What to consider when switching payroll providers What to consider when switching payroll providers

What to consider when switching payroll providers
30 Nov 2015

It can be quite a task to change payroll providers, especially when looking at multi-country deals. Switching the bank details of a handful of staff is not the only thing to worry about. There are foreign exchange considerations, large-scale rollouts and handover periods to consider.

It's important to take into account the following before switching providers:

Cost and accuracy

If you get an employee’s pay wrong once, you will hear about it. If you get it wrong again, there is a serious issue somewhere in the chain. The reason you engage a third party to take care of your payroll is to ensure someone is there putting time and effort into ensuring accuracy. If that accuracy is absent, chances are you’ll be combing the contract looking for an escape clause.

Changing legislation

Brazil is moving to electronic reporting for tax, social security and labour information - and they’re not the only ones. Government legislation is a changeable beast and your payroll solution must be flexible enough to react at the right time in the right way. What used to be fine to control in-house might suddenly become a burden that is best dealt with out of the company.

Systems

Sometimes even the best software solutions become obsolete, replaced by newer, faster, more ‘sparkly’ solutions. Vendors and developers move on. If you’ve just signed a new five-year contract, what clauses are in place to ensure the software used to pay your staff remains up to date and can access service support when necessary?

Change in organisation

Company strategy changes. What worked for you last year might not necessarily be right next year. Your company could be subject to mergers and acquisition, there could be a change in the c-suite, and management might decide on a group-wide rollout of a new IT system that renders your payroll software useless. You never know what is around the corner, and that can drive a payroll manager to keep up to date with the latest payroll solutions. Just in case.

Relationship issues

Any one of the above might cause relationship issues, or it could just be a bad fit from the start.You need a partner that provides a single point of contact, wherever you are in the world. While payroll isn’t typically viewed as a “strategic” business unit, building a global payroll strategy for countries of all sizes becomes increasingly important as companies look to impose central control over their international payroll operations. Historically, most multinationals were content to run payroll on a country-by-country basis - not least because different legislative and organisational requirements made it difficult to do anything else. Today, there is a growing acceptance of the value of improving central control over payroll through a multi-country payroll programme, whether for compliance, cost, efficiency, risk management or other reasons.

In research conducted by Webster Buchanan, commissioned by TMF Group, five factors emerged as essential considerations when defining a multicountry payroll strategy that involves smaller countries and smaller payroll populations.

Controls and compliance

Because of limited resources, many companies take a risk-weighted approach to managing compliance in their smaller countries, assessing both the likelihood and potential impact of compliance issues.

Organisational design

To overcome local resource limitations, some organisations look to absorb build-to-gross and vendor management activities into existing shared services centres or regional hubs.

Cost equation

The cost per payslip for running smaller countries may be higher than larger countries of similar complexity, given the lack of volume and associated economies of scale.

Cross-functional roles

In many smaller countries, the individual responsible for managing payroll may also be responsible for other business functions such as HR administration or accounting. In these cases, outsourcing or otherwise restructuring payroll will therefore only impact parts of a role and companies may need to take a broader, multi-function approach.

For companies setting up small populations in new countries, there may be a case for sourcing a single provider offering a range of services such as accounting, HR administration, payroll, legal and company secretarial services

Systems set-up

Smaller countries do not typically enjoy the same level of system sophistication as their larger counterparts. In particular, building interfaces from central HR systems to payroll may not be economically viable in some smaller countries, and an alternative means of providing the upstream data to payroll may need to be adopted.

Within this overarching business framework, a multi-country payroll strategy will encompass all aspects of an end-to-end payroll service, from organisational design decisions to global governance, and take account of a variety of factors including:

• The nature of the multinational’s business and the sector in which it operates
• The size and type of employee populations (for example, whether they are salaried or hourly employees)
• Payroll operational requirements, including any practical constraints on theoretical models
• The idiosyncrasies of individual countries • The nature of the HR function, including the degree to which it is centralised.

By Deborah Williams,

Head of global business services at TMF Group

 

It can be quite a task to change payroll providers, especially when looking at multi-country deals. Switching the bank details of a handful of staff is not the only thing to worry about. There are foreign exchange considerations, large-scale rollouts and handover periods to consider.

It's important to take into account the following before switching providers:

Cost and accuracy

If you get an employee’s pay wrong once, you will hear about it. If you get it wrong again, there is a serious issue somewhere in the chain. The reason you engage a third party to take care of your payroll is to ensure someone is there putting time and effort into ensuring accuracy. If that accuracy is absent, chances are you’ll be combing the contract looking for an escape clause.

Changing legislation

Brazil is moving to electronic reporting for tax, social security and labour information - and they’re not the only ones. Government legislation is a changeable beast and your payroll solution must be flexible enough to react at the right time in the right way. What used to be fine to control in-house might suddenly become a burden that is best dealt with out of the company.

Systems

Sometimes even the best software solutions become obsolete, replaced by newer, faster, more ‘sparkly’ solutions. Vendors and developers move on. If you’ve just signed a new five-year contract, what clauses are in place to ensure the software used to pay your staff remains up to date and can access service support when necessary?

Change in organisation

Company strategy changes. What worked for you last year might not necessarily be right next year. Your company could be subject to mergers and acquisition, there could be a change in the c-suite, and management might decide on a group-wide rollout of a new IT system that renders your payroll software useless. You never know what is around the corner, and that can drive a payroll manager to keep up to date with the latest payroll solutions. Just in case.

Relationship issues

Any one of the above might cause relationship issues, or it could just be a bad fit from the start.You need a partner that provides a single point of contact, wherever you are in the world. While payroll isn’t typically viewed as a “strategic” business unit, building a global payroll strategy for countries of all sizes becomes increasingly important as companies look to impose central control over their international payroll operations. Historically, most multinationals were content to run payroll on a country-by-country basis - not least because different legislative and organisational requirements made it difficult to do anything else. Today, there is a growing acceptance of the value of improving central control over payroll through a multi-country payroll programme, whether for compliance, cost, efficiency, risk management or other reasons.

In research conducted by Webster Buchanan, commissioned by TMF Group, five factors emerged as essential considerations when defining a multicountry payroll strategy that involves smaller countries and smaller payroll populations.

Controls and compliance

Because of limited resources, many companies take a risk-weighted approach to managing compliance in their smaller countries, assessing both the likelihood and potential impact of compliance issues.

Organisational design

To overcome local resource limitations, some organisations look to absorb build-to-gross and vendor management activities into existing shared services centres or regional hubs.

Cost equation

The cost per payslip for running smaller countries may be higher than larger countries of similar complexity, given the lack of volume and associated economies of scale.

Cross-functional roles

In many smaller countries, the individual responsible for managing payroll may also be responsible for other business functions such as HR administration or accounting. In these cases, outsourcing or otherwise restructuring payroll will therefore only impact parts of a role and companies may need to take a broader, multi-function approach.

For companies setting up small populations in new countries, there may be a case for sourcing a single provider offering a range of services such as accounting, HR administration, payroll, legal and company secretarial services

Systems set-up

Smaller countries do not typically enjoy the same level of system sophistication as their larger counterparts. In particular, building interfaces from central HR systems to payroll may not be economically viable in some smaller countries, and an alternative means of providing the upstream data to payroll may need to be adopted.

Within this overarching business framework, a multi-country payroll strategy will encompass all aspects of an end-to-end payroll service, from organisational design decisions to global governance, and take account of a variety of factors including:

• The nature of the multinational’s business and the sector in which it operates
• The size and type of employee populations (for example, whether they are salaried or hourly employees)
• Payroll operational requirements, including any practical constraints on theoretical models
• The idiosyncrasies of individual countries • The nature of the HR function, including the degree to which it is centralised.

By Deborah Williams,

Head of global business services at TMF Group