So you manage a payroll function and you want to introduce a global payroll solution. You are personally convinced that it will create significant benefits for you and your team: more streamlined processes, better visibility, and controls into the execution of your pay cycles, improved fulfillment of compliance obligations, easier and faster generation of required management reports. But rolling out a global payroll solution will cost money and requires time and effort from you and your team. How do you convince your management that a global payroll solution is worth the investment and effort? Creating a compelling business case will be important to make the argument for a global payroll transformation project to your management and to get support from key decision-makers.
So how do you build a strong business case for a global payroll solution? There are a number of different factors to consider. In the following, we will outline each factor and we will then calculate a sample business case for global payroll.
Factors for the Business Case
A number of different factors should be considered in a well-defined business case for a global payroll solution:
- Risk of Payroll Fraud: A recent study by the ACFE (Association of Certified Fraud Examiners) found that the occurrence of payroll fraud ranges anywhere between 2-22% across different industries. The median duration of payroll fraud is a shocking 30 months, the highest duration of all fraud schemes, which shows that payroll fraud often runs undetected for a long time. A global payroll solution helps to establish strong operational controls that mitigate the risk of fraud: consistently defined processes (incl. approvals) and systematic tracking that these are being followed in the local payroll execution. Just knowing that payroll operations are being tracked for auditability will deter fraudulent behavior.
- Risk of Non-Compliance: Another risk in payroll is non-compliance. For example, a data privacy breach in the course of handling employee payroll information can result in heavy fines under the new GDPR rules introduced in the EU on May 2018, up to 2% of revenues or €10 M whichever is larger. Misreporting payroll information to tax or social securities can also lead to significant fines, including criminal charges against and the imprisonment of the company’s directors. A proper global payroll solution helps to comprehensively and reliably protect employees’ data across the entire organization (e.g. by reducing manual data handling) and helps to ensure that the appropriate filings are being submitted to local authorities.
- Operational Efficiencies: A global payroll solution helps to introduce process automation to traditionally highly manual workflows that still persist in payroll today. Especially simple, repetitive tasks – like re-entering from various source systems (e.g. HR, Time & Attendance, Benefits, etc.) into the payroll system and validating the consistency and accuracy of the calculated payrolls – which often are highly manual and time-consuming can be automated with the deployment of intelligent global payroll software. As a result, productivity can be increased and labor costs can be reduced.
- Reduced Payroll Leakage: Payroll leakage refers to employees gaming the system in various ways around payroll elements and typically involves overstated expenses, overtime, bonuses, etc. The leakage can be caused by an individual employee misrepresenting information or multiple employees (e.g. employee and manager) colluding to siphon money of the company. Stronger reporting capabilities and management controls can help to identify such incidents and discourage such behaviors from the get-go.
- Better business decisions: By introducing an integrated global payroll solution the organization gains better visibility and insights into their employee data and can make more informed business decisions, for example regarding location choices for expanding their operations based on a deeper understanding of their labor costs (e.g. looking at actual costs including all social charges and factors like sick leave, holidays, and overtime across different countries).
- Employee Engagement: A modern, professional global payroll solution also creates a better employee experience. Payroll admins will be better supported by tools and technology and will have better work experience, reducing turnover and the need to hire and train new staff. Furthermore, all the company’s employees will have a better payroll experience: fewer errors means less frustrating hassle with the payroll which can be highly demotivating for employees, and modern tools like a slick online self-service payslip portal show the employees that they are working for an innovative, state-of-the-art organization.
Next, let’s take a look at how these various factors can be quantified to calculate the impact of a global payroll solution.
Quantifying the Impact – Example
Quantifying the different factors is not trivial and in most cases requires a certain degree of estimates and assumptions. However, 100% accuracy is generally not required. The idea is to provide you with a high-level assessment of the financial savings that can be achieved with the introduction of a global payroll solution.
Here is an example of how you might quantify such a business case for a fictive company with the following characteristics:
- 3,000 employees
- 20 countries
- €500 M in revenues
- €300 M in total labor cost
- 15 payroll admins
- €500 k in penalties or audit costs
So we’re looking at a total risk reduction of approx. €25M (related to Payroll Fraud and Non-Compliance) and a total cost reduction of approx. €2.5M (related to Operational Efficiency, Reduced Payroll Leakage and Better Business Decisions).
Cost of a Global Payroll Solution
So if that’s the savings of the business case, how much does a global payroll solution cost you? That can vary widely and depends on whether you choose a traditional closed global payroll model (i.e. the global vendor dictates the local providers/solution) or a modern open payroll model (i.e. you get to choose the local providers/solutions).
With the traditional closed model, you typically end up paying 2-5 times your current local payroll fees to take advantage of the aggregation and streamlining of processes, and you first need to reimplement all your existing local payrolls with the local vendor/system of choice that the global provider dictates. With the new open payroll model, you you’re your local payroll solutions in place, continue to pay your local payroll fees and you pay a small premium (typically 15-20%) to avail of the integration and process harmonization across your local payrolls. Or as we like to say: You get an integrated global payroll solution at local prices.
So while both models can result in a positive business case, the open global payroll model tends to be less disruptive (no need to rip and replace your existing local payrolls), has a faster return on investment and lower overall fees in the long run.