Implementing a global payroll supplier: The impact on finance Implementing a global payroll supplier: The impact on finance

Implementing a global payroll supplier: The impact on finance
31 Dec 2015

By John Galvin

John Galvin highlights some major impacts on finance of a global payroll implementation to help you identify and plan for these upfront.

When a company implements a global payroll supplier for the first time, it can be difficult to anticipate the knock-on impacts outside payroll. The department most at risk of experiencing unexpected impacts is finance, as payroll and finance are heavily linked.

Tax returns

In my opinion, the biggest risk for finance is that some key international finance tasks are disrupted or, worse still, no longer covered. In particular, there is a danger that compliance tasks, such as tax returns, are impacted by the change to a global payroll supplier.

A good example of this is withholding tax (WHT), which can be deceptively complex. A WHT return can include data from payroll and accounts payable and also royalties, depending on the WHT rules in various countries.

In some countries a WHT return can be provided either by the payroll supplier or the accounting firm, but whoever has control will require information from the other. It is easy to see how this can be confusing and lead to delays or omissions.


Why would a global payroll project affect tax returns?

Accounting, tax and payroll are very well linked. International payroll suppliers are often local accounting firms, who will provide their customers with a combined accounting, tax and payroll service.

So, a global payroll project is potentially quite disruptive for international tax returns, as the payroll data for tax in each country is now provided by a separate supplier rather than in-house.


Managing this risk

At the planning stage in the global payroll project, it is good practice for payroll and finance to jointly review the exact division between payroll and finance tasks in each country. They should look at all tasks that involve payroll and employee information and should make sure that each task is clearly owned by a single supplier after the implementation.

Sometimes this may require the global payroll supplier to take on non-standard tasks in certain countries. This clear accountability should help to ensure appropriate testing during the project implementation, to ensure that all finance related tasks can continue to be executed smoothly after the payroll implementation.

Payroll and reporting

International payroll suppliers generate key financial data for multinational companies. This is because they provide the source data for global labour costs, which are a huge part of the cost base for most international companies. So in other words, every company that outsources payroll has to rely heavily on the payroll supplier’s finance data and reports.

Consistent reporting with separate payroll suppliers

In essence finance departments learn how to ‘map’ the reports from each supplier into the company’s own finance system. Often, the payroll supplier will do this themselves on behalf of the company. These mapping systems can be very complex, depending on the complexity of the company’s own finance system. Also, the company will need a separate mapping system for each country.


Moving to a global payroll supplier can have a positive and negative impact on financial reporting.

On the positive side, if the new global payroll supplier has a single system or database, which covers all international payrolls, then it only needs to build one interface from that system into the company’s finance system. This increased automation could result in improved efficiency coupled with faster and more detailed reporting. It also removes the overhead burden of maintaining many separate mapping systems.

If the global payroll supplier does not have a single reporting system it may be necessary to replace the mapping systems in each country.

Top tip

The company should push for the global payroll supplier to take as much ownership of recreating this mapping as possible. Otherwise the company’s finance team will need to work with the global payroll’s incountry providers to recreate each report in each country. This is a lot of effort to effectively retain the status quo, so it is not an easy sell to your finance team.

The role of payroll in audits

Just as payroll suppliers play a crucial role in payroll reporting, they also play a major role in audits and tax investigations. Every time a company has a financial audit or a corporate tax investigation, the payroll records are a key source of information for the auditor or the tax authority.

Record retention

International payroll records must be retained long after the month and indeed the fiscal year that they relate to. It is one of the reasons why each country has legislation to ensure that financial records including payroll must be retained for a certain length of time.

When a global payroll is implemented, there is a significant risk that vital payroll history will go missing simply due to the number of payroll suppliers that are terminating their relationship with the company. This issue is not usually the responsibility of the global payroll supplier, as the records relate to the previous periods before they came on board.

Missing records

If payroll history does go missing, then there can be severe consequences. In practice, the major risk is that an in-country audit or tax investigation takes a lot longer than it should have done, which increases effort and costs (as well as stress) for all concerned. Generally there will be a scramble to recreate data either by going back to the original supplier or an in-house attempt to rebuild the data. If following all efforts the data can’t be recreated, the company may face fines, higher tax reclaims and more frequent tax investigations in the future.


Managing risk

In each country where there is a change of payroll supplier, there should be a thorough review to ensure that all necessary history has been obtained from the original supplier in line with record retention legislation.

The company should test that it has full and unfettered access to all the payroll history. If any history is on a system that is to be retired as a result of the global payroll implementation, that data should be exported into another storage system where it can be readily accessed.

 

John Galvin, CEO of Galvin International, provides expert, independent advice for clients setting up global payroll. He also finds clients excellent international payroll, accounting and tax partners worldwide. John heads a team of global finance experts and a worldwide network of independent payroll, accounting and tax suppliers. He has 20 year’s CFO-level experience with multinational blue chips and SMEs and has successfully implemented global payroll, accounting and tax in over 40 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.

By John Galvin

John Galvin highlights some major impacts on finance of a global payroll implementation to help you identify and plan for these upfront.

When a company implements a global payroll supplier for the first time, it can be difficult to anticipate the knock-on impacts outside payroll. The department most at risk of experiencing unexpected impacts is finance, as payroll and finance are heavily linked.

Tax returns

In my opinion, the biggest risk for finance is that some key international finance tasks are disrupted or, worse still, no longer covered. In particular, there is a danger that compliance tasks, such as tax returns, are impacted by the change to a global payroll supplier.

A good example of this is withholding tax (WHT), which can be deceptively complex. A WHT return can include data from payroll and accounts payable and also royalties, depending on the WHT rules in various countries.

In some countries a WHT return can be provided either by the payroll supplier or the accounting firm, but whoever has control will require information from the other. It is easy to see how this can be confusing and lead to delays or omissions.


Why would a global payroll project affect tax returns?

Accounting, tax and payroll are very well linked. International payroll suppliers are often local accounting firms, who will provide their customers with a combined accounting, tax and payroll service.

So, a global payroll project is potentially quite disruptive for international tax returns, as the payroll data for tax in each country is now provided by a separate supplier rather than in-house.


Managing this risk

At the planning stage in the global payroll project, it is good practice for payroll and finance to jointly review the exact division between payroll and finance tasks in each country. They should look at all tasks that involve payroll and employee information and should make sure that each task is clearly owned by a single supplier after the implementation.

Sometimes this may require the global payroll supplier to take on non-standard tasks in certain countries. This clear accountability should help to ensure appropriate testing during the project implementation, to ensure that all finance related tasks can continue to be executed smoothly after the payroll implementation.

Payroll and reporting

International payroll suppliers generate key financial data for multinational companies. This is because they provide the source data for global labour costs, which are a huge part of the cost base for most international companies. So in other words, every company that outsources payroll has to rely heavily on the payroll supplier’s finance data and reports.

Consistent reporting with separate payroll suppliers

In essence finance departments learn how to ‘map’ the reports from each supplier into the company’s own finance system. Often, the payroll supplier will do this themselves on behalf of the company. These mapping systems can be very complex, depending on the complexity of the company’s own finance system. Also, the company will need a separate mapping system for each country.


Moving to a global payroll supplier can have a positive and negative impact on financial reporting.

On the positive side, if the new global payroll supplier has a single system or database, which covers all international payrolls, then it only needs to build one interface from that system into the company’s finance system. This increased automation could result in improved efficiency coupled with faster and more detailed reporting. It also removes the overhead burden of maintaining many separate mapping systems.

If the global payroll supplier does not have a single reporting system it may be necessary to replace the mapping systems in each country.

Top tip

The company should push for the global payroll supplier to take as much ownership of recreating this mapping as possible. Otherwise the company’s finance team will need to work with the global payroll’s incountry providers to recreate each report in each country. This is a lot of effort to effectively retain the status quo, so it is not an easy sell to your finance team.

The role of payroll in audits

Just as payroll suppliers play a crucial role in payroll reporting, they also play a major role in audits and tax investigations. Every time a company has a financial audit or a corporate tax investigation, the payroll records are a key source of information for the auditor or the tax authority.

Record retention

International payroll records must be retained long after the month and indeed the fiscal year that they relate to. It is one of the reasons why each country has legislation to ensure that financial records including payroll must be retained for a certain length of time.

When a global payroll is implemented, there is a significant risk that vital payroll history will go missing simply due to the number of payroll suppliers that are terminating their relationship with the company. This issue is not usually the responsibility of the global payroll supplier, as the records relate to the previous periods before they came on board.

Missing records

If payroll history does go missing, then there can be severe consequences. In practice, the major risk is that an in-country audit or tax investigation takes a lot longer than it should have done, which increases effort and costs (as well as stress) for all concerned. Generally there will be a scramble to recreate data either by going back to the original supplier or an in-house attempt to rebuild the data. If following all efforts the data can’t be recreated, the company may face fines, higher tax reclaims and more frequent tax investigations in the future.


Managing risk

In each country where there is a change of payroll supplier, there should be a thorough review to ensure that all necessary history has been obtained from the original supplier in line with record retention legislation.

The company should test that it has full and unfettered access to all the payroll history. If any history is on a system that is to be retired as a result of the global payroll implementation, that data should be exported into another storage system where it can be readily accessed.

 

John Galvin, CEO of Galvin International, provides expert, independent advice for clients setting up global payroll. He also finds clients excellent international payroll, accounting and tax partners worldwide. John heads a team of global finance experts and a worldwide network of independent payroll, accounting and tax suppliers. He has 20 year’s CFO-level experience with multinational blue chips and SMEs and has successfully implemented global payroll, accounting and tax in over 40 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.