Payroll processing is probably not your core business. However, it’s something that your organization needs to get right. The same goes for international payroll processing. In New Zealand, a poorly implemented payroll solution nearly un-seated a Government.
In 2012, the New Zealand Government introduced a payroll solution from Australia called ‘Novopay’. It was an unmitigated disaster. Thousands of teachers went unpaid, with 90% of schools affected. This ended up costing the government $45 million to rectify. It also resulted in the resignation of several senior bureaucrats, as well as a seriously bruised reputation.
While introducing any new payroll process carries an element of risk, you cannot afford to continue with outdated, overly complicated payroll processing systems. In this article, I set out some of the problems with traditional payroll processing and outline four steps you can take today to streamline and simplify payroll.
The Risks of Outdated Payroll Processes
Outdated payroll processes can present challenges around the following areas:
- Legacy in-house payroll functions. For some companies, payroll is processed in-house. This isn’t done for any strategic reason, rather it’s the way things have ‘always been done’. Whilst this may have made sense in the company’s early days, little thought has been given to outsourcing, including international options.
- Incomplete electronic or automated processing. Most companies have moved to some form of electronic payroll processing. However, this doesn’t always cover complete payroll-related data. For example, line managers may be required to manually enter employee absence information.
- Data inconsistency and compromised data integrity. Commonly, payroll information is not aligned with other business functions, such as HR, IT, and accounting. Additionally, data can be in various formats within different units. This can lead to mistakes, with the correct data being unavailable for the business unit that needs it.
- Piecemeal compliance. Where a strategic approach to payroll is lacking, it is likely that payroll compliance is also deficient. Companies may not know whether they are compliant with applicable tax or data protection laws (for example, the ‘GDPR’).
Many of these problems can be compounded when working across international borders. For example, if you are operating within another country and lack familiarity with the permanent establishment tax rules, you could face serious challenges.
It is important to seek out expert advice in order to optimize your international payroll processes. Before then, here are four steps that you can take to streamline and simplify your global payroll processes.
Step One: Outsource
According to one recent survey, over 40% of US companies outsource their payroll. This is hardly surprising, as providing payroll services in-house can be costly and inefficient. In addition to significant cost savings, the advantages of outsourcing payroll include:
- Payroll specialists know how to process payroll quickly and cost-effectively, freeing up your time to focus on revenue-generating aspects of your business.
- It is both difficult and expensive for businesses to be aware of all compliance obligations and risks that are present in another country. This is particularly true of payroll compliance, which requires businesses to stay up-to-date on payroll tax, employee entitlements, and personal data protection requirements of the country in which they’re operating in. An outsourced payroll specialist will be familiar with all applicable compliance obligations.
- The COVID-19 pandemic reminds us all that business needs can change radically, in a short space of time. This is also true when it comes to payroll. With in-house payroll, it is far more challenging to scale payroll resource requirements at speed.
Step Two: Automate
Automated payroll solutions result in:
- Increased accuracy. Manual input of payroll data adds human error into the mix, which has the potential to lead to inconsistencies in payroll data records.
- Data accessibility. Automated solutions can empower employees and company management by providing easily accessible, up-to-date payment data.
- Reports and data analytics. Payroll automation offers accurate data for implementing data analytics – reading off company-wide data to draw payroll conclusions (e.g. up-to-date analysis of overtime), or making predictions about future payroll requirements.
- Rigorous data security protocols can be put in place for automated data. This can include multi-factor identity verification, administrative privileges, and encryption.
- Enabling data protection laws. In order to comply with a country’s personal data protection laws, you must be able to quickly access accurate personal data on request. This is significantly easier to do with automated systems.
Step 3: Integrate
You are missing opportunities if you are not integrating payroll data with data from other business units. As an example, consistent HR and payroll data can ensure that once an employee is terminated, they are no longer paid.
There are also significant cost savings available via integrated datasets. There is no need for ‘double entry’ of data in different business units, nor the manual processing of requests from other sections of the business.
Step 4: Optimize Payroll Frequency
Payroll frequency can differ between countries. While fortnightly payment is common in the United States, monthly payment is common in various countries in Europe and Asia. Where appropriate in a certain country, there are significant cost savings to be made by reducing the frequency of payroll.
Over time, a lack of strategic focus on payroll processes can significantly affect your business. This is especially true once the business has expanded overseas. Your company may be at risk if it still employs:
- Legacy in-house payroll functions
- Incomplete electronic or automated processing
- Data inconsistency and compromised data integrity
- Piecemeal compliance
In order to streamline and simplify your international payroll processes, consider whether outsourcing, automation, data integration, and adjusting payment frequency are right for your business. For further information, you should seek professional advice to determine which global payroll solutions are best for you.
About New Horizons Global Partners
New Horizons Global Partners helps companies to quickly, compliantly, and cost-effectively expand into major markets throughout the world.
Our in-country experts will assist your business to expand its international operations, without the expense or logistical challenges of setting up local branch offices. Through our Global PEO, we act as your employees’ Employer of Record and take on all local employer liabilities. This allows you to go to market faster and removes the traditional risks associated with expanding into a foreign market. As a result, your business can save up to 85% on standard expansion costs.
When you partner with New Horizons Global Partners, we manage your company’s payroll, benefits, and expenses. Additionally, we oversee HR duties, as well as employment and tax compliance. And as the only Global PEO with a dedicated, in-house recruitment team, we can source, hire, and onboard your international workforce.
With global offices located across Asia, Europe, and North America, our specialist team will allow you to test new markets and expand the reach of your business. We are committed to ongoing client satisfaction and transforming your expansion goals into reality.