The cost of labor is 50% to 60% of the total cost base for most companies. This is especially true for people-driven businesses such as consulting firms, law firms, or professional service organizations. Yet, despite the recognition that employees are their most valuable asset, most companies still manage available information in rather simplistic ways. Decisions may be made on instinct and gut feeling instead of solid data.
A recent study by Rosslyn Data Technologies showed that only 9% of senior executives have confidence in the quality of their HR data. Basic information such as how many total employees are on the payroll, how many new employees have been added, or how many employees have left the company in any given period can be difficult to ascertain. This means deeper-level questions are unanswered, such as how top performers versus low performers are paid, comparisons of compensation levels between male and female employees, or how increases in total compensation, including benefits, compare across the organization.
There are three predominant reasons why there is still room for HR analytics to grow:
- Cultural affinity: an historic lack of data-driven culture, with more focus on people issues and “soft factors” in the HR function
- Data availability: data residing in different, non-integrated systems across the organization
- Data reliability: data not being captured and maintained in an accurate and reliable manner in the systems where it resides
Payroll—the Foundation for Better HR Analytics
Analytics—This is where payroll comes in. Payroll is the most data-driven function relating to employee information. In many companies, payroll is part of the finance function, which is inherently quantitative and data-driven. More importantly, in many organizations payroll is considered to be the ultimate version of the truth for employee data and hence, most reliable HR analytics begin by building on payroll data.
However, the challenge for many multinational organizations lies in the fragmented nature of payroll. Payroll data is readily available at the local level but hard to grasp in a multinational environment. Payroll data generally sits siloed in a multitude of local payroll systems. A cumbersome manual aggregation combined with queries across many different local systems is necessary to obtain a cohesive global picture. Given the time consumed in manual labor to aggregate payroll data, many companies only analyze a limited subset of high-level payroll data, and deeper insights are lost. By the time the data is pulled together, it’s outdated. And of course, the manual aggregation and analysis introduces the potential for human error.
Need for Systematic Global Payroll Reporting
Investing in a solid, system-enabled payroll reporting capability is mandatory for companies looking to build on payroll as the foundation for richer HR analytics. Until now, the choices available for a company trying to consolidate its global payroll data into one cohesive and intelligent data warehouse have not been very appealing:
- Choice A: Companies can invest in their own custom reporting solution to consolidate data across local payroll systems. However, such an integration is prohibitively expensive for most companies and only something the largest corporations can typically afford.
- Choice B: Companies can contract with traditional global payroll providers in the hope of getting harmonized global payroll reports as part of the global payroll solutions that these providers offer. However, it means they first need to “rip and replace” their existing local payroll solution (which means huge change costs, operational disruption, and re-implementation risks). And it also tends to be expensive in terms of ongoing support fees (two to three times the rates of the typical local solution). Reports tend to be one-size-fits-all reports, not catered to the specific needs of the respective customer organization.
There is a silver lining on the horizon. A new generation of open-source global payroll solutions is emerging that enables multinational organizations—deploying intelligent data extraction tools and configurable mapping and translation engines—to keep their existing local payrolls in place but help to aggregate the local payroll data in a single global payroll database. As a result, companies can get insight into their employee base previously unavailable, all at the push of a button. Even better, this kind of global reporting can be set up within a matter of days with no disruption to ongoing payroll operations. Now, payroll managers anywhere can give their key stakeholders—HR, compensation and benefits, finance, business unit leaders, or other profit and loss managers—direct access to rich data views of the company’s biggest cost item, the cost of labor.
Why do we believe having solid global payroll reporting is so important? Executive decisions in most companies are driven by facts and figures. Data is the common language amongst senior executives. Finance shares key financial metrics, sales shares sales pipeline and conversion data, marketing shares marketing campaign data, etc. HR/payroll functions have long been looked down upon as “soft and squishy” disciplines in most companies. To gain an equal seat at the senior decision-maker table, it is time for HR and payroll executives to come equipped with a solid grasp of their people data, of which payroll data is an integral part.
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Marc-Oliver Fiedler is the co-founder and CEO of Payzaar, an innovative global payroll platform. Fiedler has been a pioneer in building global cloud solutions. He started his career as a management consultant at The Boston Consulting Group and holds an MBA from Stanford University. Fiedler is a leading voice on the emerging paradigm of open-source global payroll solutions and the merits of a consolidated global payroll reporting framework.