Global payroll advice for spinoff companies

by Peter Bouten

Many companies looking to grow, do this not only organically, but also through acquisition. At the same time, companies need to optimize their portfolio. They look at divesting businesses that are not part of the core business strategy.

These significant business changes involve large investments, of time and money not to mention high expectations. At NGA HR, we are often involved in driving these changes forward successfully.

What we have learnt?

First of all, the environment is not always the same. In the case of a merger or acquisition, the landscape is often very diverse.

There may be many inherited assets such as people, processes, systems, and data. These need to come together into a new common HR operating model with a global payroll system. A new target operating model drives new processes, people and systems. Both at a company and country level.

A spinoff, or divestiture, has an entirely different dynamic. In this case, most supporting staff and systems remain with the parent company.

There is a finite amount of time to continue using of these resources. This is based on a Temporary Service Agreement (TSA). These agreements are created to the advantage of the parent versus the newly formed spinoff and have a limited duration.

Given the fact that the carved out business is smaller and less complex than the original business, the new company can take the opportunity to simplify ways of working. The limited time of the TSA also is a factor.

If the spin-off cannot meet the timeline, then severe financial penalties could be imposed. In some cases, all systems and services from the former parent will be stopped. So what is the best course of action?

Ideal world scenario for a spinoff

In an ideal world, a multi-country company will define a new model at a global level. We are all familiar with an HR operating model based on these 4 areas:

  • HR Business Partners to support the managers on people related topics
  • Center of Excellence (COE) at the HR domain level (Recruitment, Learning, Compensation, etc.)
  • HR Operations – high-quality services at a low cost. (Globally, Regionally, Locally)
  • HRIT – driving efficiencies, employee engagement through technology

This is not new.  But in a spinoff scenario, it has to be put in place fast. With regards to the HR processes, there may be different legal entities (LE) and Collective Labor Agreements (CLA) that need to be merged into a single corporation. That complexity you don’t really need in a situation with a limited time to get things done.

What’s the solution?

There is no magic answer but below are some lessons I learned while helping companies work through this process and organize new HR services:

Get the basics right

One thing is for sure, you need to pay everyone correctly, compliantly, on time and as cost effectively as possible. Having this in place also forms the basis for the single version of truth for HR Reporting.

Chances are, you won’t have many experienced payroll administrators in your new spinoff company. If that’s the case, consider working with an experienced payroll vendor, who can help you.

Use global payroll to define country standards

In-country payroll is a local process. However, in our experience standardization starts with global standards and a central team. This global approach drives change in every country as well as ensuring local teams feel part of the solution.

Workforce administration is vital, but not difficult

Start from the industry or vendor’s best practice processes. It can be helpful to begin your process design from the’ to be’ situation benefiting from what industry leaders have designed. In a spinoff situation, this is an excellent opportunity to update your new workforce with the latest and greatest.

Plan for agility

Especially in a spinoff, the clock is ticking. You might not be able to set up the perfect HR operating model in the limited time you have before the TSA expires.

There are, however, critical processes like time recording and payroll which have to be up and running before the deadline. If you decide to use a vendor, look for a partner who has flexible options which can change over time.

Depending on the country situation, you could start with a managed payroll service. Whereby in other countries, you might opt for a full-service option, including HR and payroll data management and voice support.

Technology can push standardization

Designing and implementing a global HR platform will enable you to guide the use of standards across your new organization, which is a significant benefit.

The latest technology is probably a step above compared to what you had in the past, including direct access for your employees and managers. An additional benefit in a spinoff scenario is that it can also be used to push any new employer branding. By looking at a new global HR platform, simple questions like a complete employee headcount report is now possible with little effort.

You will need to address the challenge of integration and alignment with the country payroll at some point with integration into a new HR system. Make sure that your payroll service partner can help you address integration you need at a global level.

Transfer only the essentials when it comes to historical data in a spinoff

This probably reads as a contradiction, but try to find different ways to store your legacy data. Moving too much historical information into the new system will add to the complexity as well as the cost of storing that data.

You don’t want to end up with a bespoke solution because of historic data. Therefore, minimize the amount of data to what is legally needed to have your system up and running.

In the midst of all these changes, I would encourage you to look at this as a perfect opportunity to ask for help from an experienced vendor. The right provider will have done this many times and can introduce you to some of their existing clients they helped with spinoffs.

Look for flexible service offerings that deal with mature and young countries and people operations. Make sure they understand HR and payroll not only globally but also locally. This will help you to achieve a smooth transition.