globally are often are very disparate in the ‘back office’ with the focus being on operations. 

Cultural differences

Late response and time zone delays are problematic, as some issues require immediate attention, which is impossible if the vendor’s office is shut. We recently had to open an office in Houston as cultural differences were affecting the clients’ level of satisfaction with communication and client relations.

For instance, we noticed that Texan people like to do business face-to-face, rather than by phone call or emails and our office in Houston caters for this preference. A single point of contact is essential so the client is clear who addresses questions and co-ordinates the payroll.

When multiple contacts are used, time is wasted and information is often duplicated unnecessarily. International payroll involves a multiplicity of differing processes and both strong communication and an appropriate supporting structure are critical.

Compliance

Compliance and the associated control is arguably the toughest challenge faced when managing global payroll and it is another issue companies commonly share. Security measures are heightening across the globe and it is increasingly difficult for companies to ensure that they are keeping in line with local tax and social security legislation. 

We have noticed that authorities are increasingly auditing companies to ensure that taxes and social security premiums are correctly withheld and paid, particularly in Latin American countries. For example, from January 2014, the Mexican authority requires electronic payroll receipts from any domestic entity paying employees salaries. Taxes are not deductible if the company is not CFDI compliant.

Some companies choose to switch providers if they are unable to meet the local requirements. Non-compliance opens a company up to fines and penalties, which are not only avoidable costs but can lead to reputational damage and even expulsion of the company from that country.

Automated processes

In rapidly expanding businesses, the volume of employees necessitates an automated rather than a manual payroll process. This increases accuracy, speed of processing and compliance.

One of the problems encountered is that the companies’ or providers’ IT system is unable to cater for the large numbers or they have a predominately manual process for data input and validations.

Automated processes remove the chance of errors affecting employees’ payment and reduce the likelihood of sending sensitive data insecurely or via email to the wrong distribution. It is important that data is transferred securely in accordance with EU and US data protection and Safe Harbour legislation. Companies must change providers to move to a compliant process and automation will improve the accuracy and costs. 

Cutting costs

Cash flow is important to all companies and is frequently discussed during transitions. This is particularly the case for small to medium businesses. Organisations are always looking for savings and for processes that are more efficient and reduce the time cash is tied up.

Companies often check to ensure they are up-todate with industry standards by sending out RFIs to discover what is available and to see if there is a cheaper or more comprehensive alternative. To cut costs, some providers are able to interlink items. For example, interlinking expenses with payroll can reduce cost for data transfer, as much of the information is exchangeable. 

The payroll process is part of and directly affected by the business process and providers have to be prepared that there is more than just the payslip price when addressing savings and quality. We have noticed that sometimes the sales stages of the process are disconnected from the transition and hidden costs are exposed for the company and provider once the process commences in earnest.

‘Procurement based on payslip price’ runs into difficulty when vendors charge additionally for emails, conference calls or reporting and what initially seemed like a ‘bargain’ is actually very expensive. The key to this is to have an upfront discussion about all the costs and where savings can be made within the business process and not just based on payslip price. In our experience, the payslip price represents a small fraction of the costs and indeed the possible savings.

With the increased emphasis on compliance and data security, costs and efficiency, running a global payroll is progressively more challenging. Most problems faced by companies are common to others and their issues can be resolved with greater communication and a ‘smarter approach’ during the sales stage and constantly thereafter.

The payroll outsourcing business is growing and global processes need to be refined and not commoditised, as all companies are necessarily different.