global payroll strategy: bringing order to global payroll chaos

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ISG Business Advisory ServicesJulie Fernandez, Director

Global Payroll Filtering Methodology & ToolBringing Order to Global Payroll Chaos

© 2014 Information Services Group, Inc. All Rights Reserved 2

Global Payroll Filtering Methodology and Tool

1. Market Demand for Global Payroll

2. Global Payroll Methodology and Filtering Tool

3. Business Case Considerations

4. Appendix


Growing Interest in Multi-Country Payroll Outsourcing

ISG has seen a noticeable increase in interest for multi-country payroll outsourcing in recent 2-3 years, but are we as an industry able to convert that interest into successful “deals”?

Considerations in Pursuit of a Multi-Country Payroll Strategy

Benefits► Reduce # of payroll providers for better

procurement pricing and contract terms► Consolidate interfaces to HR / GL► Improve visibility and reporting of employee

headcount and cost► Reduce compliance and financial risk► Harmonize payroll processes and improve

governance

Challenges► Securing country-level buy in, participation,

and funding► Right-size outsourced scope► Requires transition where payroll may

currently be stable► Establish an ongoing governance model► Cost allocations and charge backs to

individual countries vs. central budgets


Many Dimensions of a Global Payroll Strategy

► Payroll frequently serves as the most updated employee record in countries without an HRIS system or without integration to a global HRIS

► Regions direct efforts to develop shared services support and an integrated user experience for HR and other G&A activities Balance local language and regulatory knowledge with leveraged sourcing

► A primary objective for many companies exploring multi-country payroll solutions is to articulate guiding principles for the region or globe, based on Client’s own current state, footprint, key payroll systems and providers Right-sized payroll scope Payroll provider capabilities and footprint Planned and articulated business case driving what is actionable

► Iterative strategy design is used to engage regional and local teams to build buy-in, secure funding and establish governance

Pursuit of a global payroll strategy does NOT imply all countries must fit one model and one provider


Key Dimensions of a Global Payroll Strategy

Pursuit of a global payroll strategy does NOT imply all countries must fit one model and one provider

Right-Sized Payroll Scope

► Large countries are actively exploring more robust payroll solutions, adding scope and increasing countries serviced

► Traditional processing model (G2N, pay slips, tax filing) is still the predominant approach for most countries.

For large global clients, there is no “one size fits all” when it comes to multi-country payroll outsourcing

Global Payroll Filtering

► Using its proprietary filtering tool, ISG applies a structured methodology for determining

► Extensive data collection to payroll departments around the world is not necessary in order to begin

Payroll strategy is viewed through many lenses in iterative design of global and regional sourcing mix


Key Dimensions of a Global Payroll Strategy (continued)

Companies exploring multi-country payroll solutions must first articulate guiding principles for the region or globe and determine what is actionable, then source.

Service Provider Landscape

► Global heritage providers expand services and geographic footprint across regions for a broad offering

► Niche payroll aggregator model specializes in services to small employee populations spread across many countries, targeting value to a client’s “tail” countries

Truly understanding who does what for whom is a difficult picture to construct, as truly “it depends”

Mark-to-Market® Fee Ranges

► Replace client reliance on broad RFIs - a flawed means to “fish” for a world of pricing or build a business case

► Go-to-market knowing what you want, for whom, and from what providers instead of broad requests for capabilities and geographic footprint


Payroll Provider Capabilities and Footprint

► Global heritage payroll providers are expanding services and geographic footprint Experience, platforms, and integration across countries and regions is maturing All have embedded “aggregator” models within their product mix for small countries

► Regional payroll providers are frequently identified as part of existing vendor landscape Generally serve a handful of co-located countries Cooperation and alliances among regional providers seen for responding to broader

RFPs► Niche payroll aggregator model specializes in services to small employee populations

spread across many countries, targeting value to a client’s “tail” countries Generally manage payroll processing with in-country partners that comply with their

model to ensure aggregate payroll data and reporting Payroll services are right-sized to suit small country needs

Truly understanding who does what for whom is a difficult picture to construct, as truly “it depends”


Business Case Challenges

► Clients and providers alike continue to resort to RFIs as a very flawed means of “fishing” for a world of global pricing Payroll scope and delivery requirements are not adequately defined in an RFI Providers offer a range of capabilities, which are described RFI fee estimates for a global laundry list of countries are of little value without more

definition

► Market pricing for payroll services in bundled deals has been seen to fluctuate widely as clients show interest in bundled services, but explore pricing without actionable scope

► Go-to-market knowing what you want, for whom, and from what providers instead of broad requests for capabilities and geographic footprint

► Some insight both current payroll cost and estimated outsourcing cost is needed to identify sourcing opportunities that are actionable ISG clients use Mark-to-Market® data to estimate provider fee ranges in a given region

and for various degrees of payroll outsourcing

Defining cost to your current payroll administration and the possible future outsourced scenarios, has been an elusive and exhaustive effort for many clients


Appendix


Service Bureau or Stand-Alone Payroll

On-Demand or Local Payroll SystemTax Reporting & RemittanceYear End Tax Filings

Garnishments & LiensBanking Services

Employee ReimbursementsWOTC Credits (U.S.) / Lodgments (APAC)

Traditional Processing (Gross-to-Net)

Payroll Software (Hosted)Regulatory / Tax Table UpdatesGross-to-Net Calculations

Special Payments / Off-CyclesBonus Payment ProcessingChecks, Advices, Online Payslips

Post-Payroll Interfaces and Reports (Bank, GL, 3rd Party)

Tier II Payroll Inquiries

Fully Managed Payroll ServicesSystem Maintenance / ConfigurationData Management (Build-to-Gross)Total Interface / Upload ManagementRetro Adjustments, Overpayments, Reversals

Pay Calculations & ReportingEmployee / Manager Self-ServicePayroll Accruals and AccountingManaging Payroll Compliance

Timekeeping & General Ledger

Payroll Outsourcing Solutions

Right sized payroll means there is no broad “one size fits all” when it comes to broad payroll outsourcing

HR Shared Services or OutsourcingEnd-To-End Payroll

Tier I Contact Center Support

Workforce Administration

Benefits

Compensation Talent Management

Recruiting Learning

Payr

oll O

utso

urci

ng S

oluti

on E

volv

ed


COMPANY XYZ – Global Payroll Filtering Results

► Countries fall noticeably to the left and right on the grid

■ Larger, fuller scope payroll delivery to the right

■ Small scale and scope payroll delivery to the left

► “Hybrid” countries have enough volume/complexity to require careful review of existing delivery

► Small, outlying countries identified as “opportunistic” Aggregation is ideal for global

headcount & visibility Is there value to offset

the cost?

Payr

oll C

ompl

exity

Organization & Leverage

Russia

Sweden

KoreaCroatia

ChinaMorocco

South AfricaPhilippinesPoland

France

Brazil

USJapan

Mexico

GermanyIndiaCzech Republic

HungarySpain

Portugal

United Kingdom

ThailandSlovakia

Argentina

0

1

2

3

4

0 1 2 3 4

Sample payroll filtering results for Company XYZ countries


Payroll Services Complexity Axis

Traditional Payroll /

Best-in-Country Strategy

Hybrid Scope /Multi-Country

Strategy

Traditional Payroll / Regional

or Aggregate Strategy

Fully Managed Scope /

Multi-Country Strategy

Organization & Leverage HighLow

Payr

oll C

ompl

exity

Hig

hLo

w

Low Complexity Solution

► Broader outsourced scope► Multi-country ERP► Aggregate data and

reporting

High Complexity Solution

► Localized offerings► Sourcing and automation

dependent on scale and cost

Payroll Complexity Factors

►Country Payroll Complexity

►Number of Payroll Cycles

►Special Payroll Processes

►Number of Tax Authorities

►Number of Banks

►% EFT

►Pay Rate Calculations

►# of Pay Sources

►Number of Legal Entities

►Number of Labor Agreements

►Number of GL Systems

►Payroll Delivery Cost

For each country, the client’s complexity of payroll delivery is reviewed and assigned directional scores relative to TPI suggested criteria.


Organization and Leverage Axis

Low Scale & Leverage Solution

► Local control► Traditional payroll scope► Local cost & governance

structure

High Scale & Leverage Solution

► Centralized control► Broad scope► Leveraged costs and

combined governance

Organization & Leverage Factors

►Total Number of Employees

►Centralized Decision-Making

►Distinct Business Units & Harmonization

►Span of Centralized Administration

►Systems Leverage

►Vendor Leverage

►Aggregate Reporting

►Inquiry Support Channels

►Country Readiness

►Global Payroll Value

►Payroll Market Maturity

Traditional Payroll /

Best-in-Country Strategy

Hybrid Scope /Multi-Country

Strategy

Traditional Payroll / Regional

or Aggregate Strategy

Fully Managed Scope /

Multi-Country Strategy

Organization & Leverage HighLow

Payr

oll C

ompl

exity

Hig

hLo

wThe client’s organization, including each country’s size and potential for leverage as part of a broader payroll delivery strategy is scored.


Exceptional Filtering “Trump” Considerations

Exceptional Situations

Burning Platform or Vendor

► Payroll system is unsupported or out of compliance

► Existing payroll contract near expiration

Satisfaction ► Payroll delivery is fraught with inaccuracies or burdensome work-around processes to fix quality

Financial / Compliance Risk

► Significant risk due to current practices or no visibility

Integration Timing

► Scheduled timing of large scale HRIS implementation or upgrade

► Scheduled timing of legal entity integration resulting from corporate mergers or divestitures

Additional factors are commonly considered that may influence or “trump” the quadrant or the phasing of the solution


Scoring by Country in the Filtering Tool

► For each country, ISG completes survey scores using volume data and other response provided

► Project leadership provides insight to corporate finance and IT questions

A four-point scale is assigned to each filtering criteria and used to score the data you have or are willing to assemble

CriteriaPayroll Services Complexity Country

ScoreScore Scoring GuidelinesNumber of Taxing Authorities

4 Number of taxing authorities is greater than 25

3 Number of taxing authorities is between 12 and 25.

1 Number of plans is between 4 and 11

0 Number of taxing authorities is fewer than 3.Number of Banks

4 Three or more banks are used to fund payroll for employees in this country.

3 Two (2) banks are used to fund payroll for employees in this country.

1 A single bank is used to fund all payroll for employees in this country.0 N/A


Sample Company M2MSM Results: Europe

Key Comparisons

Mark-to-Market ® Ranges

2COMPANY XYZ Cost & Key Service Metrics

1

Record Counts

11,523 Active Employees

Event Counts

136,934 Payroll Cycles/Year56 Special Payroll Cycles/ Year11+ Labor Agreements22 Legal Entities16 Payroll Banks17 Statutory/Tax Filings

Countries (Active Employees)

Country A (3)Country B (3,742)Country C (2,640)Country D (800)Country E (1,311)Country F (150)Country G (3)

Country H (1,400)Country I (136)Country J (220)Country K (104)Country L (810)Country M (4) Country N (300)

Metric Client Data Market RangeEmployees 11,523

Price Per Employee $197.17 $157 - $232

Low

High

Market

80

100

120

140

160

180

200

220

240

260

280

300

320

$ Per Employee Per Year

3

Company XYZ

Current 3rd Party Cost

ISG Mark-to-Market provides a fee range for use in modeling the outsourced payroll services (of varying scope) in the business case.

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