Why Global Payroll Typically… Isn’t
During the past 10 years Human Resources departments, along with HR software vendors, have been focused on consolidating HR data under common processes and technology with varying degrees of success. Even those companies who have managed to tackle global HR Process alignment still have difficulty knowing what to do with Payroll processes and technology. In many cases, payroll is still pieced together by aggregators and various “mom and pop” companies or else it remains hopelessly a local problem. In any case, global payroll reporting has remained elusive to even the most forward looking global companies.
In this post I’ll cover some of the reasons global payroll and reporting has been difficult to achieve and some of the common misconceptions related to Global Payroll.
Reporting: Multi-Country Payroll platforms
There are a few major HR and Payroll vendors touting multi-country or global payroll software. The reality of the technology is that each country payroll, even when well planned and implemented, still is not consolidated for cross country or cross currency reporting (except in receiving finance modules after consolidation on a ledger of accounts). You may be able to achieve some cost savings by dealing with one single payroll vendor for a large cross-section of your geographies but if your main objective is to realize global payroll reporting then you should be wary. Dig beneath the Sales facade, into the technical details, and you will typically find there is no simple solution to single currency reporting across country payrolls. Some of the key obstacles are outlined below.
Net Payroll is one of the most difficult areas of HR to globalize due to the local regulatory influences on its calculation and disbursement. The United States, being one of the few privatized health systems globally, often has complex plans (and tax rules which vary by state) around medical care. The UK, with its complicated pension schemes is another outlier along with Italy and its lack of seemingly constant payroll rules. Although pay frequency is commonly monthly in most of the world, the US requires weekly, bi-weekly, and semi-monthly aggregations across reporting lines.
The effort to harmonize must first define what processes in Payroll can be made global and then, in turn, what pay codes to report on globally. In most cases this is limited to common elements of pay such as Salary, Hourly rates, Bonus/Incentive plans, and Time recording data. It also must define the logic to be used in the calculation for metrics over different units of time. These are decisions which are often company specific and are difficult to “productize” in multi-country payroll modules.
Transactional Relational Databases typically cannot handle the volume of data generated from Payroll without special considerations such as table indexing, OLAP cubes, or non SQL based data warehouse technology . A table of 1 Million (or more) entries can be taxing (no pun intended) for common SQL selection statements. This is especially true if you are not running a finely tuned database leveraging one or more of those mechanisms listed above. Payroll results can easily generate 10′s of Millions of rows in a single database table. Consider the following example:
30 line items per pay statement per period
26 periods in a year (in US)
= 3,900,000 rows per year (19,500,000 for 5 years of history)
In addition to being US only, this accounts for the volume of “current” period values, not the usual additional triplicate Month-to-date, Quarter-to-date, Year-to-date accumulations of most of the same line items. It is normal for users to want to subtotal, sort, and filter real time. This makes reporting on the results difficult without leveraging special database tools.
Exchange Rate Synchronization
Exchange rates can be applied to local currency source data at a number of different integration points and using different dates (using period begin date, pay date, date posted to the financial ledger). Therefore, getting a global reconciliation of each pay type “down to the penny” in a single currency becomes extremely tedious and even impossible in some cases.
Payroll systems such as SAP allow automated recalculation of pay periods into the past. Although payments are usually carried forward for posting to Finance in current periods only, the underlying original period paycheck details are still subject to change once they have be recorded in the ledger. Therefore, careful planning around recalculations and posting must be considered before the two can be reconciled accurately. Finally, a retro calculation coupled with exchange rate calculation aggravates the problem further.
All of the above make global payroll implementation a risky and often ineffective business case. Even if the technical challenges are surmountable, the cost of a global payroll implementation and harmonization is very often too high to be competitive with local payroll specialists, especially considering the service trade-offs required.
Ask us at Fuse Analytics how we can help you achieve global payroll reporting at a fraction of the time and cost of re-engineering a global network of payroll providers. email@example.com.