Impact of a Global HCM Solution on Payroll
One mega trend that is impacting the payroll functions of many multinational organizations is the rollout of Global HCM solutions. In our conversations with customers around the world, we find that about 8 out of 10 companies have either recently implemented a global HCM platform (like Workday, SAP SuccessFactors, Oracle HCM Fusion, Ultimate or something similar), is in the process of implementing it or is working towards such an implementation over the coming months.
The reasons for rolling out a global HCM solution are typically multifold and generally very compelling:
- Reduce system & vendor complexity as well as the maintenance cost
- Standardize HR processes and share best practices across the company
- Get access to all employee data in one place
- Give all your employees a consistent, unified experience
So everyone in the organization is getting excited about the new global HCM solution. A single platform, consistent processes, better access to data, same end-user experience no matter where you work. Sounds perfect. Surely it will make everyone’s life a lot easier, right?
Well, yes, except in most organizations payroll still “lives” outside the global Core HCM platform. Payroll is simply too complex and country-specific to be handled via single global system (Workday, for example, doesn’t even offer Payroll as part of their HCM suite outside of the US, Canada, UK, and France). So most organizations will still have the need for local payroll experts handling their local payroll processing.
So now you have a single global HR platform and still lots of different local payroll solutions which need to communicate back & forth with each other because obviously HR and Payroll systems are very interdependent and rely on a lot of the same data. But at least the fact that you have consolidated your HR systems into a single global platform should make things so much easier, right? At least on the surface, it would seem so, and certainly, your senior management will likely expect that to be the case.
However, the reality is a bit different, a bit more complex. Because in many cases, the local HR systems that are being replaced by the global HR platform were carefully tuned over many years to align and integrate with the local payroll processes. In fact, in many cases, the local HR and Payroll solution may have been part of one and the same platform, supported by the same vendor. And now that you’ve replaced these local HR systems, you basically have to start from scratch to figure out how to connect your local payrolls with your global HCM platform. Because the expectation is that the global HCM platform will act as your system of record for all HR-related information, you better make sure that your HCM platform and your local payrolls somehow talk and are in sync. So while everyone in the executive suite probably thinks that the world has gotten a lot simpler with the move towards a global HCM platform, from a payroll perspective you have your work cut out for yourself to (re-)build processes and integrations between the new global HCM platform and local payroll solutions.
And that’s really where the fun starts. So as you look to integrate your global HCM platform with your local payroll solutions, you have fundamental three choices how you want to handle these integrations:
Choice #1) You build custom point-to-point integrations between your global HCM solution (i.e. Workday, SAP, Oracle or whichever global platform you have chosen) and the local payroll systems. You hire a system integrator and you spend months and hundreds of thousands of dollars in professional service fees to build the integration country by country, payroll platform by payroll platform. Takes a long time when you have many countries to cover and costs a lot of money, and ultimately is highly uneconomical and doesn’t really scale, especially for the long tail of countries with small employee populations.
So you might decide to cover only the largest countries, but of course, that leaves you exposed in the long tail of your countries, which – albeit the populations might be small – typically represents 80% of the countries. And do you really want to run the risk of HCM systems and payroll systems being out of sync in 80% of your countries?
Choice #2) You hire a global payroll aggregator, like an ADP, CloudPay, Safeguard, SD Worx, NorthgateArinso etc. They have built connectors that will help to connect your global HCM platform to all the local payrolls. However, the one big caveat in this model which is absolutely crucial to understand: it only works if you adopt the aggregator’s mandated local payroll solutions first. So now, after you just went through a huge transformation on the HR side, you need to convince the whole organization – in particular your local payroll teams – that you need to rip & replace all your local payroll solutions. Which is of course highly disruptive and bears a lot of risks, will take months and years to complete and also costs a ton of money. And of course once you’ve rip and replaced your existing local payrolls, now you’re stuck with the local payroll solutions that the global aggregator has forced upon you.
So you’re essentially locked in, which never makes for a good negotiation position with a service provider, which can often result in a poor service experience. And by the way, if you ever want to change vendors, well, you will have to start rebuilding all your integrations from scratc
Choice #3) You implement an open global payroll platform like Payzaar that helps you to aggregate all your existing international payrolls in one central hub and provides you with a consolidated way to connect your HCM platform to the local payrolls. You simply connect your HCM platform to Payzaar, and Payzaar manages the data flows and connectivity to the local payroll backends.
Without forcing you to replace the local platforms you and your local payroll teams have come to embrace, Payzaar’s aggregation platform buffers you and your global HCM platform from the variations and complexities of all the different local payroll systems. And because our solution is productized and built to be flexible and open to connect with any local payroll backend, it requires a fraction of the time and cost compared to the other two options to implement. Plus, it leaves you flexible to swap in and out different local payroll solutions as you see fit and as your needs change over time.
So while for some customers Options #1 and #2 might be the right choice, Option #3 is much less disruptive, faster to implement, more scalable and much cheaper.
By the way, one other important learning from having worked with a number of different customer organizations through their global HCM rollout challenges and the payroll conundrum is that all too often the most reliable and accurate information is actually being maintained in the local payroll systems. While the new fancy HCM systems – no matter how fun and easy to use they supposedly are – often are not systematically kept up to date (especially when the global solution doesn’t quite fit the specific local HR needs), the payroll systems are almost always accurate, because if they contain wrong information, the employee will not get paid properly. So since real money is at stake – both for the company and the employee – particularly scrutiny is applied to ensure that data in the payroll system is accurate and of the highest quality. Which ultimately means that no matter which option you choose, you should make sure that not only can it push data from the HCM system to the local payrolls, but it also needs to be able to pull information from the local payroll systems into the HCM
So, in summary there are a few key things to keep in mind when your company is looking at a global HCM solution and its implications for payroll:
- Rolling out a Global HCM platform like Workday, SAP Successfactor, etc. will have a profound impact on your global payroll environment, and rather than simplify things – as maybe most people in the executive suite would like to think – it will actually create important challenges for the payroll professionals in the organization, at least in the near term.
- You have three fundamental choices how to address those challenges and connect your global HCM platform and local payroll solutions. Each comes with their own pros and cons, in terms of cost, scalability, disruption and time to value. So carefully evaluate each option based on these important criteria
- Whichever option you choose, make sure the solution supports the flow of data from the local payroll systems into the global HCM system because in many organizations the most reliable HR data will continue to live in the local HR systems (because there is more scrutiny around payroll-related data and because payroll systems tend to be more adapted to local needs than most global HCM platforms).