Global payroll administration has been made possible, at least conceptually, because of advances in technology, vendor service delivery models and global capabilities, wrote Jeff Brown, principal for human capital at Ernst & Young, in a recently published report.
But do multinational organizations agree that a truly global payroll solution exists?
Ernst & Young’s Global Payroll: Myth or Reality survey of 161 global senior payroll leaders began with the question, “Do you believe there is a single provider in the market today, regardless of the service delivery model, which can support the payroll needs of a global enterprise actively engaged in 90-plus countries?”
The respondents came from 16 countries in five continents. Seventy percent said they are not confident that a payroll vendor exists that can provide worldwide services. Seventy-eight percent of U.S. respondents do not believe that a single payroll vendor could support all their global payroll needs, while 30 percent overall believe that one provider could handle their global payroll.
“This would likely be reflective of the countries in which they operate and the maturity of those countries in this context,” according to Ernst & Young.
The majority of multinational companies (85 percent) think that their payroll practices need improvement; thus, just 15 percent of respondents believe that their payroll policies and practices are excellent.
A mere 12 percent of companies surveyed use a fully outsourced model with a single outsource provider for global payroll services, according to the report. About 28 percent rely solely on a complete in-house delivery model. The majority (60 percent) use a hybrid approach, choosing to outsource certain payroll processes while maintaining some in-house ownership.
For those interested in the services of a global payroll provider, the top three criteria for selection are cost (19 percent), geographic/global capability (18 percent) and technology platform (10 percent).
Organizations seeking to implement global payroll solutions identified a wide range of issues as potential hurdles, from legal and regulatory requirements to total costs, according to the survey. Many respondents said they do not believe that a vendor could provide consistent, standardized global payroll services. Others thought implementing such a system on a global scale would be too costly. One respondent suggested that demonstrating the return on investment in financial terms would be a significant challenge.
Another key concern for businesses is whether global payroll providers could effectively manage the legal and regulatory requirements on a global scale, with some respondents saying they could do this more effectively at a regional or local level. Another noted that “home and host tax issues make it a challenge to be compliant.”
Identifying the legal and regulatory requirements represents the greatest challenge to implementing a global system, Ernst & Young concluded from the survey results.
“This suggests that organizations lack confidence in the ability of technology to stay abreast of the numerous tax and compliance changes globally and that they believe an outsourcing provider is more likely to keep pace, as this is typically their core business,” the report said.
Most Common Payroll Errors
Payroll errors lead to costly and time-consuming corrections and lowered employee confidence. All organizations, regardless of their payroll model, were surveyed on their most frequent payroll mistake. Incorrect tax withholding was cited most frequently (24 percent), supporting respondents’ concerns that existing payroll solutions are unable to handle complex legal or regulatory requirements on a global scale.
Underpayments and overpayments combined accounted for approximately 30 percent of payroll errors.
Entering New Markets
Of the 161 respondents, 68 are considering expanding into new markets within the next year. Only 11 percent of these are actively pursuing a global payroll model as part of their expansion, while 41 percent are not considering adjusting their payroll model at all.
“Accepting the status quo in payroll solutions may have worked in the past, but it is no longer adequate for companies that need to compete and expand in the global marketplace,” Brown said in the report. “It’s time for organizations to begin viewing payroll as a critical business process that requires a global solution with local flexibility.”
Roy Maurer is an online editor/manager for SHRM.
Follow him at @SHRMRoy
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