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PAYROLL SERVICE COMPANIES AND ORGANISATIONS UNDECIDED
ON THE REALITY OF A GLOBAL PAYROLL

Key points

  • Organisations do not concentrate nor reflect deeply on the payroll process, which may incur even higher costs in the long run
  • Lack of knowledge and experience with payroll outsourcing exacerbates mistrust in vendors to remain compliant
  • Payroll vendors need to demonstrate the diverse returns on investment, financially or otherwise
  • The market is not yet mature enough for a global payroll model

Respondents who took the survey across the globe were generally senior payroll leaders, or the ones with the decision-making power. 50% of the respondents hailed from China, US and the UK, with more than 70% of respondents having operations in at least 10 countries.

Sticking to the status quo

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In remaining with their current payroll model, over 50% of respondents stated that it was their ‘tradition’, and saw no need to change it. Surprisingly, cost was a significantly lower motivation than expected, 7%, suggesting a lack of confidence in alternative models than their own.Only 22% of respondents currently have a global payroll model, but this applies mainly to organisations that operate in the mature markets and therefore are more likely to be able to adopt a truly consistent model. Only 11% of the 68 respondents considering expansion into new markets were in the process of actively pursuing a global payroll solution implementation,, whereas majority with 41% had not even begun considerations at all. This suggests that perhaps it’s not that organisations exhibit a lack of confidence and money in investing in a new payroll model, but simply a dismissal of the need to change it.

Nearly 40% of respondents were dissatisfied with their current payroll model and were considering a switch. 70% of respondents indicated a general uncertainty on whether to outsource or keep it in-house. Once again, most respondents did not see an urgent need to change anything.

Current Payroll Models

Only 12% of respondents operated using a fully outsourced model with a single outsource provider for global payroll services, while 28% utilized a completely in-house delivery model. Majority of the respondents (60%) used a hybrid approach, outsourcing certain payroll processes while maintaining some in-house control. The fact that only 12% of respondents fully outsource payroll may reflect a lack of trust and experience with the outsourcing payroll market. Taking into account the various geographical landscapes, only 20% of respondents believed their payroll model was global. This might vary accordingly to the payroll complexity, of which Singaporescored the lowest in the world, indicating a higher possibility of a global payroll model.

Most of the respondents (65%) treated their payroll model locally or regionally, yet 46% of respondents indicated over 80% of the payroll process were consistent among their operating countries, contradicting the responses in the former question that perceived global payroll models to be unfeasible due to compliance differences in countries. 54% of respondents were satisfied with their existing payroll model, but thought it could use improvement. Once again, this reflects an indifference to payroll, and possibly its nuances. This is supported by the fact that about 42% of respondents do not use a knowledge-based database or tracking system in their payroll process, which is crucial for spotting and resolving potential errors in the system. Only 25% of these respondents were considering implementing a tracking system or knowledge-based database. As complexity of payroll increases, this may be the bare minimum required to avoid incurring further costs in the long run.

Perceived Challenges Faced in Implementation

Organisations who operated an outsourced payroll model had differing opinions on the challenges faced than with organisations that had an in-house model. Identifying the legal and regulatory requirements represented the greatest challenge to the former, with cost dropping in importance. Those with in-house solutions cited cost as most important, with loss of control close behind. This suggests that while organizations lack confidence in the ability of technology to stay updated with the changing regulations, they still lack trust in the outsourced vendors to stay compliant. Seventy percent of respondents do not believe that a vendor currently existing can provide global payroll solutions. On the other hand, 30% of respondents did believe that one provider could handle all of their global payroll needs. Despite the earlier concerns on compliance, the top three criteria for selecting a new global payroll vendor were based on cost (19%), geographic capability (18%) and the technology platform (10%), reflecting the burgeoning workforce of mobile-savvy users.

This was supported by the fact that of the services respondents would be most willing to outsource, payroll operations for mobile employees scored the highest.

Where do we go now?

The final question to highlight was when respondents were asked about the most common payroll error committed. Incorrect tax withholding was cited most frequently, supporting the concern that existing payroll solutions are unable to remain complaint with increasingly complex regulatory requirements. More worryingly, underpayments and overpayments accounted for approximately 30% of payroll errors, suggesting that even basic errors in payroll processing remain prevalent. A multiplier effect takes hold: rectifying tax errors are costly and time consuming, manpower is wasted, employees dissatisfied with untimely pay checks, and consequently less time and spirit is assigned to strategies to boost the company’s efficiency.

Payroll still remains one of the most frequently outsourced business processes, but these findings indicate that the market is not fully matured as many are still sticking to the status quo – despite the clear risks of doing so.

There is a need to take advantage of new technology, increase effectiveness and enhance vendor relationships.