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Getting a Handle On Payrolls
As businesses develop with more and more revenue coming from global markets, we are increasingly faced with very real problems in getting good data on the smaller populations around the globe that perform services for our companies. Knowing what is being paid to whom, and when, is fundamentally important -- and it is becoming harder and harder to get solid data on non-headquarters payrolls. Let's start with fundamental labor economics. In order to manage margins and improve profits and retained earnings, we have to understand our cost of labor. In many product-based companies, labor is the single greatest factor in the cost of production, and that is even more true for service-based revenue segments. To nail down our labor costs, we have to know how much we are paying full-time and part-time employees, contractors and contract resources supplied by other companies. Direct wages paid to employees are a fundamentally important part of this equation, and that is where the problem begins to surface. In various countries, "employees" may be divided into several sub-classes -- with each category having its own tax, benefit and employee-contract rights. One of the first things we need to do when trying to arrive at a global and unified cost of labor is to impose on our own operations and on all service providers a uniform definition of who we count as an employee. In addition, we need to have standardized definitions of base pay, overtime pay, differentials, shift premiums and benefits allowances in order to come to a proper evaluation of labor costs. This becomes more and more difficult as branches and divisions are set up in new countries. For instance, is the rice allowance for hourly workers in Southeast Asia a benefit? Granted, determining rice allowance certainly doesn't fit our usual definition of cash compensation, but in order to have a full picture of the costs of production, we need to take a closer look at that allowance and decide whether to count it in payroll cost or not. There is still no panacea for a multinational corporation trying to grapple with the different costs. Current large-scale providers find it rather difficult to provide unified services for countries with less than 250 people in the geography, and some large service providers in the United States and Europe find it hard to provide services for less than 400 people in-country. If you are servicing countries with a smaller number of employees, you will want to at least impose on the local provider or the local operation a globally coherent definition of who counts as a full-time employee. We need to ensure that our payroll-sourcing contracts help us build visibility and then uniformity of information about resources all around the globe. In this respect, we are an equal partner with the chief financial officer, who has to represent to the board and Wall Street that he or she knows what the cost of goods sold really is, and we have to do our part to ensure that we can provide the best possible information. Lowell Williams is executive director of HR Advisory Services for EquaTerra, a BPO consulting firm based in Houston. He can be reached at lowell.williams@equaterra.com. December 1, 2010 Copyright 2010© LRP Publications |
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© Copyright 2012 LRP Publications. All rights reserved.
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