Global Payroll Strategy: Bringing Order to Global Payroll Chaos

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Introduction to ISG's proprietary methodology and tool for articulating global payroll strategy.

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Global Payroll Strategy: Bringing Order to Global Payroll Chaos

  1. 1. Bringing Order to Global Payroll Chaos Global Payroll Filtering Methodology & Tool ISG Business Advisory Services Julie Fernandez, Director © 2014 Information Services Group, Inc. All Rights Reserved. Proprietary and Confidential. No part of this document may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval devices or systems, without prior written permission from Information Services Group, Inc.
  2. 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 © 2014 Information Services Group, Inc. All Rights Reserved 2
  3. 3. 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 Challenges ► Reduce # of payroll providers for better procurement pricing and contract terms ► Securing country-level buy in, participation, and funding ► Consolidate interfaces to HR / GL ► Right-size outsourced scope ► Improve visibility and reporting of employee headcount and cost ► Requires transition where payroll may currently be stable ► Reduce compliance and financial risk ► Establish an ongoing governance model ► Harmonize payroll processes and improve governance ► Cost allocations and charge backs to individual countries vs. central budgets © 2014 Information Services Group, Inc. All Rights Reserved 3
  4. 4. Many Dimensions of a Global Payroll Strategy Pursuit of a global payroll strategy does NOT imply all countries must fit one model and one provider ► 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 © 2014 Information Services Group, Inc. All Rights Reserved 4
  5. 5. 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 For large global clients, there is no “one size fits all” when it comes to multi-country payroll outsourcing ► 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. © 2014 Information Services Group, Inc. All Rights Reserved Global Payroll Filtering Payroll strategy is viewed through many lenses in iterative design of global and regional sourcing mix ► 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 5
  6. 6. 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 Mark-to-Market® Fee Ranges Truly understanding who does what for whom is a difficult picture to construct, as truly “it depends” ► Global heritage providers expand services and geographic footprint across regions for a broad offering ► Replace client reliance on broad RFIs - a flawed means to “fish” for a world of pricing or build a business case ► Niche payroll aggregator model specializes in services to small employee populations spread across many countries, targeting value to a client’s “tail” countries ► Go-to-market knowing what you want, for whom, and from what providers instead of broad requests for capabilities and geographic footprint © 2014 Information Services Group, Inc. All Rights Reserved 6
  7. 7. Payroll Provider Capabilities and Footprint Truly understanding who does what for whom is a difficult picture to construct, as truly “it depends” ► 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 © 2014 Information Services Group, Inc. All Rights Reserved 7
  8. 8. Business Case Challenges Defining cost to your current payroll administration and the possible future outsourced scenarios, has been an elusive and exhaustive effort for many clients ► 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 © 2014 Information Services Group, Inc. All Rights Reserved 8
  9. 9. Appendix © 2014 Information Services Group, Inc. All Rights Reserved 9
  10. 10. 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 Outsourcing Workforce Administration Payroll Outsourcing Solution Evolved  Tier I Contact Center Support Compensation Talent Management Benefits End-To-End Payroll Recruiting Learning Fully Managed Payroll Services  System Maintenance / Configuration  Data Management (Build-to-Gross)  Total Interface / Upload Management  Retro Adjustments, Overpayments, Reversals  Pay Calculations & Reporting  Employee / Manager Self-Service  Payroll Accruals and Accounting  Managing Payroll Compliance Traditional Processing (Gross-to-Net)  Payroll Software (Hosted)  Regulatory / Tax Table Updates  Gross-to-Net Calculations  Special Payments / Off-Cycles  Bonus Payment Processing  Checks, Advices, Online Payslips  Post-Payroll Interfaces and Reports (Bank, GL, 3rd Party)  Tier II Payroll Inquiries Service Bureau or Stand-Alone Payroll  On-Demand or Local Payroll System  Garnishments & Liens  Tax Reporting & Remittance  Banking Services  Year End Tax Filings  Employee Reimbursements  WOTC Credits (U.S.) / Lodgments (APAC) Timekeeping & General Ledger © 2014 Information Services Group, Inc. All Rights Reserved 10
  11. 11. COMPANY XYZ – Global Payroll Filtering Results Sample payroll filtering results for Company XYZ countries 4 ► Countries fall noticeably to the left and right on the grid Payroll Complexity ■ Brazil Japan Russia 2 Korea Croatia China Morocco South Africa Poland Philippines volume/complexity to require careful review of existing delivery Germany India Czech Republic Argentina Hungary Spain Slovakia Portugal Thailand ► Small, outlying countries identified as “opportunistic”  0 1 2 3 Aggregation is ideal for global headcount & visibility  United Kingdom 0 Small scale and scope payroll delivery to the left ► “Hybrid” countries have enough Mexico Sweden 1 US Larger, fuller scope payroll delivery to the right ■ France 3 Is there value to offset the cost? 4 Organization & Leverage © 2014 Information Services Group, Inc. All Rights Reserved 11
  12. 12. Payroll Services Complexity Axis High For each country, the client’s complexity of payroll delivery is reviewed and assigned directional scores relative to TPI suggested criteria. Low Low Payroll Complexity Factors Hybrid Scope / Multi-Country Strategy Traditional Payroll / Regional or Aggregate Strategy Payroll Complexity Traditional Payroll / Best-in-Country Strategy Fully Managed Scope / Multi-Country Strategy Organization & Leverage ►Country Payroll Complexity ►Number of Payroll Cycles ►Special Payroll Processes ►Number of Tax Authorities ►Number of Banks High ►% EFT ►Pay Rate Calculations ► Broader outsourced scope ► Multi-country ERP ► Aggregate data and reporting ► Localized offerings ► Sourcing and automation dependent on scale and cost Low Complexity Solution High Complexity Solution © 2014 Information Services Group, Inc. All Rights Reserved ►# of Pay Sources ►Number of Legal Entities ►Number of Labor Agreements ►Number of GL Systems ►Payroll Delivery Cost 12
  13. 13. Organization and Leverage Axis High The client’s organization, including each country’s size and potential for leverage as part of a broader payroll delivery strategy is scored. Low Organization & Leverage Factors Hybrid Scope / Multi-Country Strategy Traditional Payroll / Regional or Aggregate Strategy Payroll Complexity Traditional Payroll / Best-in-Country Strategy Fully Managed Scope / Multi-Country Strategy ►Total Number of Employees ►Centralized Decision-Making ►Distinct Business Units & Harmonization ►Span of Centralized Administration ►Systems Leverage Low Organization & Leverage High ►Aggregate Reporting ► Local control ► Traditional payroll scope ► Local cost & governance structure ► Centralized control ► Broad scope ► Leveraged costs and combined governance Low Scale & Leverage Solution High Scale & Leverage Solution © 2014 Information Services Group, Inc. All Rights Reserved ►Vendor Leverage ►Inquiry Support Channels ►Country Readiness ►Global Payroll Value ►Payroll Market Maturity 13
  14. 14. Exceptional Filtering “Trump” Considerations Additional factors are commonly considered that may influence or “trump” the quadrant or the phasing of the solution Exceptional Situations Burning Platform or Vendor ► Payroll system is unsupported or out of compliance 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 ► Existing payroll contract near expiration ► Scheduled timing of legal entity integration resulting from corporate mergers or divestitures © 2014 Information Services Group, Inc. All Rights Reserved 14
  15. 15. Scoring by Country in the Filtering Tool A four-point scale is assigned to each filtering criteria and used to score the data you have or are willing to assemble ► For each country, ISG completes survey scores using volume data and other response provided ► Project leadership provides insight to corporate finance and IT questions Criteria Number of Taxing Authorities Payroll Services Complexity Score Scoring Guidelines 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 3 Number of taxing authorities is fewer than 3. Three or more banks are used to fund payroll for employees in this country. Two (2) banks are used to fund payroll for employees in this country. 1 0 Number of Banks 4 Country Score A single bank is used to fund all payroll for employees in this country. N/A 4 © 2014 Information Services Group, Inc. All Rights Reserved 15
  16. 16. Sample Company M2MSM Results: Europe ISG Mark-to-Market provides a fee range for use in modeling the outsourced payroll services (of varying scope) in the business case. 1 COMPANY XYZ Cost & Key Service Metrics 2 Key Comparisons Record Counts Metric Client Data 11,523 Active Employees Employees 11,523 Event Counts Price Per Employee $197.17 136,934 56 11+ 22 16 17 Payroll Cycles/Year Special Payroll Cycles/ Year Labor Agreements Legal Entities Payroll Banks Statutory/Tax Filings Countries (Active Employees) Country H (1,400) Country A (3) Country I (136) Country B (3,742) Country J (220) Country C (2,640) Country K (104) Country D (800) Country L (810) Country E (1,311) Country M (4) Country F (150) Country N (300) Country G (3) © 2014 Information Services Group, Inc. All Rights Reserved 3 Market Range $157 - $232 Mark-to-Market ® Ranges 320 300 280 260 High 240 220 200 Market 180 Current 3rd Party Cost 160 140 120 Company XYZ Low 100 80 $ Per Employee Per Year 16
  17. 17. www.isg-one.com

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