[Written for Replicon blog]
As businesses grow and expand beyond their initial locations, gain diverse employee types, and need to comply with varying labor laws, centralized payroll becomes a challenging issue with respect to driving growth. And by extension, global time and gross pay — which directly contributes to 60% of time and effort in payroll — becomes a high priority item on any company’s list. Still, addressing the payroll challenges of multi-location growth isn’t always easy.
In particular, global labor compliance issues are on the rise — wage and hour litigation has skyrocketed by 358% since the year 2000 in the United States. This issue isn’t just limited to the US; litigation for unpaid wages has cost Australian businesses over $250 million in the past decade, Japan is attempting to remedy its rampant overtime problem, and labor disputes are on the rise in the Philippines, South Africa, the UAE and China. For leaders managing gross pay and compliance, each day presents a new challenge.
In our three-part Global Time and Gross Pay blog series, we’ll first discuss the pitfalls of partial compliance, then common challenges in global payroll, and, ultimately, how to achieve streamlined global time and gross pay.
Legislative compliance is the #1 issue facing payroll
Global payroll is rife with difficulty, and the road to successful global payroll delivery can be plagued by limited regional capabilities, organizational inconsistency in remuneration and benefits, administration costs, and a variety of other challenges and setbacks. And yet, by far the most prevalent and persistent global payroll delivery challenge is legislative compliance, with 27% of respondents citing it as the primary issue their payroll faces in Ernst & Young’s Global Payroll Survey.
In practice, payroll leaders get 70% to 80% coverage of their workforce using traditional vendors and ecosystems. It’s the remaining 20% to 30% payroll use cases that create a challenge for businesses and payroll leaders. Teams end up spending the bulk of their time and effort managing what seems like a fringe case. This remaining 20% use case presents two primary problems:
Traditional vendors leave businesses exposed
Most multi-location, global businesses are well aware of the challenges of compliance and the risks of noncompliance, which is why best-in-class companies automate their time management processes — to the extent possible — with well-known vendors that support time and gross pay needs. Still, this means that the top 20% of countries that likely house 70% to 80% of your employees (the US, Canada, UK, etc.) are covered, but remaining countries present a challenge. Businesses are left with the tough decision to either get help from local vendors in exchange for high startup costs and marginal ROI, or continue to manually manage time and gross pay for these smaller locations.
Need United States compliance detail? Check out our State-By-State Compliance Guide to find specific labor law updates for different states.
Managing multiple vendors across locations
Global, multi-location businesses have to deal with localization needs, the wide range of variation in local labor laws, and the balancing act between their ultimate ROI and the investment and effort they put into these different payroll processes across locations. If there are union or collective bargaining agreements at any of these locations, the complexity increases multifold. Without proper processes and systems, companies can leave themselves vulnerable to major payroll errors, overpayments and underpayments, employee disengagement, and — most significantly — labor litigation.
To cover the remaining 20% of their workforce, companies will resort to using different local vendors in their various smaller locations. Businesses end up spending a significant amount of money on different local solutions that aren’t fully automated, which ultimately results in messy, inefficient payroll practices. Many of these edge-case scenarios require manual intervention and cumbersome tracking in Excel, and almost always still risk compliance issues when they can’t fully accommodate local laws, multiple employee types, specific business policies, and other variations in requirements. Additionally, fixed startup costs for these local vendors means that businesses end up paying disproportionate amounts to accommodate what is sometimes only a few employees in different regions.
Companies need to be aware that successfully managing global time and gross pay requires them to find and deploy systems that are extremely configurable and can handle the eccentricities associated with each of the locations they do business in.
In addition to problems with compliance, ad-hoc global time and gross pay processes can present additional challenges.