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Challenges Faced by MNCs With Respect to Payroll

As multinational companies continue to expand, there is an inherent need for centralisation and standardisation as they face significant challenges while operating globally. As organisations grow, paying the employee accurately and on time becomes paramount. Even though the payroll process in the home country may be efficient, it is still challenging to take this efficiency across borders, considering the diverse cultures, currencies, and regulations in different places. This article outlines significant challenges from four different points of view – organisation, payroll as a function, payroll professional, and overall employees.

Organisation

As the organisation becomes global, it also becomes essential to be more transparent across different units. Ensuring fairness and equality in its pay structure assumes top priority. When the organisation operates across several countries, it must provide effective pay packages to remain competitive globally.

However, determining these pay packages across different nations becomes complex due to foreign currencies and differing pay frequency requirements. Additionally, the MNCs need to manage massive payroll data and sensitive employee records. They also need to manage money flow from the banks to the local offices to ensure timely payments. They must ensure that they comply with local taxation, regulations, compliance and pay policies.

Thus, they need a vendor to take care of these complexities. However, due to the sensitive nature of the data, they often face a dilemma of choosing between outsourcing payroll or in-house management. They seek a trusted payroll vendor who has managed the various complexities of payroll while ensuring the confidentiality of payroll data (which would carry important information about the organisational workflow and capital structure). Non-compliance and data leaks can be costly for MNCs, resulting in a negative corporate image and causing talent to leave. A flexible vendor offering a service delivery model allows the organisation to manage global payroll challenges by providing customisable solutions. It should enable organisations to outsource only selective or complete payroll processes to the vendor.

Payroll As Function

Payroll is also an HR and finance function concerned with ensuring the timely and correct payment of salaries to all employees. It involves calculating accurate pay considering the terms in employee contracts, benefits, deductions, entitlements, and leaves. HR and payroll involve managing employee records and maintaining them as per regulations.

When an organisation becomes global, these tasks multiply, making the payroll function

highly complex. As the number of employees increases, so do their contracts. A payroll leakage due to errors can cause significant loss to a firm. Almost 2% of payroll value can be lost in large organisations due to leakage.

The payroll cycle may increase with a large number of employees. The payroll staff, as well as the platform, may become overburdened due to differences in policies, markets, and regulations. There is a need to optimise the global payroll process by enhancing flexibility while considering local issues. The payroll cycle needs to be less than three days to ensure efficient payouts. The liabilities of the global payroll function are quite extensive, which makes it particularly challenging to manage.

It might become even more challenging when the in-house staff is not trained on global payroll functions. Due to immense complexities in managing payroll in different

countries, most MNCs tend to outsource their payroll function to special experts.

Payroll Professionals/Employees

The job role of payroll employees or professionals in a multinational organisation is quite challenging. MNC employees will find that ensuring the company adheres to payroll compliance laws in different countries can be cumbersome. They must keep track of additional legal requirements in different countries related to reporting, benefits, and withholdings.

Another significant challenge that these professionals face is related to data discrepancy. As these professionals are dealing with a large amount of data, it might become highly

frustrating to find the source of errors. Thus, there is an increased need for automation, particularly for tasks with a repetitive nature. Automation can allow these professionals to utilise their time for employee engagement rather than attending to repetitive operational queries that make up 70% of their tasks.

Payroll professionals in MNC organisations also have to deal with the task of integration. Local payroll systems need to integrate with the centralised data to ensure proper information management. In the absence of an effective payroll management system, combining the local payroll processes with global ones may become a very tedious task.

Overall Employees

Payroll plays a strategic role in an employee’s experience within an organisation. A poor payroll experience can make them leave the organisation. The primary expectations of employees from payroll are fairness, equality, accuracy, timeliness, and accessibility to records. These expectations have further widened as employees work remotely that lacks physical interaction. It has become increasingly crucial for Employee Self Service (ESS) portals to be more engaging and effective in resolving employee issues. As organisations expand, it becomes necessary for ESS to meet employee needs and incorporate information in local languages, especially for employees in the developing world. The organisations need to leverage ESS effectively to drive engagement and employee satisfaction for elevating the employee experience.

A poor payroll system can leave employees frustrated and enhance employee turnover. With the increase in remote working, it becomes crucial to address the diverse needs of the employees.

To conclude, as the organisation becomes global, its payroll becomes highly complex due to a large amount of data, compliance issues, and privacy issues. There is a need for an effective payroll solution that addresses the challenges discussed above for enhancing employee productivity and profits. In our next blog, we propose solutions to ensure effective multicounty payroll.