Influential voices may be calling for the abolition of the term “Eastern Europe”, arguing that the region is now so integrated with the rest of Europe that it’s a historical anomaly, but it still sometimes seems easier to point to the differences between East and West than the similarities. And that applies as much to international payroll as anything else.
Partly as a hangover from its former communist roots and the still-influential role of the state in citizens’ lives, Eastern Europe continues to stand apart from the rest of the Continent in terms of the political environment, social and business culture and of course language.
According to recent research carried out by Webster Buchanan Research among global and regional payroll managers with responsibilities in Eastern Europe, managing payroll and HR operations in the region remains a particular challenge. Indeed, when you ask how they deal with the region, some have more questions than answers – and several participants were willing to outline their challenges while insisting they had no ideal solution. As with SouthEast Asia, Africa or Latin America, it’s dangerous and sometimes nonsensical to generalize about an entire region, given that one country can differ so markedly from its next door neighbor – but there are still plenty of common trends.
Leaving aside language and culture for a moment, we grouped the multi-country payroll management challenges into six areas: HR admin; records management; HR/payroll interface; disbursements; reporting; and employee service. I won’t go into the details – you’ll find a full analysis in our report – but to take the first two as examples, employee administration in the region often involves a number of additional tasks in areas such as contract and vacation management which would not normally fall under a payroll manager’s remit. This then has a knock-on effect on the second area – records management - where the bureaucratic requirements for record keeping, sometimes with paper files, can be particularly onerous.
Add into that mix cultural differences and the fact that everything is documented in local language, and you begin to see why it’s so difficult. You might assume all Europeans speak English in today’s business environment – but in the 2002 census in Russia, only 5% cited English as a language they knew, and while English is taught at schools, many Russians are still reluctant to speak it.
There are a number of ways to approach these issues. One logical reaction is to leave HR admin to local HR managers or business controllers to deal with and process payroll centrally – and some companies do adopt this very strict separation of tasks. But as one contributor to our research pointed out, tasks in areas such as onboarding, pay rises, vacation payments and so on, are so enmeshed with payroll that it’s sometimes difficult to simply pass the buck. Another option is to attempt to outsource the whole thing – both payroll processing and employee administration. A recent experience running through an outsourcing contract with a client for an Eastern European country underlined just how involved – and potentially expensive - some of these additional employee admin tasks can be, but some of our research participants insisted that outsourcing was the most feasible option for them. Even then, as we regularly point out at Webster Buchanan, while you might outsource the administration, the responsibility for compliance remains with the company, so some form of watching brief is necessary.
Politically and economically, there’s no doubting Eastern Europe is a region in transition at the moment. From a payroll and employee management perspective, it’s a region that may require extra care as you look to build your centralized model.
‘The Challenges of Multi-country Payroll in Eastern Europe’, published by Webster Buchanan Research, is available for free download at wwww.websterb.com