Multi-country payroll: tackling the challenges of small country populations

While much of the focus in multi-country payroll projects tends to fall on countries with the largest employee populations, managing small country populations can be an equally daunting prospect. Companies face a range of challenges in paying small numbers of employees across multiple countries, from managing their vendors to gaining visibility into controls and compliance.

In this research study, Webster Buchanan Research held in-depth discussions with senior international HR and payroll managers from 25 multinationals with responsibility for managing small countries to determine the issues they encounter and lessons learned. Respondents were predominantly drawn from Webster Buchanan’s Global Payroll Research Network and ranged from small multinationals with a few employees in a handful of countries to Fortune 500 companies. While multinationals that seek better central control over their international payroll operations typically focus first on their larger countries, most of our respondents are now taking steps to address at least some of their small countries, reflecting the growing maturity of the multi-country payroll sector.

Our key findings include:

  • Many respondents take a pragmatic, risk-weighted approach to managing their smaller countries, particularly in terms of compliance. While all respondents strive for full legislative compliance, there is a distinction between responsibly presuming compliance (for example, by appointing a reputable outsourcing provider) and proving compliance (for example, by conducting a country audit). Some concentrate their investigative efforts on countries where they have higher financial, reputational or employee-related risks, and presume that they are compliant in the other countries. This assumption of compliance is not an abdication of legal responsibility, but inevitably places heavier reliance on local system and outsourcing providers and tax advisory partners
  • While it is clearly best practice, respondents found that it is not always practical to attempt to standardize processes and documentation across smaller countries. Some organizations have therefore introduced ‘lighter’ versions of their standard governance frameworks, allowing smaller countries to formalize exceptions to standard processes
  • Where payroll is outsourced, many global teams raised concerns about the limited vendor management skills within their small country teams, particularly around negotiating and enforcing contracts and Service Level Agreements. In some cases these problems were eased by moving responsibility for vendor management away from local in-country teams to regional or global payroll hubs overseeing multiple countries
  • Within hubs, respondents also grapple with a number of people-related challenges, reflecting the wide range of skills required for managing international payrolls. While an analyst in a regional or global center may be capable of managing as many as a dozen small countries, they are typically not expected to have country-specific subject matter expertise in every territory they cover, and companies often look to incountry HR or outsourced partners to supplement their knowledge. In fact, some respondents now hire primarily for communications, negotiations, vendor management and language skills, and train up agents in payroll skills, rather than the more conventional approach of seeking to hire payroll subject matter experts
  • Getting consistent data between HR and payroll systems is a key driver for many multi-country payroll projects in small countries, but there is much debate as to when it becomes commercially viable to build automated interfaces in smaller countries. While there are no hard and fast rules, most respondents tend not to build interfaces for countries with fewer than 50 employees: however, depending on the time and resources involved, several plan to take this down to as few as 10 employees
  • Checks and controls around payroll accuracy and compliance vary widely. At one end of the scale, some very small countries push the bulk of responsibility for checking to an outsourced vendor; at the other, many companies either use their own service centers to implement controls, or provide an advisory role to local teams. One risk in an outsourced environment is that organizations build too many internal checks and controls and end up duplicating activity carried out by the vendor
  • In addition to improving global payroll governance, drivers for small country projects include reducing risk; improving reporting; consolidating vendors and thereby improving the customer’s leverage with providers; and streamlining the process for setting up payroll in new countries
  • The cost equation for a multi-country payroll initiative can be complex, particularly in very small countries. Leaving aside implementation overhead, the ongoing costs for a replacement system or service can prove higher than the current costs for an incumbent in-country provider – which to some extent is logical, given that multi-country payroll services typically provide an additional payer of central management control over local payrolls. Some respondents absorb any extra charges centrally, on the basis that the corporation as a whole is willing to pay more for improved compliance visibility and risk management

You can read the full report by clicking here or following the relevant link on the left (GPRN membership required)

 

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