A payroll transformation is the process of transitioning from an outdated and manual payroll process to one that is fully integrated and streamlined. Though this process takes time, the reduced costs, time saved and business insights make it worthwhile. Here’s what you need to know to sell your organization on payroll transformation—and be successful when you go to execute.
The complexity of global payroll
Since Mike Eralie joined Safeguard Global as COO in 2021, much has changed economically, politically and technologically. When discussing the driving forces behind the market changes that he is currently witnessing, increasing complexity is a recurrent theme. “The complexity of operating payroll globally is precisely why organizations should consider a global payroll transformation,” Mike observes. “And it’s not just about managing the here and now complexities - it’s about future-proofing your organizational ability to remain compliant, work at optimal efficiency, grow the business, and continually enhance the customer and employee experience.”
Knowledge and resource gaps are often cited as a reason why organizations consider geographical expansion to be too complex an undertaking. “For companies that perhaps have operations in five or six countries globally, who want to expand,” Mike notes, “they will simply not have the local knowledge nor HR and payroll infrastructure in place to enable them to move into new countries as opportunities dictate. As a global payroll partner with in-country expertise, we enable a cost-effective and compliant expansion with ease. And while they acquire critical mass, we support them on that journey with HR services to tap into, as required, along the way.”
Five key steps to achieving payroll transformation
Although payroll transformation is complex, it’s not impossible. Here are five key steps you can take to implement a successful payroll transformation at your organization.
1. Map out your current state and pain points
Before you can move forward with payroll transformation, you’ll need a clear understanding of the ins and outs of your current process by performing an audit. Here are some things to consider in your audit:
- What are some current payroll challenges? For example, does your French HR team always submit the overtime to the spreadsheet a few days late, resulting in somebody getting paid late?
- What technology is in place right now? Which parts of your HR stack support integration? Do you have a full integration between your Human Capital Management (HCM) software and your time & attendance tracking?
- What staff do you need to cover? Are some staff already covered by an international partner and you’re pushing towards full coverage?
- How many people are currently dedicated to payroll processing? How many stakeholders need to be involved going forward? What does a core HR team for each region or country look like, with and without a payroll partner in that country?
The best way to answer the questions above and collect further findings would be to interview everyone involved in the payroll process and be open to any feedback they provide. This means talking to regional and HR heads, your core HR team, payroll specialists in countries where you operate, your HRIS administrator, and your line managers abroad.
Additionally, it’s important to determine and track important payroll KPIs to gain insight into the impact of your payroll transformation. A few key KPIs to consider include:
- Accuracy rate/number of errors: How frequently are employees underpaid or overpaid? Are there elements that are frequently paid out or withheld at the wrong rate? How often do employees have to chase down HR to correct issues?
- Time to run payroll: How many days does it take to collect the inputs, disburse funds and send a payslip?
- Total cost of running payroll: Try to determine, from your map of the personnel involved, how many hours are required to run a single payslip for a single employee in a country, then total that and add the cost of supporting software.
You can gain a lot of insight into payroll performance by surveying your employees too. Are they dealing with payments being processed incorrectly, late, or even tax withholdings being withheld incorrectly? And if these issues are happening, how often?
2. Scope your desired future state
After you’ve figured out the current state of your payroll, it’s time to decide what you’d like your future state to look like.
To help you map this out, it’s useful to understand:
- Cost and budget: How much of your budget is available to dedicate to costs related to payroll transformation?
- Transformation team: How many people do you need to successfully roll out a payroll transformation? Who are the key stakeholders you need to get buy-in from?
- Current business challenges: What are the main challenges you’re hoping to solve with a global payroll solution?
- Vendor relationship: What role do you envision a vendor taking in the payroll transformation process?
With most vendors (both in-country providers and managed payroll services), there are usually set-up or implementation costs involved, but you might also have to consider hiring a “Systems Integrator” to help you connect your HCM software to your managed payroll provider should you choose to use one. There may also be costs to set up in-country bank accounts, adding additional modules to your HCM and other necessary costs.
Managed payroll services come with several advantages like reduced risk of noncompliance, automation of time and expenses, streamlined HR administration, and consolidated financial reporting. However, many businesses conducting a payroll transformation choose to keep their payroll in-house or only utilize a small patchwork of in-country partners they manage themselves to handle countries where they're understaffed. While this isn’t the most streamlined way to handle payroll processing, it may be what works within their budget and/or what they feel ultimately works best for them.
3. Vendor selection and review (if needed)
If you do feel that a new managed payroll provider is necessary in your payroll transformation, it’s time to weigh the pros and cons of a few vendors. Some things to consider when reviewing vendors include:
- Does one vendor have all the features you need?
- What do their reviews look like?
- Does their culture align with your company’s culture?
- Are they more proactive or reactive when it comes to service?
- Do they service all the countries you do business in (or hope to do business in?)
Think long and hard about your decision as you weigh the benefits and challenges. If you had to choose Vendor A over Vendor B for cost reasons or because of a "killer feature", how would that affect your desired future state? How would other vendor decisions affect your desired future state? Once you’ve selected a few that you feel you’d be happy with, it’s time to work on a payroll request for proposal (RFP). The person dedicated to taking the lead on the RFP process will be responsible for submitting the RFPs, establishing the vendor contact, and ultimately the decision to decide which vendor to move forward with based on desired state and budget.
Pro tip: If you decide not to use a vendor, make sure that you've mapped out responsibilities internally. This will ensure you know who will handle the parts of the payroll transformation process that a vendor otherwise would have.
4. Project planning
This step in the payroll transformation process is an extensive one. You will need to plan and map out what will happen in the first month, second month, and so on. This includes:
- How will you manage responsibilities for each phase and task at hand?
- How much time needs to be dedicated to each task and phase?
- What happens if there’s a setback?
- Who has ultimate authority to make major decisions about the project?
- How are you going to report on the payroll transformation’s progress?
- What will the vendor need from you at each stage?
Beyond the month-to-month project outline, you will need to ensure the right people are in place every step of the way. Having a project manager will really come in handy throughout the project planning process. They will ensure the payroll transformation is as structured as possible and that there’s a clear path forward to get from step 1 to step 2. A project manager will also ensure that you’re on track with your own internal timetable and can readjust should obstacles arise.
Another thing to keep in mind is which countries are most critical for immediate change. Most managed payroll providers work in waves, where your most critical (or most prepared) countries are rolled out first, and then subsequent countries are rolled out in later waves.
Do you know which countries those are? Have you notified the people responsible for these countries and ensured you’re all on the same page? Each country will need to be in a ‘ready state’ (i.e. data is cleaned up, there’s solutions for treasury and time tracking, whether through an HCM or another part of the HR tech stack).
5. Execution
It’s the moment everyone has been waiting for. All your tedious, hard work has been building up to this point.
It’s time to start executing your payroll transformation project. Depending on how many phases you have, it could take months or even a year to get from the first wave of countries to the last one.
Some items to consider during this phase include:
- Are we on track or are we behind schedule? If we’re behind, what can we do to get back on schedule?
- Are the right people in the know for each country and phase? Am I repeatedly having problems when scoping new countries because stakeholders aren’t ready?
- How are things going with the first wave? What can we improve upon for the second wave?
- And probably the most important one: is our payroll process improving?
As you take a phased approach to roll out the payroll transformation, it’s extremely important to conduct thorough reporting to get a temperature check. Take time to revisit the KPIs you audited in the beginning:
- Accuracy rate/number of errors: Am I getting fewer complaints about late payments from regions that were otherwise painful before?
- Time to run payroll: Have I shaved hours or even days off of my per-slip labor in the countries I’ve already transformed?
- Total cost of running payroll: Have we reduced the cost of fees and fines due to noncompliance? Is payroll being more accurately run?
- Any others you may have measured
By revisiting these KPIs, you’ll get a good understanding of how the vendors you’ve brought in and the payroll transformation processes you’ve implemented are working for you and your company. Ultimately, you want to see fewer errors, faster and less cumbersome workflows, happier HR teams, and happier payees, but do remember to give it time. Set up a regular review committee to look at these core KPIs in transformed and untransformed regions, and to ask regional stakeholders how they feel about their work now. Ideally, it should all be trending upwards.
Post payroll transformation
Transformation is a journey, and it’s never really over. For payroll to become a truly strategic function, periodic refinement is necessary. After a payroll transformation, you should have access to new data and new levels of visibility—just to name a few. But as a baseline, you can judge your payroll transformation to be a success if most markets now have:
- Automated and reliable processing
- Digital calendars
- A centralized view of global data
- Smooth vendor integrations (HCMs and other payroll vendors if needed)
- Enhanced compliance
Partner with experts for your payroll transformation
Achieving a successful payroll transformation involves many factors, and it’s important to partner with payroll experts that can guide you through the entire process. We’ve put together a comprehensive payroll transformation guide you can use as a resource, and additionally, you can contact us for a free consultation.
Mike Earlie, COO at Safeguard Global, summarizes our approach well by sharing that “we are ever conscious of the fact that what clients need today will change over the course of our relationship with them. Our approach is very much to grow and change with them rather than allowing the relationship to be governed by contractual boundaries. In short, whatever you become, we will go there with you.”
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