Payroll processing is probably not your core business. But it is something that you need to get right – especially when using 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 percent of schools affected. The drawn-out fix cost the Government $45 million, the resignation of several senior bureaucrats, and a seriously bruised reputation.
While introducing any new payroll process carries an element of risk, at the same time, you cannot afford to continue with out-dated, and overly complicated, payroll processing systems. In this article, I set out some of the problems with traditional payroll processing and outline four concrete steps you can take today to streamline and simplify payroll.
The Risks of Out-Dated Payroll Processes
Companies have varying levels of payroll process maturity. Payroll processes with room for improvement may incorporate:
- Legacy in-house payroll functions. For some companies, payroll is processed in-house, not for any strategic reason, but because that is the way it has ‘always been done’. This may have made sense in the company’s early days, but little thought has been given to outsourcing, including international options;
- Incomplete electronic or automated processing. Most companies (but not all), have moved to some form of electronic payroll processing. However, often this does not cover all 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 lined up with other business functions, such as HR, IT, and accounting. In addition, data can be in different formats within different units. This can lead to mistakes where the correct data is not available for the business unit that needs it;
- Piecemeal compliance. Where strategic thinking about 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 may 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 be in serious difficulty.
It is important to seek out expert advice in order to optimize your international payroll processes. In the meantime, I set out four steps that you can take to streamline and simplify your global payroll processes.
Step One: Outsource
According to one recent survey, over 40 percent of US companies outsource their payroll. This is hardly surprising. Providing payroll services in-house can be costly and inefficient. In addition to significant cost savings, 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 the business;
- It is difficult (and expensive) for a business to be aware of all the compliance obligations, and significant compliance risks, present in other countries. This is particularly true of payroll compliance, where companies need to be up-to-speed with payroll taxes, employee entitlements, and personal data protection requirements in that country. An outsourced payroll specialist is completely familiar with applicable compliance obligations;
- The COVID-19 pandemic reminds us all that business needs can change radically, and in a short period of time. This is true also of payroll needs. With in-house payroll, it is significantly more challenging to scale payroll resource requirements at speed.
Step Two: Automate
Automated payroll solutions mean:
- Increased accuracy. Manual input or alteration of payroll data adds human error into the mix, and 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 and current payment data;
- Reports and data analytics. Automation of payroll offers a set of accurate data for implementing data analytics – reading off company-wide data to draw payroll conclusions (e.g., up-to-date analysis of overtime), or make predictions about future payroll requirements;
- Rigorous data security protocols can be put in place for automated data. This may include multi-factor identity verification, administrative privileges, and encryption;
- Enabling data protection laws. In order o comply with personal data protection laws in various countries, it is essential to be able to quickly access accurate personal data on request. It is much easier to do this with automated systems.
Step 3: Integrate
You are missing opportunities if you are not integrating payroll data and processes with data and processes in other business units. For example, consistent HR and payroll data can help 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 to manually process requests from other sections of the business.
Step 4: Optimize Payroll Frequency
Payroll frequency can differ significantly in different countries. While fortnightly payment is common in the United States, monthly payment is common in various countries in Europe and Asia. Where appropriate in that country, there are significant cost savings to be made by reducing the frequency of payroll.
A lack of strategic focus on payroll processes, over time, can start to significantly affect your business. This is especially true once the business has expanded overseas. Your company is at particular 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, you should consider whether outsourcing, automation, data integration, and adjusting payment frequency may be the right move. For further information, you should seek professional advice to determine which global payroll solutions are right for you.
About New Horizons Global Partners
New Horizons Global Partners helps companies quickly expand internationally to targeted markets in Asia and the Middle East. countries.
We have global offices to assist clients expand their global operations without the expense or logistical challenges of setting up local branch offices. We can also assist you with outsourced payroll solutions.
Our specially-qualified team of business experts with a robust understanding of multiple industries help you to test new markets and expand your business’ reach. We develop a customized strategy to help make your expansion a success and pride ourselves on our commitment to client satisfaction.