A payroll transformation is beneficial for multinationals who find themselves in situations where their payroll processing isn’t as efficient as it could be, for example:
- If you find yourself still processing quite a lot of your payroll with spreadsheets, shared files and other manual methods
- If you’re planning continued business growth and your payroll workflows are disjointed, with different processes for different parts of the world
- If your payroll function isn’t equipped to deal with markets you’re not native to, landing you in noncompliance where you’re having to pay hefty fines and fees
- If your current payroll vendor is having a hard time keeping up with the size of your enterprise, leading to late payments or last-minute crunch
- If you have to maintain multiple payroll vendors to cover all the countries you operate in, which can make visibility into global trends hard
- Your current reporting is not as comprehensive or easy to access as you’d like it to be (maybe it’s hard to measure common payroll KPIs, or you have a report for each country you operate in but no way to easily pull a global report
Here’s what you need to know to sell your organization on payroll transformation—and be successful when you go to execute.
5 Steps to Payroll Transformation:
1. Map your current state and pain points
Before you can move forward with transforming your payroll, you’ll need a clear understanding of the ins and outs of your current process by performing an audit.
Some things to consider:
- Who’s frustrated with what? Is your current provider hard to work with? (For example, does your French HR team always submit the overtime to the spreadsheet a few days late, resulting in somebody getting paid late?)
- What technology is in place right now? Which parts of your HR stack support integration with one another? Do you have a full integration between your Human Capital Management (HCM) software and your time & attendance tracking?
- What staff do you need to cover? Is some staff already covered by an international partner and you’re pushing towards full coverage?
- How many people are currently dedicated to payroll processing? How many stakeholders need to be involved going forward? What does a core HR team for each region or country look like, with and without a payroll partner in that country?
The best way to answer the questions above and collect further findings would be to interview everyone involved in the payroll process and be open to any feedback they provide. This means, at the very least, talking to regional and HR heads, your core HR team, payroll specialists in countries where you operate, your HRIS administrator, and your line managers abroad.
Also, look at a few important payroll KPIs:
- Accuracy rate/number of errors: How frequently are employees underpaid or overpaid? Are there elements that are frequently paid out or withheld at the wrong rate? How often do employees have to chase down HR to correct issues?
- Time to run payroll: How many days does it take to collect the inputs, normalize them (currency, element names, and so on), disburse funds and send a payslip?
- Total cost of running payroll: Try to determine, from your map of the personnel involved, how many hours are required to run a single payslip for a single employee in a country, then total that and add the cost of supporting software
You should also revisit these KPIs after you’ve transformed your payroll process to gain insight into how things are going post-transformation.
Additionally, you can gain a lot of insight into payroll performance by surveying your employees: are they dealing with payments being processed incorrectly, late, or even tax withholdings being withheld incorrectly? And if these issues are happening, how often?
2. Scope your desired future state...
...and determine what you can commit to.
After you’ve figured out the current state of your payroll, it’s time to decide what you’d like your future state to look like.
To help you map this out, it’s useful to understand...
- What can you afford to solve?
- What do you most want to solve for?
- What would you like your role vs. your vendor’s role to look like going forward?
In terms of what you can afford to solve; this is where determining your budget will come into play. A payroll transformation project, like anything in international business, comes with costs: with most vendors (both in-country providers (ICPs) and global providers) there is usually setup or implementation costs involved, but you might also have to consider hiring a “Systems Integrator” to help you connect your HCM software to your global provider should you choose to use one. There may also be costs to set up in-country bank accounts, adding additional modules to your HCM and other necessary costs.
Another thing that will affect your bottom line is the manpower you’d like to put behind the project.
Who or how many people will work to assist the regions with rolling out the new process? Do you already have the staff and structure in place to administer each region? Do you need to promote or consolidate staff to attain that?
Who will spearhead the entire transformation project? Can you promote someone up, or do you need to hire someone new?
What stakeholders are going to be hard to get on board? How can you go about convincing them this future state of payroll will be leaps and bounds better for your multinational business?
A transformation could lead to hiring new personnel in key regions.
While there are many questions to investigate...one major question remains: to use a unified multi-country payroll (MCP) provider, or not? Unified MCPs come with a number of advantages like reduced risk of noncompliance, automation of time and expenses, streamlined HR administration, and consolidated financial reporting to name a few. An MCP provider, like Global Managed Payroll, can save your team more than 20% in productivity.
However, many businesses conducting a transformation choose to keep their payroll in-house or only utilize a small patchwork of ICPs they manage themselves to handle countries where they're understaffed. While this isn’t the most streamlined way to handle payroll processing, it may be what works within their budget and/or what they feel ultimately works ‘best’ for them.
If a vendor is an ingredient for your payroll transformation, some things to think about include:
- How much can we afford to pay a vendor?
- Which systems survive the transformation, and which new systems need to be introduced?
- Are there decisions to be made about whether to involve a vendor that lifts more of the load versus continuing to handle in-house?
- An example might be an org undergoing a transformation that is currently handling its two largest payroll markets in-house, with an additional six countries managed through payroll ICPs.
- What can be consolidated with a unified MCP? What makes it cost-effective to do so?
3. Vendor selection and review (if needed)
Review vendors, if any. If you do feel that a new vendor is necessary, it’s time to weigh the pros and cons of a few vendors. Some things to consider when reviewing vendors include:
- Does one vendor have all of the features you need?
- What do their reviews look like?
- Does their culture mirror your company’s culture?
- Are they more proactive or reactive when it comes to service?
- Do they service all of the countries you do business in (or hope to do business in?)
Think long and hard about your decision as you weigh the benefits and challenges. If you had to choose Vendor A over Vendor B for cost reasons or because of a "killer feature", how would that affect your desired future state from above? How would other vendor decisions affect your desired future state?
Once you’ve selected a few that you feel you’d be happy with, it’s time to work on a request for proposal (RFP). The person dedicated to taking the lead on the RFP process will be responsible for submitting the RFPs, the back and forth with the vendor contact, and ultimately the decision to decide which vendor to move forward with based on desired state and budget.
Pro tip: Make sure that if you decide not to use a vendor that you've mapped out responsibilities internally. This will ensure you know who will handle the parts of the process a vendor otherwise would have.
4. Project Planning
This step in the process is an extensive one. You will need to plan and map out what will happen in the first month, second month, and so on.
- How you manage responsibilities for each phase and task at hand?
- What happens if there’s a setback?
- Who has ultimate authority to make major decisions about the project?
- How are you going to report on its progress?
- What will the vendor need from you at each stage?
- Tallying up man-hour estimates for each thing you want to accomplish (tip: the person leading this project will be extra beneficial if they have some project management experience and can act as lead PM on this project too)
Beyond the month-to-month project outline, you will need to ensure the right people are in place every step of the way. Remember the tip about a project manager? (Ultimately the payroll transformation professional can take on this role.) They will really come in handy in every step of the project planning process. They will ensure the project is as structured as possible and there’s a clear path forward to get from step 1 to step 2. A project manager will also ensure that you’re keeping your own internal timetable and can readjust should obstacles arise, marshaling the right internal working groups to address those obstacles.
Another thing to keep in mind is which countries are most critical for immediate change. Most MCP providers work in waves, where your most critical (or most prepared) countries are rolled out first, and then subsequent countries are rolled out in later waves.
Do you know which countries those are? Have you notified the people responsible for these countries and ensured you’re all on the same page? Each country will need to be in a ‘ready state’ (i.e. data is cleaned up, there’s solutions for treasury and time tracking, whether through an HCM or another part of the HR tech stack).
It’s the moment everyone has been waiting for—all of your tedious, hard work has been building up to this point.
It’s time to start executing on your transformation project. Depending on how many phases you have, it could take months or even a year to get from the first wave of countries to the last one.
Some items to consider during this phase include:
- Are we on track or are we behind schedule? If we’re behind, what can we do to get back on schedule?
- Are the ‘right’ people in the know for each country and phase? Am I repeatedly having problems when scoping new countries because stakeholders aren’t ready?
- How are things going with the first wave? What can we improve upon for the second wave?
- And probably the most important one: is our payroll process improving?
As you take a phased approach to roll out, it’s extremely important to conduct thorough reporting to get a temperature check. Take a look at the KPIs you audited in the beginning:
- Accuracy rate/number of errors: Am I getting fewer complaints about late payments from regions that were otherwise painful before?
- Time to run payroll: Have I shaved hours or even days off of my per-slip labor in the countries I’ve already transformed?
- Total cost of running payroll: Have we reduced the cost of fees and fines due to noncompliance? Is payroll being more accurately run? (Which in return leads to reduced costs because less of people’s time is needed to run payroll each cycle)
- Any others you may have measured
By re-measuring these KPIS, you’ll get a good understanding of how the vendors you’ve brought in and the processes you’ve implemented are working for you and your company. Ultimately, you want to see fewer errors, faster and less cumbersome workflows, happier HR teams, and happier payees, but do remember to give it time. Set up a regular review committee to look at these core KPIs in transformed and untransformed regions, and to ask regional stakeholders how they feel about their work now. Ideally, it should all be trending upwards.
Post payroll transformation
Transformation is a journey, and it’s never really over. For payroll to become a truly strategic partner, periodic refinement is necessary. After a payroll transformation, you should find you have access to new data and new levels of visibility—just to name a few. But as a baseline, you can judge your payroll transformation to be a success if most markets now have:
- Processing with less human intervention
- Digital calendars (hello on-time payments!)
- A centralized view of global data
- Smooth vendor integrations (HCMs, other payroll vendors if needed)
- Enhanced compliance (thanks to in-country experts who stay apprised of law changes and local customs)
If you’ve followed this roadmap and successfully completed a payroll transformation, it’s time to pat yourself on the back for a successful project. It’s a huge feat. Especially when the odds are stacked against you. A staggering 70% of transformation projects fail. But, thanks to this roadmap, you’re sure to be in the 30% of success stories (whether you’ve already undergone a transformation, are in the beginning stages, or are still in the thick of it).
Safeguard Global can equip you with everything you need to be successful in transforming your payroll process. Visit our global managed payroll solutions page to learn more or contact us today with any questions you might have.