April 2023

Why Global Payroll Projects Go Wrong

By Anita Lettink

GlobalProjectsinsideIn early 2022, I noticed something I had never seen before. Payroll projects were making the news. Payroll “go-lives” that had gone wrong were national headlines. This is something that’s happened before, but what struck me was how many there were. When I started to investigate, I discovered that it wasn’t just one vendor or one solution. In fact, go-lives were going wrong worldwide—with different vendors and solutions.

When payroll goes wrong, it affects people’s livelihoods. People can’t pay their bills or their mortgages. Severe consequences can happen for employees with little or no savings. Plus, it’s devastating to a company’s reputation. The world relies upon timely, accurate payroll.

When I started to examine those go-lives to understand what happens when payroll goes wrong, I quickly found out there was no single cause for late payments. In every project, something else had caused the go-live to stall. I noticed that in almost every instance, the problems started because of a misunderstanding or misalignment between the client and the buyer early in the process. The problem could have been avoided if both sides were better prepared.

I have worked in the payroll space for more than 20 years, and I’ve seen my share of payroll go-lives. It’s never easy to migrate from one system to another because no two systems are exactly alike. Things fall through the cracks. No matter how well prepared, it’s always the little unknowns that can have huge consequences. This includes issues that are not documented like legacy policies and personal agreements with employees. So, what can we do to avoid payroll go-lives from making future headlines?

Define the Problem

During the COVID-19 pandemic, several new payroll vendors joined the industry. Solutions to administer and pay the global workforce are now hugely popular, and companies looking for new vendors have more choices. These vendors cover the whole spectrum—from an autonomous payroll solution to one that is run by an entire department. Having more options also means a company can focus on what they specifically need to make their jobs easier. Ask these questions:

  • What is the problem you are trying to solve?
  • Do you want to buy a solution or a service?
  • If you need a service, what does that include per country?

The most common reason to shop for a new vendor is when a company’s payroll contract is about to expire. If you are unhappy with your current payroll provider, it’s an obvious reason to switch. Another reason is when people are motivated to find a solution out of the fear of the negative consequences. Many people call this a “burning platform” in the business world. For multi-country payroll contracts, there could be more than one reason. Ask yourself these questions:

  • What if there is a need to replace only a few of your payrolls?
  • Are you having problems getting insight in payroll data at the corporate level?
  • Should you take the risk to move to a new provider and replace all your current payrolls?

A few years ago, most companies would contract with a single global payroll provider. Over the last few years, however, I have seen a move to break global payroll into smaller pieces and work with regional vendors. That’s because the global projects have become too large and have lasted too long. This has allowed companies to spread risk.

Multi-country payroll vendors have realized that one of their unique selling points is the ability to offer pay insights. To do so, they have created overlay solutions that gather all local pay data from contractors, an employer of record (EOR), and employees and have aggregated that information into dashboards. These overlays run on a multitude of interfaces that connect to local payrolls and give options.

When you are satisfied with the quality and costs of your in-country vendors and there is no burning need to switch, using one of these overlay payroll solutions and connecting your existing payrolls to them could offer a swift, cost-efficient way of satisfying your needs for control and insight.

You might have more requirements than global insights in pay data. But because of the risks involved, you should be laser-focused on the problem you are trying to solve. Replacing a payroll vendor should never be the first answer that comes to mind unless the service is bad and hasn’t improved over time. You should regard replacing the payroll as the last option when you have exhausted all other alternatives. While that might sound strange, it’s the least risky way to ensure people will get paid.

Speak the Same Payroll Language

Ask anyone in the payroll industry what a “managed payroll service” is and you will receive at least a dozen different answers. When looking for a payroll vendor, ensure they speak the same language as you. Instead of asking the vendor to bid for a managed service, detail exactly what you want in a statement of work (SOW). The SOW lists all payroll activities and assigns them to either the customer or the vendor. If you supply the vendor with the SOW and ask them to respond, you will quickly understand what services the different vendors provide and what their pricing models include.

You can also ask a vendor to submit an SOW with their bid if you don’t have the resources to write one yourself. Most will give you a standard overview that describes their process in the form of a responsibility matrix, so you can easily choose the most appropriate service option. Be aware that you could also end up with multiple SOWs that are all worded differently. It might be better to write the SOW yourself, so every vendor responds to the same list and submits a bid for the same service level.

When you evaluate the service matrix, pay close attention to the handovers—the moments when a process switches from you to the vendor or vice versa—to determine if they make sense. Every handover is a potential point of failure, so make sure it happens at a logical step in the process.

Seek Input From Your Team

Selecting and buying a new global payroll solution is a serious project and not something you should do by yourself. Some payroll projects go wrong because local requirements weren’t properly considered or specific needs were overlooked. Sometimes a team simply does not have the required knowledge to contract the right service.

Assemble a team to provide your needs and requirements and to evaluate options. You should involve them early, so everyone receives all the information at the same time. The team should include people from various departments, including payroll, finance, HR, IT, legal, and procurement, so you have all aspects covered and the team offers a holistic view of what is needed.

If you don’t have a procurement team that can help you, a sourcing advisor might fill this gap. Advisors are experienced consultants who run payroll selection projects as their main job. They come equipped with materials and bring a defined approach, which can help you make the selection in a controlled and timely manner. Their standardized project templates allow you to jumpstart the project, which will save you time and money. They also bring an in-depth understanding of the payroll landscape and can quickly create a short list of appropriate vendors for your situation.

When you involve a sourcing advisor, make sure they regularly run payroll request for proposals (RFPs). This is a fast-developing industry, and new vendors appear all the time. Also, the vendors constantly release new features and functionalities. You want someone who is familiar with the vendors and their solutions as well as the ecosystem.

Get the Expert You Hired

There are very few experienced payroll sourcing advisors in the world, and it takes a long time to acquire that knowledge. You want the expert, not a trainee, to work with you. Ask around for recommendations. The list for payroll sourcing advisors gets even shorter if you are running a multi-country payroll RFP.

Before you contract with them, ask about their vendor relationships and payments. Do they receive a fee from any vendor once the contract is signed? Do they have influencer contracts with some of these vendors? They should be open about these relationships. It’s okay if they perform paid advisory work for a vendor—like write an article or speak at a conference—but an advisor who receives kickback fees from a payroll vendor can’t be considered independent.

Follow these tips when searching for a vendor that meets your company's needs and to avoid problems during the global payroll process. Whether it's a misunderstanding or a mistake that pushes your global payroll off track, it's always better when employers and vendors are prepared for any situation.

Anita Lettink is a Partner at Strategic Management Centre and a leading expert on the Future of Work, HR tech, and emerging technologies. She is an international speaker and the author of “How to Select Your Next Payroll.”
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