Optimize Centrally Managed International Payroll

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SSON is delighted to welcome Intercomp Global Services back with a new series on Global Payroll. In this interview Eloi Malta-Bey, Vice President Global Payroll & HRA Operations at Intercomp Global Services discusses the challenges and benefits of a centrally managed international payroll solution.

SSON: What are the main challenges within a centrally managed international payroll solution?

Eloi Malta-Bey: The main challenge within a centrally managed international payroll solution is to deal with multi-lingual capabilities and highly skilled profiles. For instance, here in Budapest professional profiles are easy to find, but they are not necessarily trained on the payroll process. The challenge is to provide and execute a strong training plan and develop a career path that allows us to maintain the right level of skilled payroll professionals.

SSON: Could you perhaps talk us through the benefits of an organization holding a centrally managed payroll system?

Eloi Malta-Bey: Basically there are two immediate benefits. The first immediate benefit is the cost structure. By centralizing your activities, you are saving on the cost of having different legal entities - the cost of having a level of management that you would need to locally manage several teams of different sizes. Scalability is much more of a tangible leverage in a centralized solution than in a decentralized one.

Cost is clearly the first thing, which - let me clarify - has less to do with a low cost location. The second benefit we are talking about and putting a stress on is the centralization rather than off-shoring of the process. For example, we are based in Hungary and we are processing Hungarian payroll.  We are also responsible for the payroll of countries that are cheaper from a labor cost point of view than Hungary, as well as for countries that are more expensive. My point is that the cost effectiveness of our solution is a clear result of centralization combined with optimization of processes and technology usage.

The idea of having a cluster of professionals in the same place gives you a more efficient process and a more focused management. While continuously speaking with our clients, mobilizing our whole team to answer multi-country challenges, being in one location is allowing us to save a lot of unnecessary layers of communication. It shifts the focus of our teams’ work from a pure process management challenge to a client experience improvement and exceptions management opportunity.

SSON: Can you perhaps explain or give us some examples of how the centrally managed payroll system actually cuts costs?

Eloi Malta-Bey: Very concretely, it cuts down the infrastructure costs: the cost of not having to maintain several legal entities with all their fixed and heavier variable costs. Instead we invest the money in our core product to bring value to our clients.

Setting up a centrally managed payroll is more expensive at the beginning and requires investment, but as soon as you reach a certain threshold - meaning a volume of payslips (that’s what we use in the payroll industry) regardless of which country we’re talking about - it becomes much more efficient. After you reach a certain volume you benefit from the base management team, and certainly management in the broad sense, including people, process, technology, continuous improvement and most importantly client relationship management.
Those are the two main aspects of cost reduction.  There is another one not necessarily related to centralization – which is the technology we are using. Our own software technology is allowing us to be less dependent on license fees, giving us the opportunity the leverage of one technology platform, regardless of the country. It results in tremendously reduced processing costs because what counts is the number of payslips that you process in total not per country. Obviously the legislation that you have to apply to each country is different, but the whole approach is the same: your team’s training requirements, your processes and procedures, the maintenance of the platform, etc. are all common to any serviced country.

The platform is composed of the gross-to-net engine, which is the most differentiating component country by country - but then all the rest, like data exchange with the clients, reporting tools, storage application, etc. are all designed and integrated in the same way cross-country, so you build up your economies of scale much compared to dealing with each country separately.

SSON: Can you tell me then how you manage local compliance?

Eloi Malta-Bey: We have payroll professionals that speak the local language. It makes no difference whether the professional is located at the shared services site or in the legislation country. By having one efficient process to deal with expertise for one country, we are in a position to reproduce that same process for every country and therefore benefit from the scalability and the economies of scales it generates. So, what is this process? We have a network of local experts who are not manipulating our payroll data but are only focusing on the legislative expertise. They are usually legal or tax experts.  It can be a law firm that also has a tax practice, or an accounting firm that also has a legal understanding.

SSON: Is there a minimum number of employees that an organization should have, to be ready to deliver this particular model?

Eloi Malta-Bey: There are two perspectives to this.  If a company is trying to build such a model internally the base investment is quite high. You need to have a critical mass of employee volume in order to justify such a model.

On the other hand, if you are asking if you need to have a minimum number of employees to be attractive to an outsourced services provider like us, then having a centralized solution like ours, the answer is no, because the investment is made by the provider, Intercomp in this case. Clients can benefit from our overall volume economies of scale starting with a single employee.

Now, if you want to do it internally, it definitely requires a global volume. It could be a good solution if you have an organization that has a lot of countries with low volume. For example if you have 10,000 employees, with no more than 300 employees in one country, you may find it difficult or too expensive to implement an integrated ERP such as SAP. So an alternative to this could be a centralization of the process looking at cross-country communication tools, reporting and storage tools, and finally, depending on the ambitions of the given organization, developing their own payroll software (local payroll applications also fit this model to a certain extent).

SSON: What do you foresee as compelling changes within the HR and payroll outsourcing industry for the next ten years?

Eloi Malta-Bey: In my opinion there will be more and more professional organizations that will provide this service as a core business.  By analyzing the landscape of BPO HR and Payroll offerings you can see a lot of different players from various backgrounds, but you can also already spot few players who have HR and Payroll outsourcing as their core business activity.

In the BPO field we currently have some players from the technology environment, and others from the mass transactional activity sphere, who are making this a real profession and not just an opportunity to make additional revenue. They are mainly leveraging on credibility in their other large size streams of service like IT or F&A.
Intercomp is also focusing on clients and organizations that are not just part of Fortune 500, but organizations that are struggling to find BP solutions that they can afford from a technology standpoint, to drive centralization and improve service. The market is consolidating to offer targeted solutions and this is the market Intercomp is focusing on.

The quality of the experience will become more important on top of cost and control, which are two main drivers of outsourcing today, and high cross-client standardization will then make the difference in providing qualitative solution at a low cost.  Right now outsourcing is led by Fortune 500; they are still running the show because of the large value deals at stake.  Basically, they are setting the tone and as a result too many of the HR and Payroll outsourcing deals are just about service delivery based on client by client customization and off-shoring for labor arbitrage.

In my opinion, there isn’t enough focus on standardized and optimized none-core organizational BPO offering. Small and medium size companies will be more open to standardization because they will be less complex and self-sufficient and therefore in a much better position to adapt to a standard product that they can afford and adopt, and that will provide them with immediate tangible benefits. I think the big organizations are less inclined to accept/identify with "out of the box" solutions as a winning opportunity in the short and medium-term. But surely the standardized offer will meet the small and medium size companies’ demand and from then on this will open a whole new era for BPO, large and small alike. I believe Multi-Country Payroll offerings will be at the leading edge of this exciting trend.

Points of Discussion

1. In this exclusive interview, we take a look at the biggest challenges associated with moving to a global payroll system. Local compliance is one of the challenges discussed in the interview. What challenges do you face in the form of local compliance and how have you overcome them?

2.  In a recent interview with Eloi Malta-Bey, Vice President Global Payroll & HRA Operations at Intercomp Global Services, the topic of upcoming changes was discussed. What do you foresee as compelling changes within the HR and payroll outsourcing industry for the next ten years?