‘Doing business across borders has hidden complications’: Expert
While running a payroll in one country can be difficult, two recent surveys shed light on the challenges that face payroll professionals working for global organizations.
Not only must they comply with payroll rules in each country where staffers are employed, they must sometimes work with a number of different payroll service providers and contend with issues such as global reporting and language and time zone differences.
“Doing business across borders has hidden complications. Legislation and regulations can be broadly similar, but there will usually be small differences which can trip up an unwary payroll professional,” said Darren Beal, HRP portfolio director at TMF Group in the United Kingdom, which provides financial, legal, HR, and payroll administrative services to businesses.
In January, the TMF Group released the results of a 2017 survey on the challenges facing global payroll professionals. It polled 138 payroll professionals working for employers with staff located around the world. The results are published in a report called Change is Coming.
Forty-one per cent of respondents cited a lack of knowledge of local payroll legislation and requirements as the biggest impediment to doing their job, an increase of six per cent from a year earlier.
In addition, approximately 30 per cent of respondents said the most common reason for payroll errors was a failure of in-house payroll professionals to understand local rules and regulations.
Beal said the lack of knowledge of local rules stems from the fact that global employers tend to centralize their payroll in one or a few countries rather than having a payroll department in each of the nations in which they employ workers.
“The more countries you operate in, the more local quirks you need to understand and abide by, and the greater the opportunities for being penalized for accidental non-compliance. Very large companies eventually reach a point where it is practically impossible for one team, working in one country, to understand all the regulatory environments in every country in which they have a workforce,” he said.
Knowing where to look for legislation is another difficulty. In the survey, 36.4 per cent of respondents identified the ability to find information on local legislation and compliance as a challenge. In addition, approximately 30 per cent said although they are responsible for finding local compliance information, they often do not know where to turn for it.
Having to manage multiple payroll providers is another challenge for global organizations, with 37.1 per cent of survey respondents citing it as a difficulty. The survey report said many multi-national employers end up having to use different vendors in different countries because they have no other option.
Sixty-eight per cent of respondents said they were unable to find a provider that could run payroll operations on a global scale without needing to use sub-contractors, although some could offer regional coverage.
To deal with multiple suppliers and systems, he said a growing number of organizations are using middleware software, which allows different applications to work together.
For example, Beal said TMF’s middleware allows “clients to view international payroll data side by side, while automatically accommodating the quirks that regional differences may throw up.”
A new survey by Ernst & Young echoes the desire of many companies to only have to work with one payroll provider for their global operations.
Its 2017 global payroll survey of 287 corporate executives and payroll leaders from 19 countries found that 78 per cent of respondents thought it was important to have a single provider for global payroll delivery.
The company released the survey report, called How are Companies Preparing for the Payroll of the Future? in January. It shows that payroll service providers may be getting better at providing global coverage.
Fifty-two per cent of survey respondents said they believed that a single provider could meet their global payroll needs, up from 25 per cent in 2015 and 15 per cent in 2013.
“In recent years, providers have listened to their customers and begun to identify and deliver ways of meeting global payroll needs,” the report said.
“Whether expanding their solutions to encompass new countries or developing new reporting layers to tie together existing systems, providers have evolved to better meet the needs of the marketplace,” it said.
However, the survey results also indicated that employers think there is more that payroll service providers can do, with 55 per cent of respondents saying that it would be beneficial for them if they could work with fewer payroll service providers.
Another issue highlighted was the need for better global analytics and reporting.
In the Ernst & Young survey, respondents listed management reporting as the second biggest challenge after legislative compliance. Almost one-third of respondents rated their payroll provider’s ability to deliver accurate global reporting as fair or poor.
Approximately 27 per cent of respondents to the TMF/GPA survey cited the need for better global analytics and reporting as one of their biggest challenges.
Additionally, 42 per cent of TMF/GPA respondents said they were not able to produce reports that covered all of their international payroll operations and only 14.7 per cent said they used a system that could consolidate global reporting into a single format for every jurisdiction.
“The problem here is the lack of visibility this situation affords into payroll operations, which means it is difficult to see what is happening when,” the TMF/GPA report said.
“As a result, if an issue needs resolving or there is a possible risk to the business in a given country, the global payroll team is unlikely to be aware of it and, therefore, unable to take action until the situation hits crisis point,” it said.
The need for uniform payroll policies and processes across all jurisdictions was another challenge that the surveys identified.
The Ernst & Young report found that in 2017 only 32 per cent of respondents rated their global payroll processes as highly or fully standardized, compared to 68 per cent in 2013.
It said this could be the result of decreasing levels of standardization, businesses further expanding globally, or the fact that technology can now provide more information on global payroll processes, showing what is and is not standardized.
In the TMF/GPA survey, approximately 36 per cent of respondents cited a lack of consistency in policies and processes as a major challenge.
The survey also found that almost 70 per cent of payroll professionals said none to less than half of their employer’s global payroll policies applied to all jurisdictions. A further 63 per cent reported that none or fewer than half of their payroll processes applied globally.
“The lack of consistency and control that results from not having robust payroll policies and processes in place should be of concern to organizations operating in multiple jurisdictions as this leads to errors in payroll processing and increases risk of non-compliance,” said Deborah Williams, global head of service lines at TMF Group.
Other payroll challenges cited in the TMF/GPA survey included tracking key performance indicators, adjusting to different languages in different countries, and dealing with multiple time zones.
One area that may be a future issue for all payroll professionals, not just those doing global payrolls, is digital technology. Both surveys said digital technologies like artificial intelligence and robotic process automation could transform payroll processing.
Although close to 40 per cent of respondents to the TMF/GPA survey said they were unsure about technology’s benefits for payroll, the survey report said developments such as artificial intelligence could help payroll professionals be more effective in their job by automating routine, administrative tasks.
In addition to automating some processes and reducing data errors, the Ernst & Young report said digital technologies could move payroll from a data processing function to a more strategic player.
