Does payroll standardization even make sense for MNCs?
by Rohan Raghunath | 5 min read
People live and work in countries across the world. Groups of people living and working together give rise to unique and distinct cultures. These different cultures spread across the world create a diverse yet rich tapestry of different practices and beliefs.
This diversity of cultures provides a multiplicity of choices, fosters development of varied skills, and encourages different points of view to add to collective knowledge.
Technology has helped ‘flatten’ the world and bring disparate sets of people together. Technology makes it possible for businesses to expand beyond their national borders and set up global operations to be closer to their customers - to serve them better. Technology enables MNCs to hire employees from across continents and time zones, overcoming limitations that geography imposes.
However, global operations throw up their own set of challenges. Adherence to different local laws in each of the countries the MNCs operate in and fostering a cohesive work culture among employees of diverse nationalities, races, religions, and cultural backgrounds can be extremely challenging.
In addition to rolling out an efficient and error-free payroll across regions/countries, the other HR challenges that MNCs need to contend with include remote employee hiring and onboarding, fulfilling international compliance requirements, sharing knowledge across borders, being able to address employee queries in the local language, and building a cohesive culture. A standardized and efficient payroll system enhances employee experience, boosts engagement, and improves productivity.
For MNCs, managing payroll for employees based across continents is a complex undertaking. Global payroll needs to take into account diverse currencies, legal requirements, and data privacy regulations. MNCs also need to pay close attention to compliance requirements. The higher the number of countries that the MNCs operate in, the more complex the compliance requirements are for taxes, withholdings, benefits, and reporting.
Also, every country has different requirements of employee data required to be recorded and reported. Firms then are compelled to maintain dedicated payroll staff in each country, pushing up costs. There is also the need to stay abreast of changing regulations. For example, a firm not headquartered in an EU location would still need to comply with GDPR stipulations for its EU offices even if its employees are non-EU citizens. GDPR non-compliance attracts stiff penalties. Not surprisingly, the complexity of managing payroll in MNCs leads many MNCs to outsource payroll.
Payroll solutions encompass a range of processes - salary calculations, payslip generation, salary payment, tax reporting, etc. These processes require several departments and external vendors to work together.
Over time, MNCs could lose control over existing payroll processes due to staff attrition and M&A activity. Global firms that bank with one or two core banks, but manage payroll with multiple, globally dispersed banks lose out on the benefits and efficiencies achievable through consolidation.
For firms to achieve control, cost savings, compliance, and risk mitigation, they first need to undertake a review of their payroll processes. The review should examine internal and external processes and those of their payroll vendors to standardize and automate multi-country payroll processes. The review should necessarily include the perspectives and needs of all the stakeholders, including those of the employees.
The biggest drawback of separate, country-wise payroll implementation is the requirement of providing repetitive information to each of the local offices. Payroll standardization enables uniformity of processes across locations. Standardization also allows payroll staff in one country to substitute for staff in another country. This redundancy afforded by payroll standardization is especially advantageous during unforeseen contingencies, such as the recent global pandemic.
A single global payroll solution could be configured to consolidate payroll data and processes across all the globally dispersed locations.
The fear of change is the biggest roadblock to standardization. Guided by conventional ‘wisdom’, firms are reluctant to fix what they perceive is not broken. Firms fail to balance their fear of change against the drawbacks of having varied and inefficient payroll processing workflows.
Every location is characterized by local regulations, workforce demographics, and cultural differences. Together, these differences make the implementation of payroll standardization complex.
It is this perceived complexity of implementing standardization that is deterring firms. Instead, the rewards of payroll standardization should be spurring them to embrace standardization to eliminate the problems associated with running separate payroll systems for every location.
The fear of change and misplaced perceptions around process complexity are stopping more and more firms from adopting payroll standardization. With good planning and appropriate integration tools, payroll standardization can drive data synchronization across locations, reducing the need for manual interventions and minimizing the probability of payroll errors.
Watch this space for more information on how MNCs can deal with the challenges of processing payroll for their global workforce.