Anne Clifford, Manager, KPMG Shared Services and Outsourcing Advisory

For years, many businesses and analysts have incorrectly classified payroll processing as a commodity. After all, if workers are being paid on time at a cost effective price point, all’s good on the payroll front, right? Wrong, especially these days when this process, the largest spend in an organization, is also one of the most highly regulated and complex. Let’s look at some of the factors that negate the commodity pigeonholing of the payroll process.

• Technology has been a great enabler for organizations, not only in the automation of payroll but also in mining vast amounts of data for knowledge and insights. However, technology also enables agencies that regulate employers to mine the same data via audits, which are becoming increasingly stringent. And obviously, these agencies’ audits and investment programs are not about administration efficiency, but instead about recovering money or finding high profile cases needed to support their existence.

• The recession has resulted in many states, localities, territories and countries having huge budget deficits, and most are being forced to look at recovering revenue by increasing withholding taxes.

• The core outsourced payroll model is solid, but there are numerous delivery models, components that differ between client needs and the services offered by third party providers, and lack of clarity in terminology. For example, what does ”approve payroll calendars” really mean? Do clients understand the significance of this activity, as an error can result in an entire workforce being paid late? Buyers need to fully understand not only their required scope but also what a particular provider’s solution delivers, and how and when. And buyers and providers must together balance their expectations to achieve success.

• To support multi-country payroll solutions, all service providers use in-country partners for any gaps in their geographic portfolio. Unfortunately, many providers enter into subcontracting arrangements with no forethought on governance of those relationships. And buyers may not receive the same services/quality of service they would with a localized best-of-breed solution.

• All too often we see HR or F&A organizations agreeing to timelines for global payroll deployments without any knowledge of major occurrences within the business, e.g., a new product launch. This results in conflicting priorities for scare resources, which in turn results in missed dates or poor implementations as local staff are unable to support the new solution.

In light of all these challenges, I predict an increase in payroll costs as many organizations will have to invest in risk reduction, regulatory compliance and support of today’s workforce pay complexities to competitively survive in this global economy.
For more details on new tax requirements corporations are facing, please go to “State Insecurity”, an article on a survey conducted by KPMG and CFO magazine.

Filed under: Finance & Accounting, Human Resources, Outsourcing by KPMG