Payroll

Global payroll is no longer just about paying people

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by Anita Lettink

The overarching conclusion from NGA HR’s latest Global Payroll Complexity Index (GPCI) is that payroll is no longer just about paying people.

Payroll today is about managing data; it’s about the handling, control and security of personal data in a landscape where tax, employment and workplace legislation is ever more complex and non-compliance fines are increasing and being more firmly administered.

Globally complex?

NGA HR’s Global Payroll Complexity Index measures all the components in a country’s payroll processes, from parameters to legislation, and ranks these against other countries around the world.

A lower ranking does not necessarily mean that payroll is less complex. In many instances, it lends to the fact that payroll legislation is more mature than in some of the higher ranked countries and therefor has a higher degree of automation and standardization.

The overall difficulty remains the same, and over the last years, payroll professionals have gotten used to and familiar with frequently changing regulations.

Additionally, regulators more often work with payroll associations to create upfront clarity around changes. Due to all this complexity, the trend for managed payroll services has grown fast and there are fewer payroll professionals managing these complexities in-house.

The complexity mix

A major challenge for payroll teams is compliance. We’re rapidly approaching zero tolerance on breaches. The impact on a business financially and reputationally is great, to the extent that it’s possible your license to trade could be revoked or the company can’t continue to operate due to lack of customer trust.

Added to that is a moral obligation to your employees. You can be sure that most, probably all employees come to work to be paid. As employer, it is your contractual obligation to not only pay them on time every month, but accurately and correctly with respect to legislation and their agreement with you.

When you have employees in more than one country, it becomes harder to track the ongoing changes implemented by governments and their agencies, but it’s an obligation you can’t shy away from.

The other trend that came out of the survey as a constant theme is that the actual payroll data itself, the needs and information that’s having to be shared and managed, secured and controlled, is getting more and more complex.

What determines payroll complexity?

Let’s discuss the 5 categories that we have found to determine payroll complexity and the trends that the index is based upon. We discovered that the following categories determine the complexity of payroll across the globe:

1. Manage the master payroll data
2. Payroll parameters (wage types etc.)
3. Payroll calculations
4. Statutory reporting
5. Country legislation incl CLA’s etc.

Payroll professionals must manage the master data that we enter before we can run a payroll. That sounds quite easy, but it isn’t.

While many data elements automatically flow into payroll from the HR system, every element that comes in must be checked for accuracy and completeness. It must be evaluated as well, to determine if a change to one element could lead to a change elsewhere. As an example, when an employee moves and changes their address; if they receive a travel allowance should that change as well?

Then there are the payroll parameters, the components or the wage types that are the foundation of your payroll and determine the gross to net calculations. Your payroll must process them in the correct order to arrive at an accurate net payslip amount.

Before you can run the final payroll, you will typically run a pre-payroll to determine if everything is in order and no wage types are missing or incorrect.

Finally, you have the calculations themselves. They can range from a one-time calculation that is just being done for one payment in one country, to e.g. in the US, where many calculations are needed to satisfy each of the jurisdictions, whether they’re federal, state or local.

Next, we evaluated the measure with regards to government declarations and reporting. This includes how much information you’re having to report in a country, and how many agencies and regulators you must report that data to.

In some countries that is quite straightforward and only includes financial information for tax purposes, but in other countries the authorities require you to report additional PII with regards to special programs, like diversity. Although this is not payroll data in the true sense, requirements are often that a company includes this data in the monthly posting of payroll reporting.

The last piece of the complexity study looks at the geographical influences across payroll and how many differences are being deducted in your market in those different geographical regions. By now, you’re surely wondering how your country ranked in the Global Payroll Complexity Index.

Have a look here to discover how difficult it is to manage your local payroll. You can also visit our Global Payroll Complexity Dashboard and look for your own country. If you have any questions about the report or would like to discuss local findings with an expert, please reach out and we’re happy to provide you with answers.