Peace of mind through Global Payroll Compliance

SSON News and Analysis
Posted: 07/09/2012

Concerns over compliance have traditionally been one of the main inhibitors preventing firms from moving to a global payroll operation; the need to keep a degree of local knowledge within the system has led many companies to maintain relatively broad and bottom-heavy payroll organizations, frequently leading processes far from best-practice scenarios.

This rountable session is part of the Global Payroll Series in association with Intercomp Global Services and addresses the advantages and challenges for compliance when moving to globlal payroll platform.

View all Global Payroll content here 

Participants were:

Jeanette Hibbert
Payroll Manager
Kerry Group

Shridhar Kumar
Manager of Operations and Payroll
Tesco

George Castlehow
Controller- Payroll, Travel & Expenses
Rolls Royce

Daniil Shash
Business Development Manager
Intercomp Global Services 

Eloi Malta-Bey
VP Global Payroll & HRA Operations
Intercomp Global Services

Moderator:

Niamh Byrne
Online Editor
Shared Services & Outsourcing Network (SSON)

SSON: First of all I would like to ask if any of you feel through your organizations, that you have reached peace of mind through the global payroll compliance.

Jeanette
: No

SSON; Jeanette do you want to take it from there, why?

Jeanette
: Well we’re really at the beginning of the whole global payroll issue, in that we have recently restructured at Kerry and we used to run several autonomous businesses, which had central service payroll provider’s in-country. So we’ve only just started to look at the whole global package of what we should be doing as opposed to what we are doing.

SSON: How about you George, could you maybe give us some background on where you are coming from with your global payroll?

George:
Probably the same as Jeanette, we’re starting from…Rolls Royce have a presence in say, fifty countries. The big areas we have centralised payrolls, in country, UK, North America, Germany and Norway. What we are looking at is the other thirty eight countries, where head count wise we are in between two and five hundred. So we are trying to find a global provider or an outsourcer provider to cater for everyone of us - so we are very much at the beginning of the journey, and what I want to find out now is, I can’t see a cost effective system to do it.

SSON: Shridhar, coming from the Tesco Shared Services Center in Bangalore, do you believe you have reached that piece of mind through payroll compliance?

Shridhar:
I would say no, not yet, and the reasons for that is I think that we have our own set of issues and concerns, which is based on the platform as well as the regulations. So we are in a situation where we are part of a mainframe system, which is activated in terms of technology. The longer that technology, our dependency on manual intervention, the level of manual intervention that we have in our payroll; I wouldn’t really say that we have arrived as far as compliance is concerned. But are we on the right path? Of course we are – but my view is also that compliance is not necessarily going to mean a peaceful state of mind, but it is actually going to be a bit of a journey. A lot of our concerns are coming through, we are picking them out, and some of them have a rich legacy to that. It’s a case of propping up on and off. So it is a bit of a slower pace in order to reach that critical point that you want to. I think that we are right on track, but definitely not arrived yet.

Jeanette: I think for a lot of companies, global payroll is still a new concept, and that is why I think, it would be fair to say that the majority of companies would say that they are not on an even playing field just yet.

SSON: I would like to bring Daniil and Eloi from Intercomp Global Services into this at this stage, Daniil, you come from a global payroll provider, yet the organisations that we are speaking to now, we are speaking to Tesco, the Kerry Group, and Rolls Royce - They haven’t found global providers to accommodate them completely when it comes to Global payroll. Why do you think this is, when there are a lot of companies like you offering this service?

Eloi
: Compliance is essentially a local thing, so even if we approach people on a global level which can be a new concept or way of approaching payroll in organisations, compliance specifically will always be a local issue. We as providers of payroll of outsourcing services help our clients to be compliant both on local and global levels. However before I start answering you question I would like to clarify: are we talking about legal compliance in local countries or talking about global corporate compliance?

SSON: We are looking at compliance from a local field to a global field. For example, George from Rolls Royce pointed out that they are located in sixty different countries worldwide. So obviously compliance needs to start locally before it goes up to a global level, and how can an organization like this be accommodated through one global payroll provider like Intercomp?

Eloi: So basically, both legal and corporate compliance?

SSON: Yes.

Eloi: As you are all payroll professionals you will know that payroll is somewhere in between HR and finance, and therefore it all starts with the definition of the limits of what we include in the payroll process. From data gathering to compiling, including calculations and reporting, and then the integration of the data back into the organisation. Compliance, and I was thinking about legal compliance specifically is part of our core business; it is something that is extremely important to us since we do guarantee quality and accuracy of our services.

Now the reason I am separating the corporate compliance from the legal compliance is because corporate compliance starts usually with HR policies that each organisation can set up independently and that can be very different from one organization to another. This corporate compliance will have an impact on payroll as a constraint not as a driver, specifically on the calculation of the gross but not in fact necessarily on the net. Therefore we, as the provider, will have less of an implication on corporate compliance, and that it is sometimes an area of difficulty of communication or expectation management between the providers and their clients. The providers cannot take responsibility for corporate rules; they can only take them into account when applying them in a given local legislative context.

George: I could probably agree with that. If we were looking at things we would expect from a compliance point of view, for the supplier to have the compliance in the local area with the legislation, to work with the company to ensure that our business procedures comply. But we are more concerned with the aspect of local law and legislations to safeguard ourselves from the supplier point of view.

Eloi: The answers of the providers on the market, including us, would be of two kinds. I mean local compliance would be guaranteed by many factors and controls. The main argument is volume generated by an activity that is our core business compared to being a support function within an organisation focusing on something else. In other words, facing higher volumes as a core activity allows spotting more easily and systematically the compliance inconsistencies. For the policy compliance, we have to comply with the policy of our clients cross-country. Clients set up strong messages of integration internally.  Providers are able to provide a better service when extremely centralised (one team, in one location) in order to answer that cross-country policy compliancy in a better integrated and systematic way. If you have a very disseminated organisation, a provider that will have a lot of different locations to appear local, in fact then makes this part of the compliancy not made possible or at least much harder to cope with because of the decentralized teams set up.

SSON: Jeanette you mentioned that you have outsourced some of your payroll, or you are looking to outsource some of your payroll?

Jeanette:
Some of our payrolls are outsourced and some of them are in house at the moment - we have a variety of different methods of producing payroll.

SSON: Well I think that you are definitely in a position to give us your point of view on how that actually works and the challenges that you are experiencing at the moment.

Jeanette: I can, physically in the UK at the moment the outsource providers that, we use are actually bringing the payroll back into the central service office, because there are compliance issues, not necessarily the third party’s compliance problems, but we do have compliance issues. And it is mostly down to the communication between the supplier and Kerry. But we do have outsourcers in other countries that work very well with our organisations over there, and we are quite happy to continue that way. When we are assessing what to do with those payrolls we have to look at the size as George said, if we have got a country that only employs six people, then we are not going to have a service centre for those six people, so they probably continue to have an outsource provider, so we are still probably going to continue to have a mismatch once we finish. Certainly from a compliance point of view, that is certainly where we seem to have the issues at the moment in the UK with third party providers.

SSON: What are the main issues you are having with compliance at the moment?

Jeanette:
Our payments that should be taxed and have social assurance, that aren’t, reporting that is not being followed consistently, which you get penalties for in the UK and interest payments, and as I said it is not necessarily the third party providers, it may be that the sites aren’t giving all the information that is needed, to assess where these payments should be. But that is a particular issue that we have at the moment.

SSON: George, what are the main challenges that you are experiencing at Rolls Royce?

George:
In the past, because we centralised all of our business in the UK to one service centre, the big problem was historical, based on different rules and regulations and trying to get hat sorted. Eventually we got 99% of the stuff there. Looking outside the UK, again it is in the smaller areas where they aren’t use to complying with rules. In one respect some cases fly by the seat of their pants and the main obstacle is to know what they can and can’t do. I think that it is very hard to try to get into standard processes and try to get them to stay with us - that is our biggest challenge. The challenge in trying to find out what the company compliance, never mind the local laws. In the bigger companies we have standardised processes, but in the smaller ones haven’t. One of the big things that we are looking at as we move ahead is, we have standard processes right across every single country, and business, so from a payroll point of view, we have a standard process the whole way through and people just stick to that process.

SSON: Shridhar, can I ask you, in Tesco what are the challenges that you are experiencing with payroll and compliance?

Shridhar
: Well I think as George was saying, from a legal angle or from a law perspective, I think that are definitely in sync we have got enough checks and balances to avoid any of those exposures. However where we are facing our challenges are specific to our employees, and the company commitment to the employees. And on a broad level, I would say more around the deductions they have to go through and a statutory element as well. So that is where we are having difficulty, also because of the number of employees that we basically cater to and the nature of our businesses as well and the dynamic nature given that the retail business is extremely dynamic on the ground. We find it difficult - the way that we are structured to then go to the government to employ that client, regarding their pay, as well as their deductions etc. From an external standpoint, we are covered from the right set of properties, and the right set of controls as far as the organisation is concerned.

SSON: Daniil or Eloi I would like to ask you to maybe answer some of the concerns that our participants are experiencing?

Eloi:
Again, in general, being our core business this is something we fixed, so it is not something that is a major concern or something that poses an issue. However compliance then, if we focus on the legal compliance, is really two sided. There is the ongoing compliance: to set up a payroll jurisdiction, and to maintain it, this can be challenging, but again we fixed it for our clients. Being our core business, I can talk about the solutions, it can be a bit technical/long, but it is not a big challenge, it is really just a matter of implementing the right delivery model.
On the other hand, the other side of legal compliance consists of the Ad Hoc situations - tricky cases that are highlighted by our clients, not anticipated because this is not like the payroll motorway, but it is really the unique situations type that are really happening only once based on the uniqueness of all factors put together on those given cases. It may be rare if it happens only once, but the generic and continuous challenge is around how fast we are able to come back to the client that has the need, that also considers that it is a general payroll question, and therefore expects an answer very quickly. Actually a few things only can add up to make it special. Even the best payroll experts, usually don’t have the answers straight away, there is a need for investigation. So, how can we reduce the time, constantly counting on our accumulated experience, coming back to the high volume situation that providers can here again leverage as value added.

SSON: Do any of you believe that it is better to have one global provider solution, instead of say and ERP system?

Jeanette
: I think it would depend on the size and structure of the company, sometimes if you have a global provider - what might be very expensive in one area, you might actually benefit in another country where you have a lot of employees. When I worked at P & O we actually went with one provider for Europe and although it was quite expensive in the smaller countries, that expense was far outweighed by how much cheaper it go in the  countries where we had larger staff number, so in that way it was better. Also, we had one contract, one SLA, one central reporting system - so the communication with the provider was much better. The understanding of our business was much better. It was much easier to deal with on an ongoing basis than having to try and juggle several different providers.

ERP systems are very good; I don’t necessarily think that they are the total solution for payroll, although they are very good for lots of other areas of the business. You very often find that they do often fall short in the payroll arena, in terms of localised terms and conditions, and different issues that companies may have. So, what we are finding is that you might have one global provider or several global providers, but  as long as you have got a central point somewhere in the company, to report from, and you still have a clearer idea of the company, whether that central point be staff or system related.

So you might have a global payroll, but then it is split into divisions, and then you have got to report divisionally, but as long as it is all reported on the system, you can still extract that information. So in terms of compliance, you can make sure that the information that is there is tidy and clean. In terms of local compliance you have then got your divisional, more local people, that have the expertise, and obviously if you use providers, you have providers that should have that level of expertise as well.

SSON: George and Shridhar, do you think that within your organisations that you would look to one provider, or look to multiple providers, and why would that be?

George:
The way we are at present, I don’t think that we can only have one provider, we use ERP in our main areas, and we always have those, I think. It is when we start getting in the smaller countries, it is not actually cost effective to have an ERP system in place, so that is what we are looking  for a global provider to squeeze into the  ERP systems with a standard input and output for management reporting. I don’t think overall, there is a global provider in my personal view that will want to cover every country.

I’d envisage from a Rolls Royce point of view, we will probably end up outside of our ERP system having three or four different providers, in different areas of the world. As Jeanette said in some cases it would be very expensive or cheaper depending on size, so overall, the quality of having less providers need to actually minimise costs, and actually be consistent in what report we want out of the systems.

SSON: Eloi, do you think it is actually possible to provide a global payroll service in a country that might have one in only five employees. With Intercomp, is that feasible?

Eloi:
Several things I can say... first, obviously the question for outsourcing is easier for small countries where the internal costs are making it obvious. But, when an organization has the critical mass internally, the cost analysis may not be that obvious. Therefore it tends to be kept spontaneously in-house. Which is fair enough from our point of view? We present ourselves as global providers, we are global providers because each company will have a different set of small countries, and that starts to answer your question basically.

Intercomp has a strategic approach to focus on the small entities for multinational companies - so targeting entities between one and three thousand employees roughly. Then we tend to move from there to the big ones, for consolidation reasons, because the trust is installed and we can move on to the one single solution globally. Now, the reality also is that no provider on the market including us has a fully integrated global solution, there are several types of outsourcer, like vendor managers, software providers or fully managed in-house providers like us and therefore the question here would be how the different companies/potential clients, depending on their profile and their size structure can fit well with a certain kind of provider. Because all the providers are going for a given delivery model, and this model needs to correspond to the model that each organisation/potential client itself decides to go with.

SSON: Would anyone like to raise some points about any of that?

Jeanette:
I would like to raise one; I have noticed there are a couple of providers that have been on the market, that have been growing quite rapidly over the last few years.  What their approach is, is that you still have one SLA, one contract, so you still have all of your compliance centred in one place, but what they tend to do is outsource to third parties themselves in  countries where they don’t have a setup. And then their technology sits over the third parties providers’ technology, so to the customer it is seamless, and you always think that you are dealing with that provider. And then they obviously manage the relationship with the other third party provider. So it is still easier to run, and easier to make sure that compliance is ok, you don’t get involved in the  juggling of contracts and contacts and communications and things with lots of different providers. So that is certainly, something which is worth consideration.

SSON: That is something that you do with Intercomp right? You partner with different organisations in other countries, and provide that facility?

Eloi
: Actually this I not our model at all – it is actually the contrary delivery model. On the one hand you have the vendor management model indeed, with a central point of contact, and technology that gives you the impression that you are dealing with one service providing organisation, and they deal very comfortably with the different contracts and relationship matters with all the local accounting firms actually providing the service in the background.

In fact at Intercomp we believe in the opposite approach as the industry matures further, for two reasons; the first one is that you have to deal with two layers of margins - the central point of management plus the different providers in the different countries, so you cannot offer the best financial deal. And the second reason is related to compliance, or actually in the way we look at compliance.

Compliance is something that we can/have to fix, that is obviously an absolute necessity, but it is not the major challenge. If I can explain briefly - the major challenge is the logistics of information. Analytical skills and understanding of the client, consolidation, centralisation, and this is very hard to comply with when you are working with partners, so when you are working with additional third parties that have a different agenda, a different priority list, that are not located in the same place. So really our bet on the delivery model is to do it fully in-house ourselves, and to do it in one place - our Budapest-based International Shared Service Center. And that is our approach now, and to be complete, we cannot enter into service for all the countries today, therefore we do have a vendor management practice, but driven by the market, we are moving those capabilities from that provider to our own centralized facility. The later being a key competitive differentiator.

Jeanette: I think that is what the other companies are doing as well, once they have got enough business in a country, they are then setting up their own offices. So it sounds very similar.

SSON: Shridhar, can I bring you into the conversation, you have gone quite quiet there. When we spoke recently, you were saying that the model that Tesco’s was working off which is the shared service centre in Bangalore, seems quite solid now, is outsourcing payroll something Tesco will look at it further down the line?

Shridhar
: At this moment in time, we don’t actually see that happening, and I shall share the reasons with you. One of the reasons is that at this point in time in the shared service unit we are a lot more in tune with the core business as such. So we are able to understand and relate to the concerns that are on the ground and with the employees, and we think that we would lose the edge if we moved payroll out. There is a lot of in-house knowledge which we have created over a period of time as we bring new players into the scheme of things.....so we don’t see that as an option at this point in time, and also in the near future.

SSON: Ok, fair enough Jeanette and George, are they fears or concerns that you would have within your organisations? Losing the edge on compliance, and possibly having to give that in house knowledge to an outsourcer?

George:
I think that from an outsource point of view, never say never. I think it is all down to being cost effective and the information you can get out. It will always be around; providers need to weigh up giving the service at the right cost – it nay never happens. But if it did ever happen I think that we would look very much at data, and actually how we could protect our employee’s data. Rolls Royce is very much into penetration testing on systems again. Compliance, again you would be worried. But most of the big companies that do this, shouldn’t have any problems, but you still think that they do their checks etc. And understand any problems that have been going on and talk to the customers on an ongoing basis - you wouldn’t just sit back and give the work away, you would actually keep on talking to your supplier, and the employees to understand the problems and everything.

Jeanette: I would agree with that, I would also add from a data protection point of view, that you would also have to worry about storage of data, and which country it is being stored in compared to which country it was relating to. Because data protection issues in some countries are a lot looser in some countries than they are in other countries, and you would have to think about that as a concern. And it is always costs versus value, and some companies prefer to go in-house because they get slightly more value added from an in house payroll department, whereas if they outsource they don’t get the Ad Hoc value that they would get, and there is not quite the same level of understanding as the business. So, it very much would rely on I expect, some kind of business requirement analysis, and what the priorities were for the company.

SSON: Thank you Jeanette. Can I move forward a little and ask, within your own organisation, and obviously that all your organisations have got quite a global spread, how or what individual solutions would you recommend in working with different statutory procedures, languages and local compliance, from country to country? How are your shared service centres coping with that?

Shridhar:
In terms of language – I think we are moving to a point in the global angle where people are getting a lot more concerned about the quality of solutions that they are getting, rather than where it is coming from. Even in our model when we actually said that there was going to be shared services that is going to support payroll, there was a little bit of concern about the fact that it was going to move away from the homeland. So the way we addressed that was to reach out directly, and talk about the fact that the quality of the services is actually not going to deteriorate and in fact there is only going to be an upside to that. And we have also been very upfront about the fact that you are going to be calling someone who is 5000 miles away, but that is really not going to change what you are going to get. So that is how we addressed it, and we were pretty direct in the sense that we didn’t mention where we were looking or any of that transactional angle of things. And I think people also responded pretty well to the fact that as long as everything is up to the quality and mark that is required, The end user doesn’t necessarily see a big difference if the service comes from a country which is far out, or is right next to home.

SSON: Jeannette would you like to add anything to that?

Jeanette:
The only thing really that I think is pertinent, is that as well as language, boundary issues. You also have to think about the cultural issues between countries, and how that can cause problems. So, whoever does the service whether it is in house or it has been outsourced, they need to have an understanding of the cultural variations, in the business that they are dealing with. It can be quite significant in places.

SSON: I would just like to give you all a final opportunity, perhaps there is something that you would like to bring to the table. Are there any points that either Intercomp, Tesco, Rolls Royce or the Kerry group would like to make?

George
: I just think that global payrolls are the ‘in’ thing at present; I think that everyone is interested in it, everyone wants to do it, but I don’t know yet if we have the complete answer. If anyone could give me the answer, I will be glad. I think it is a very interesting subject, I think everyone wants it.

Shridhar: I think what is more important for any organisation to consider while they are looking at any payroll solution or a global payroll solution is actually to look at how it will keep the people connect in that, because sometimes these decisions to move to a different provider really hits a bottleneck, because the provider finds it difficult to understand what the organisation stands and more importantly the value and the commitment of the employees. So I think that is something which is a key area, for anybody to consider a key option now.

Jeanette: I think global payroll as well can become a bit of a monster, in the fact that I know somebody who worked for a company who has a global payroll, and in order to get a payroll query answered you have to email and get a reference. Much like if you have an IT support desk, but it can take up to four days for a payroll query to be answered because of the hierarchy that has been set up in order to make the process more efficient, and I think that is a danger that you can slip into quite easily. In that you can overlook your employees needs...

SSON: Just on that Jeanette, particularly in current times, when staff numbers are being cut, and one person is doing more than their own job, do you believe that perhaps within the global payroll model that pyramid gets very thin towards the top and it does take longer to get sign-offs?

Jeanette
: Yes, I think definitely.

SSON: Intercomp?

Daniil:
I think that four days is really too long for the query to be answered, you don’t want to wait for days. However, I should note that there are different types of queries, as my colleague Eloi mentioned previously and we should understand that some of them might be much more complicated than it seems. What we do in Intercomp, is we strictly define time required for a response to a query and control this time. Time for quesries to be answered is set in  the SLA.

Jeanette: I think the issue with this particular case was that the employer was quite happy with the response time, it was a big employer, it is the employees that are not happy with the response time. It is difficult if the company is not really prepared to put their employees first, then it is going to cause tremendous issues I think.

Daniil: Well there is another decision for this; there can be payroll responsible managers inside of the company, who can give answers to their own employees, if they ask some relatively simple questions. And if the question is more complicated then, it should be addressed to a provider.

George: I think that even if you do outsource or whatever, I don’t think that we should lose sight of the employees, if they didn’t get an answer within twenty four hours, where the company deemed that correct – they should still understand how the employee is being affected by the service provider. You need a good SLA with the company you buy into and the SLA should meet what the employee expects as well.

Jeanette: Absolutely

SSON: Thank you for all your participation.

 

 

SSON News and Analysis
Posted: 07/09/2012

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