Payroll management is one of the six major focus areas in the Human Capital Management research and advisory practice at Ventana Research. The umbrella term “continuous payroll” is used to connote the always-on nature of a modern payroll function and related demands of supporting technologies. It’s an appropriate term, especially considering that one of the most significant advances in payroll management in decades is “on-demand pay,” also known as earned wage access, which is as continuous as you can get.
The implications of continuous payroll include:
- Workforce actions with payroll processing that can occur every day.
- The need to constantly monitor and reflect ever-changing compliance regulations.
- The main topic at hand — the continuous demands of a global payroll function.
Global payroll is about expertly leveraging people-intensive processes as well as intelligent systems, ancillary tools and other automation capabilities on a daily basis to meet both global and regional requirements. More specifically, global payroll is about the means and mechanisms (or models) used to consolidate all payroll transactions and relevant data streams from multiple regions around the globe: To map, convert and standardize data for global reporting, management analytics and oversight, and meeting compliance demands at both the entity and regional levels. The trusted source of so much worker data enables analyses only payroll departments can perform.
Aside from paying workers in local currencies, satisfying a range of regional compliance and service delivery requirements is core to this function. And if one of the regions in scope happens to be Europe, for example, complexities such as a book-like pay stub or slip in France, “thirteenth month pay” in various countries, and meal vouchers in Belgium that are partially free of tax and social insurance costs (tied to contribution limits) are all part of the mix. Notably, labor laws and tax regulations in other countries around the globe can vary at the person-level based on compensation details, age, family status and other demographic or profile data. And these somewhat “standard” complexities managed by a global payroll operation are above and beyond finance and accounting areas needing to manage other operational and regulatory aspects, such as the various types of payments and reimbursements to workers that must be included when reporting to the taxing authorities of all relevant countries — which definitely varies — as well as 1099 reporting in relation to contractors.
Ventana Research asserts that by 2023, nearly all payroll departments will provide business performance insights into overtime and other labor cost trends using analytics and benchmarking. Given all the demands a global payroll operation must contend with, and the fact that related business drivers and strategic objectives can vary from organization to organization — depending on the relative importance of cost and risk management, workforce decision support and worker experience considerations for example — various approaches have emerged for using payroll systems, tools, data and subject matter experts to effectively execute on the mandate of a global payroll function. The five models most frequently used include:
- Payroll portal front-end, which serves as a single, two-way communication platform for accessing, combining and utilizing payroll data from around the globe. The organization still needs to conduct all data transformations (mapping, converting and aggregating) to address global reporting, analysis and compliance matters.
- Middleware-powered reporting and analysis (or the “aggregator” model) for managing data flowing across what could be many disparate payroll systems, processes and data models/structures to achieve the key strategic goal of a real-time, globally consolidated view for effective oversight of workforce management and compliance issues. This model is typically powered by proprietary mapping, conversion and aggregation routines, often leveraging robotic process automation, as data fields and formats vary widely from region to region.
- The aggregator model with a cloud platform, a flavor of the aggregator model, is similarly employed to collect data from all worker locations and provide a unified view back within a single dashboard. The extra capability is that it’s delivered totally in a cloud or software as a service environment, offering the corresponding customer benefits of easier technology-related budgeting and the ability to leverage continuous product enhancements without any real business disruption. This model typically relies on a single processing engine and centralized database, and all outputs emanate from a single, cloud-based system.
- A global payroll application framework and platform, which is used to effectively deliver cloud-based human resources/payroll services and address all global and local requirements across a large set of countries. This is done through real-time or near real-time integrations with all major commercial payroll software platforms in order to process relevant inputs and transactions all the way to payment. This framework usually involves many rules-based engines for handling region-specific transactions, reporting, compliance and systems interface requirements as well as supporting the payroll-related needs of smaller locations where commercial systems are not in use.
- Commercial global payroll software, which is the most popular approach for operating a global payroll function within larger organizations, outside of an outsourcing setup. These customers are generally willing to spend more on technology in order to have the most direct, efficient and nimble tools to manage regional and global reporting, analysis, interface and compliance requirements. At the heart of these systems is a global, rules-based engine that flexes to support a range of countries, depending on the software vendor’s commitment over time to offering country-specific payroll products.
The commercial global payroll software model, while often viewed as the most sophisticated of the five, does have a few key caveats, namely that no current global payroll system provider covers all 195 countries with one solution. Most cover less than 30 countries, necessitating inter-operation with other systems or solutions that adds to overhead costs and, potentially, challenges. Other means must often be employed to deal with the “long-tail scenario,” locations with only a small number of workers. Additionally, “aggregator” and framework models offer lower TCO than the commercial software scenario, but usually only if the supporting people and data infrastructure are fully optimized.
The bottom line is the same point made early on in this Analyst Perspective: The model pursued usually depends on the relative importance of cost and risk management versus high-impact HCM decision support — through the tight coupling of relevant systems and data — versus delivering a higher quality worker and manager experience. The recommended path is to ensure these outcomes and decision factors are prioritized, but organizations must also assess level of risk and cost if a change becomes necessary. It is also highly recommended that customer organizations think about goals and priorities over a longer period of time, like 7-10 years. This is to minimize disruption, risk and change-management concerns stemming from potentially upending a task that is near and dear to all workers: paying them.