How global payroll systems can pay off in integration: PwC

Sushil Ahuja

Partner, PwC US

Email

Kristin Harel

Partner, PwC US

Email

Soumya Kaushik

Director, PwC US

Email

Mike Cardillo

Director, PwC US

Email

Talent retention is at the heart of deal success — especially if that M&A activity is being combined with transformation. A global payroll operating model helps enable people transformation by driving efficiency, compliance and employee satisfaction across the integrated organization. It supports the broader business case for an acquisition by facilitating smoother integration of people, processes and technology, ultimately contributing to the achievement of strategic objectives and long-term success. Implementing a global payroll operating model is a key, but often underused strategy to help improve efficiency and support talent retention during a company’s transformation.

There also can be financial benefits: Updated operations can contribute to savings by introducing standardized processes, real-time reporting, automation and integration with other departments. Those savings can be used to help fund other transformation activities such as integrating a newly acquired business.

An updated global payroll operating model can also help you improve resilience as you navigate increasingly dynamic regulatory environments. As companies expand operations across borders, efficiency and compliance can become a growing necessity. To cite just one example, the IRS annually hands out millions of dollars in payroll penalties, most of which are associated with delinquency, failure to pay taxes and payroll accuracy. A payroll operating model can help find the right balance between globalization and local requirements or risk wasting time and money that should be spent on the complex interplay of integration and transformation activities.

Reasons to update

How does implementing a global payroll model aid in transformation? Here are some key considerations.

Governance framework: Shifting to a global payroll operating model helps enable governance that can have the ability to set global policy, reduce duplication and set minimum standards for local business processes. As organizations shift to shared service models, payroll centers of excellence become more important to monitor both performance and value realization.
Technology consolidation: Maintaining multiple payroll technology solutions and vendors can be more expensive than a single solution. Consolidation also helps enable additional business insights into labor costs, workforce trends and other global KPIs.
Standardization of business processes: A global governance framework and technology consolidation helps enable business process standardization across jurisdictions.
Compliance risk: Maintaining compliance with local payroll regulations can be a complex and time-consuming task for multinationals. Industry leading practice global payroll functions help enable input from the appropriate local subject matter professionals to help mitigate local compliance risk.
Scale and flexibility: A global payroll model allows companies to accommodate new locations and changing business requirements. It facilitates integration with other HR systems, such as time and attendance or benefits administration. This adaptability helps payroll processes keep pace with the company's growth and transformation.

Building pillars to overcome challenges

While expansion across borders during an M&A transaction is an ideal time to adopt a new payroll operating model, it comes with challenges and requires proficiency during planning and execution. Varying workforce requirements, technology limitations, local regulations and change management impacts may inhibit the willingness for, and speed of, implementation of a global system.

Keep several objectives in mind when building a payroll strategy. Your model should:

Align with your organizational operating structure while being able to pay employees in countries with diverse regulatory requirements.
Allow technological integration with other HR systems and enterprise resource planning (ERP) platforms.
Implement uniform processes across all locations to enable consistency and compliance.
Help facilitate risk mitigation and internal and external audits.
Define the payroll operations reporting structure (such as HR, finance or a shared service center) and the governance structure.
Help establish an appropriate legal entity structure to help address tax liabilities.
Be evaluated regularly to enhance accuracy and efficiency.

Looking ahead

Upgrading to a global payroll model can help many companies prepare for long-term success after an acquisition. Companies can become more resilient by adopting advanced data migration technologies and implementing compliance management systems. Flexibility and adaptability in payroll processes help organizations more easily navigate the changing business environment.

Standardization efforts will help mitigate discrepancies and enable consistent payroll management across the newly integrated organization. Standardization and technological innovations, such as automation and data analytics, can also help generate cost savings that can be used to further fund transformation activities that often take years to complete.

Payroll processes are not the most prominent considerations in dealmaking, but they can be important and are often underutilized. Taking advantage of an M&A event to implement a global payroll system as a value-creation tool can give savvy executives a competitive edge.