Payroll Central

Global companies are realizing big benefits from centralizing payroll -- everything from huge savings to enhanced control.

Thursday, September 2, 2010
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Since 2006, Raul Bustamante has felt the weight of the world on his shoulders. For the past four years, he has worked toward accomplishing one goal: designing a global system for HR, which includes a central payroll system.

His employer, Solvay -- which employs 19,000 people who are active in chemistry to develop products that improve the quality of life -- operates in 50 countries on five different continents. Four years ago, there were almost as many systems, spreadsheets and software programs being used to process payroll as there were products created by Solvay.

There was much chaos, confusion and work to be done, he says.

"The first big challenge is to realize -- because everyone tells you -- that payroll is a very specific process that can't be centralized," says Bustamante, senior executive vice president and head of the global HR-services-delivery business-support center at the Brussels-based company. "Payroll is specific to every country. It has to be in the language of the country."

Despite the complex and lengthy process, standardizing payroll is becoming a trend among global employers. Using the same payroll system and procedures offers a laundry list of benefits, namely substantial cost savings that can add millions to a company's bottom line.

However, the process is not for the faint of heart. Count on a several-year commitment for the entire transformation. Then there are cultural differences. Strong labor unions. Language barriers. Time-zone changes. Not to mention employee resistance. Still, HR execs say the transformation is well worth the effort.

Bustamante's first step was to prove to Solvay's senior executives that centralizing HR and payroll made good business sense. He spent four months developing a business case, demonstrating that globalizing HR would reduce overall expenses by at least 25 percent by using one platform.

That caught the attention of top leaders, who approved the strategy several years ago. Bustamante then spent several years persuading country managers to embrace the new system. Although buy-in from senior executives certainly helped, managers were still not totally convinced.

Some resisted the idea because they didn't realize the efficiencies that could be gained from a single system. Others were reluctant to learn new technology. There was never a shortage of excuses. Managers in France and Germany, he says, were especially difficult because of the strong presence of labor unions, which tend to view changes with suspicion, especially when it involves employee paychecks.

But Bustamante was determined. Under his leadership, HR designed new steps for every single payroll process, ranging from capturing payroll data to depositing funds in employee bank accounts. Soon, HR was using one platform -- developed by SAP -- and software created by NorthgateArinso, headquartered in Hemel Hempstead in the United Kingdom.

Since the project was just completed at the end of June, it's too early to tell if the compay realized its 25 percent projected savings. Bustamante says 40 key performance indicators [Saratoga benchmarking developed by PricewaterhouseCoopers] are being used to determine how well HR and payroll are operating. For instance, HR is measuring the before and after cost of payroll per single pay slip or paycheck and the number of pay-slip errors.

More than 100 employees worked on the project, says Bustamante, adding that it served as a very good teacher.

"If I knew then what I know today, I would have been much more directive and would not have allowed so much flexibility," says Bustamante, explaining that, early on, he would have required all payroll managers to observe the same, consistent procedures. "Don't try to be perfect because it's not possible."

Walk, Don't Run

Besides bottom-line benefits, there are others drivers behind the trend of standardizing payroll globally. Employers can gain better visibility into payroll operations, improve internal controls, ensure regulatory compliance, reduce fraud and minimize operational risk, says Keith Rodgers, co-founder of Webster Buchanan Research, a consulting firm focusing on international HR and multi-country payroll, with offices in San Francisco, Singapore and London.

"You run into challenges on multiple levels," Rodgers says, referring to payroll staff expertise (which differs from country to country), HR's inexperience in multi-country payroll or costs that don't always fall across the board.

Sometimes, payroll costs are actually higher when using a global or regional vendor versus multiple vendors. Besides paying fees based on employee head count, such vendors also charge a start-up fee for each country, which has a disproportionate impact on countries with small employee populations.

What's more, not everyone perceives change in the same way. Rodgers says employees may become defensive and unsure about how their job statuses, roles and responsibilities will be affected. To win them over, he says, HR must clearly communicate how the change will positively impact their budget and staff, especially if payroll was previously late or inaccurate.

Some companies are starting small, with a regional or tiered approach. They might select one vendor to service countries in the same region that support large employee populations, but will make no changes in other areas with populations half the size. Rodgers says there are many ways to "slice and dice" the process and decisions must reflect the company's business strategy.

Other speed bumps include the country's infrastructure. In developing countries, for example, Internet access is limited, so choosing a vendor that offers self-service features won't be a big hit. Even something as minor as time-zone changes can be a roadblock when driving through change. Employees who are reluctant to learn a new system may balk at midnight or early-morning meetings.

Likewise, pay close attention to the lifestyle in a country or region. In Europe, avoid introducing changes in August, when the majority of people are on holiday or vacation. In Germany, coordinate with the country's strong work councils that have the power to usher in key changes. In the United Kingdom, consult with the national payroll association, which liaisons with tax authorities. Rodgers says if they're not observed and attended to, cultural idiosyncrasies can produce huge problems.

Throughout the entire project, he says, HR must keep the company's business drivers in mind or create new drivers if business needs change. An employer may have acquired other companies, for instance, or sold a product line. While it's easy to get stuck in the minutia, Rodgers suggests taking a step back every now and then to see if current business objectives are being met.

"A lot of people don't do that," he says, adding that this process isn't just about payroll, but about business results. "You've got to be utterly pragmatic about this. It's delivering business benefits, [which is] absolutely the most important thing."

Focus on Details

Over the past two years, Beth Shanton has definitely seen an increase in global companies centralizing or regionalizing their payroll functions. As a director of HR service delivery in the human-capital practice at Deloitte, a global HR consulting firm in Atlanta, she recently worked with six companies that engaged in this process.

Before deciding whether to centralize or outsource global payroll, she says, HR needs to develop a list of guiding principles, rank them and then use them to make decisions. For example, one principle may state, "Delivers ROI by reducing cost per pay-slip." So which delivery model best accomplishes this goal?

Other principles may include: meets or exceeds data-privacy and data-protection requirements; facilitates mergers, acquisitions and future expansion growth; supports payroll compliance and adheres to local regulations and legislation; delivers a global-payroll-governance structure; and has the ability to support global consistency.

In some cases, employers have no choice but to outsource payroll to multiple vendors because no single vendor services the entire planet. That's when differences between vendors become apparent. Their response time is different. So is the skill and expertise of their staff. Even service agreements aren't all alike.

So, when selecting vendors, the key is to follow a methodical approach, says Shanton, who offers the following tips:

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* Scrutinize the service offering. What are the company's functional and technical capabilities? Can they support the company's employees? What is its global footprint? Is it scalable or flexible if an employer acquires other companies down the road, boosting its employee population?

* Evaluate terms, conditions and pricing. How much work will HR be expected to do?

* Check out the company's technology and related tools. How robust is its reporting? How often is its software upgraded and are upgrades an additional expense?

* Ask about ongoing support. How does the vendor manage problems? What is its response time? Can it support Sarbanes-Oxley requirements?

* Gather information. Is the vendor financially stable? Is it currently in litigation with other employers? What is its plan for growth?

? Talk to other employers that use the vendor's payroll services. Are there any red flags?

Then, develop a road map for implementation. Consider a company that operates in 60 countries. HR should focus on the company's guiding principles, starting with those ranked highest and working down from there. So if the No. 1 principle is compliance, Shanton says, HR should initially target the country or region with the most compliance issues that supports the highest number of employees.

But be careful of vendors that subcontract with other vendors, adds Deborah Ellis Timberlake, a principal at Timberlake and Associates in Bothell, Wash. She says HR may not realize that payroll is being processed in a different country, which can lead to unexpected trouble.

"Natural disasters like earthquakes or the political climate of the country may impact you," says Timberlake, who has worked with companies such as IBM and ADP in the payroll-outsourcing arena. "Is their data security in place? What protection is there for key data about payroll? Is there a disaster-recovery plan and disaster-recovery business continuity plan?"

One task that's sometimes overlooked is developing a statement of work that outlines both HR's and the vendor's responsibilities, Timberlake says, explaining that the statement serves as HR's guideline when managing vendors.

"Make sure you understand your requirements and needs," she says. "Be very clear about what you're looking for, what type of work you want the vendor to manage. Look for a good partner who you can build a long-term relationship with and set reasonable expectations."

More Control, Bigger Savings

Cost reduction ranked high on NVIDIA's list. The global company based in Santa Clara, Calif., designs computer-graphic chips and supports 5,500 employees in 17 countries, says Payroll Manager Mary Brumm.

Because payroll falls under finance, not HR, she says, the company employed a finance manager in each country it operated in, then -- last October -- regionalized payroll operations into four areas: North America, India, Europe and Asia-Pacific. Now, each region observes the same payroll procedures. The consolidation also shrunk the number of finance managers from 17 to four.

"Prior to this, everyone had their own little policies," says Brumm, who developed the company's global-payroll policy last year. "We really weren't sure what they were doing. [Now] we have better control. It's forced us to document what we have. We get samples of everything they're doing."

Today, the company -- which recently moved its HR operations team to India -- supports one global payroll system. While Ultimate Software serves as the HR platform, approximately 10 different software applications are being used in various countries.

Looking back, Brumm says, she should have first examined each country's payroll process, its technology and talent, and how it was structured to identify key gaps. Take India, for example, home to roughly 1,000 of the company's employees.

Brumm says payroll was processed in three different locations by three different finance managers using three different systems. Not only was it frustrating for corporate finance, but it also proved very ineffective. By creating finance regions and a central process, she says, the company has managed so far to save approximately 20 percent in payroll-delivery costs.

Meanwhile, more work lies ahead. The company is building a matrix to measure the number of pay-slip payments and errors, and expose other problem areas. "It definitely is an adventure," says Brumm. "There isn't a one-size-fits-all like you want there to be. You want to have one magic solution, but there isn't [one]."

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