News: 40% of firms not happy with payroll service providers: E&Y study

C-Suite

40% of firms not happy with payroll service providers: E&Y study

Majority of companies are considering bringing portion of outsourced payroll functions in-house
 

The global payroll landscape has changed dramatically in the past 10 years

 

 

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One of the major challenges faced by a multinational, thanks to its large, complex nature, has been payroll. Generally, most companies structure their payroll according to local laws and taxes. Developing a standard global system instead of a localised initiative has often being fraught with no central control over an international payroll system. How does a multinational organisation guarantee that it will meet standardize the payroll services while staying true to its compliance obligations?

 

The global payroll landscape has changed dramatically in the past 10 years. With the advent of new providers, technology and delivery models, payroll administration has been made possible at least conceptually across complex global organisations. But, while service providers strongly believe that global payroll was a reality, most organisations (buyers) strongly disagree, according to an E&Y survey “Global Payroll: Myth or Reality” released in April 2013.

Buyers look for the confidence delivered by a truly global service delivery model using standard, consistent systems and processes that are compliant with local regulations delivered by a single global company. Service providers, however, argue that they can deliver the best solution for their customers by diligently managing and overseeing their global network.

Currently, 40 per cent of companies are dissatisfied with their existing provider. About 76 per cent of the companies are now considering brining portion of outsourced payroll services in-house. Dissatisfaction with the service provider and headcount growth are the two primary reasons why organisations change vendors.

The survey was conducted via live telephone interviews targeting global service providers (vendors) and organizations (buyers) in 16 countries across five continents. Half the companies surveyed were headquartered in the US, China or the UK.

All respondents were primary decision-makers like global or senior payroll leaders.

70 per cent of the respondents had operations in at least 10 countries.

More than 80 per cent of companies had fewer than 50,000 employees worldwide, with most employees based in North America, Asia or Europe.

Despite being a key driver for the review of existing payroll operating models, cost scores only 14 per cent than historic practices (54 per cent), suggesting a level of comfort and/or a lack of understanding of the need for change.

The payroll function is housed primarily in HR or finance.

Just 12 per cent operate using a fully outsourced model with a single outsource provider for global payroll services. This shows that organisations do not have confidence that payroll providers can deliver on end-to-end solutions.

 About 28 per cent rely solely on a complete in-house delivery model. Sometimes, the geographic footprint of the vendor community may not fit the needs of the organisation. About 60 per cent of respondents use a hybrid approach, choosing to outsource certain payroll processes while maintaining some in-house ownership.

Companies are continuing to explore the hybrid service delivery model and looking for ways to outsource all or part of their payroll operations. Close to 40 per cent are sufficiently dissatisfied with their existing outsourcing provider to consider a switch to a new provider. This suggests that once payroll is outsourced, it generally remains outsourced. Dissatisfaction with the service provider and headcount growth are the two primary reasons why organisations change vendors.

78 per cent of respondents said their current payroll outsourcing model varies with geography. Organisations that only operate in mature markets are more likely to be able to adopt a truly consistent global model

* ·     * Respondents were hesitant to believe that a vendor could provide consistent, standardized global payroll services.

Others think a standard payroll system would be too costly to implement on a global scale.

The “ability to demonstrate the return on investment” in financial terms is a significant challenge

Legal and regulatory requirements will not be managed effectively in a global payroll solution

An organisation will be able to effectively manage solutions at a regional or local level

Home and host tax issues are also a challenge

Many organisations continue to be skeptical about whether any payroll provider can deliver a comprehensive global payroll solution. While that skepticism has some validity, the survey results also suggest that some organisations do not see the value add in straying from historical payroll practices. This is surprising, as 85 per cent of the respondents desired improvement in their current payroll policies and practices. The fact that payroll managers accept the status quo is disturbing as if it had been any other business function, transformative initiatives would have been undertaken by now. 

Whether global payroll is a myth or reality, the fact is organisations, both public and private, need to stop not accepting the status quo and pay their employees in a timely, accurate and compliant manner.

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Topics: C-Suite, #Updates

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