A recent study of nearly 2,500 payroll managers prompted us to run a secondary poll on the effects of working in a payroll department. We wanted to understand the pain points that run alongside business challenges.
The poll revealed that for one third of people working in payroll departments, the primary ‘sleep depriver’ is the non-standardization of payroll processes. A further 25% say they’re kept awake by the sheer complexity of the payroll process in their country. In many ways, the two are linked.
The root cause of these stress triggers can be traced back to the fact that so many international businesses are currently bridging two worlds. They’re teetering between the digital future and the analogue past.
This juxtaposition creates problems in all back-office processes. Naturally, this generates complications for the payroll department that can impact overall business performance.
In a perfect world, all organizations would have standardized payroll processes. Each country would have the same technology. The same data fields and parameters would apply. In addition, pay schedules would be the same as well as applying the same calculations and deductions. Payroll teams would sleep soundly!
This unified approach to payroll would mean a single source of people data. Consequently, this data would be analysed and then fed back into the business for forward planning.
Complete standardization of multi-county payroll can never happen. Why?
Firstly, because no two countries apply the same rules. Governments, work councils, international business and the culture of a country are just some of the reasons why. However, even in EU countries there is no standardization of the GDPR. Most countries have added there own covenants.
Delving deeper into Europe, the 2019 Global Payroll Complexity Index shows that contrary to popular belief, European countries could not be further apart when it comes to standardized payroll process.
Instead some European countries have some of the most challenging payroll environments in the world. France, Italy, Belgium, Germany and Spain are near the top of the table.
Many organizations expanding operations into Europe are caught off guard by this. We’re running a webinar on the 24th July to highlight these specific challenges. On this occasion, we focus on the challenges US organizations face when expanding their workforce into Europe and beyond.
One respondent in the Global Payroll Complexity Index survey described payroll in Italy as being; “characterized by a crossed labyrinth of constraint and rules, linked to the complex history of labor law which, in Italy, has very ancient origins.”
In short, this means that annual tax and social security deductions are balanced against the socio-economic status of the country! Where do you even start?
Switzerland, the country famed for fresh air and clean living, takes on another face behind the secure doors of the payroll department. Similarly, according to a respondent; “Switzerland has 26 tax authorities and around 100 governmental social security carriers (AHV). All utilize their own reporting forms and have variations in the data they require from taxpayers.”
Beyond Europe, economies boosted by foreign investments have an increased urgency for compliance. For payroll teams that have not previously had to worry about reporting or protecting employees’ data, this is a complete about turn.
Eastern Europe, Asia, South America and Africa have all added layers of complexity. This is due to simply revolutionizing payroll and workforce legislation plus adherence to the outlines of the GDPR.
However, it’s South America that has caused the greatest payroll complexity shake-up. The only way governments can attract inward investment from Europe and the US is to align their business practices.
For teams in the US, micro-reporting has risen significantly, right down to city level. What takes priority? National, regional or city taxes?
According to a respondent, “I have just 330 employees, but they’re in 38 states with 48+ local tax jurisdictions. As a one-person department, registering, account set-up and continued maintenance for all the jurisdictions is my biggest headache.”
More so than in any other country, it’s business change that’s causing the most sleepless nights. Divestments and mergers and acquisitions scenarios are the worst. Earlier this year, we produced this 10-point HR and Payroll transformation checklist for M&A and divestment scenarios. This shows how to manage the impact of such change on payroll.
Nevertheless, refactoring any payroll process is not simple. You’re either removing a percentage of your workforce from an existing payroll process or finding yourself without a payroll process on the other. The second scenario is the most challenging, but both have their reasons why disturbed sleep can be commonplace!
There are few organizations anywhere in the world that have moved wholesale to a managed or digital payroll process. This means payroll teams work with disparate tools and data from multiple sources. Therefore, this is both arduous and wide open to error.
Again according to the 2019 Global Payroll Complexity Index, just 34% of organizations have, or are in the process of moving all countries to a cloud payroll process. We suspect that this is probably higher in some countries.
Mary Holland of the Global Payroll Management Institute (GPMI), explained why this might be;
“Most international organizations are somewhere on their journey to digital payroll. Many are moving forward by taking small steps, with a first objective of getting 60% to 80% standardization across the business. Currently, this is likely to be closer to 40%. One challenge is getting stakeholder engagement. Project acceptance must come from the top down.“ You can find more on this here.”
Peter Bouten, who heads up Global HR Consulting at NGA HR, added to this;
“People are often surprised when looking at local payroll that there are a lot of things you can organize at a global level. It can also help to get the buy-in of the countries that are not embracing change.”
Where payroll modernization is happening, the projects are phased with a longer-term view to total payroll ‘simplicity’. 33% continue to run on-premise payroll systems, and 11% still report using entirely manual processes.
The bridge between the analogue and digital worlds is as challenging as it is high risk. Why? Because it’s impossible to know exactly where all data is. Where is it stored when at rest and on the move? Who has access? How is it mapped and secured?
While not all countries are governed by the GDPR, most governments are reacting. In other words, they are not just responding to the heightened anxiety about who sees and who has access to data, but recognizing that citizens have the right to have personal data respected.
However, the risk of a data breach is never far from the minds of anyone handling HR or payroll data. Less than 15% of those polled said that protecting employee data “keeps them awake at night”.
Initially, this seemed surprisingly low. This considering “who should and who shouldn’t have access to PII data, and for how long?” is the number one reason keeping business leaders awake. Further questioning suggests that strict day-to-day data protection policies and processes in many organizations give a layer of confidence to payroll teams.
Where payroll managers seem to have immediate concern is finding the time to extract data from the payroll process. 20% reported that it’s this keeps them awake.
The challenge is less where payroll is standardized and single-source data can be fed into an analytics tool. For example, SuccessFactors has this feature enabled, see this webinar for more details. The big question for many is how do you standardize a payroll process? This is where integration with HR systems is important.
It is the integration of payroll and HR processes where automation technologies, such as robotics, really come into play. It’s understandable that people fear the rise of the HR Bot, that artificial intelligence will take over jobs (in our poll, it was just 11%), but we’re a long way away from a global take over.
In fact, in the Global Payroll Complexity Index reports that it’s only India and Australia that are making any real investments. Currently, payroll automation is more about streamlining and removing mundane, repetitive tasks. Chat bots are increasingly used to answer frequently asked questions freeing up people to focus on other tasks within the payroll department.
Acting on the analysis of HR and payroll data is vital for compliance and building future business success. It can tell you a lot about the people in your business. Where your workforce biases lie, where your future talent sits and the gaps you need to fill. It can show what shifts are efficient, and which sites are are profitable.
The pace of change is rapid. Consequently, by 2025, options for automation in HR and payroll processes will be standard. It’s just the fear of the unknown that will stop organizations from investing, which is why cloud platforms, where the investment is made for you, can be the best route forward.
A nightmare is always less frightening in the cold light of day!