Save money on your global payroll – Part I
Like all overhead functions, global payroll departments are under constant pressure to reduce their costs. This is particularly difficult for global payroll managers as they need to keep paying employees and maintaining the quality of payroll services. However there are many ways to reduce costs while maintaining or even improving the quality of payroll service to your employees around the world.
How this blog will help
This blog will give you some helpful hints about cutting the costs of global payroll. It will outline some short-term methods that can deliver cost reductions in multinational organisations. It will also explore the advantages and disadvantages of each of these options, to help you select the right methods for cost reduction in your organisation.
TOP TIP: Also read our Beginner’s Guide to International Payroll here
In recent years many more multinationals and growing organisations have outsourced part or all of their global payroll. This growth is driven by two factors – cost and quality. Outsourcing firms are not just cost-effective, but they also provide proven expertise in delivering payroll.
If you have regional or country payroll teams which are less productive than others, then it is likely that the costs of delivering payroll in these locations is relatively high. This in turn indicates that outsourcing can reduce your costs in these areas. You can get a good indicator of global payroll productivity by calculating the number of employees per head looked after by your payroll teams around the world.
Sometimes costs and quality go hand in hand. For example, you may be worried about the quality of payroll delivery in some territories because you have too few payroll staff to provide a specialist service. In these cases, outsourcing can help you improve quality and reduce costs at the same time.
Outsourcing is not as easy as it sounds, and outsourcing global payroll often fails to deliver all the benefits that businesses expect. A global payroll outsourcing project typically requires upfront expense if it is to deliver on scope and budget, as payroll managers cannot usually run payroll and handle a complex new project at the same time.
Also remember that success depends just as much on your own organisation as your chosen outsourcer. For example if your processes are bespoke and manual rather than standardized, an outsourcer will require more staff to handle your account and they will inevitably be more expensive and make more errors than otherwise.
OP TIP: If you are not sure whether outsourcing is right for you, then test it first. Consider using outsourcing for payroll when you employ staff in new countries, or when existing staff leave your business. This can be a useful way of testing third party providers before you make a large scale commitment.
Improving payroll cost reporting is not the first idea that comes to mind when managers are asked to cut costs. However it enables global payroll managers to gain new insights into their spending, which in turn can drive useful efficiencies.
As a measure of good practice, global payroll managers should be able to review their spend on a country by country basis, ideally on a quarterly basis over the last two years. This reporting helps to identify countries which cost more per employee than others, and where costs are increasing faster than the average.
If it is difficult for global payroll managers to get visibility on their costs, then this is all the more reason why they should engage their finance colleagues to give them better reports. In these cases it is even more likely that new reporting will shine a light on inefficient practices which present good opportunities to cut costs without reducing quality.
TOP TIP: Ask a helpful finance colleague to assist you with reviewing your payroll costs. A fresh pair of eyes can help you get a new and objective insight and can spot trends that you may miss.
If you already outsource all or part of your global payroll, and if you have an in-house procurement function, then speak to your procurement colleagues whenever you need to cut costs. They may help you reduce the costs of your existing suppliers, which will reduce the savings you have to make elsewhere.
If you have long standing contracts which have not been revised in the last three years or more, your procurement team may advise you to renegotiate with your existing suppliers or to put these out to tender. They may also be able to use their analytical tools to identify areas of high spend, known as cost outliers, which offer good opportunities for relatively easy savings.
Be wary about renegotiating with your suppliers too often, as this can have unproductive side effects. Outsourcers normally invest heavily in your business at the setup phase, so if you continually change suppliers they may charge you more and put less effort into your account.
TOP TIP: It can be difficult to discuss costs with a supplier that you know well and depend on heavily. When you begin negotiations, ask your procurement colleagues to join you. This makes it easier to raise cost issues in an objective manner without disrupting your good relationships.
As any CFO will tell you, the easiest way to cut costs is to reduce output, in other words to do less. This may sound impractical for global payroll, as you cannot stop paying your staff. But there may be certain tasks which you currently perform which can be cut back.
If your payroll teams provide non-core services then there may be ways to reduce these without affecting payroll. Many payroll teams regularly provide other services such as answering a range of employee queries or handling pension and benefit matters. These could be better handled elsewhere and you could save on staffing costs.
Any changes you make may simply push workload onto other departments in your business or third party suppliers. Sometimes this is welcomed by everybody, as it helps to improve processes and the employee experience. However global payroll managers should always consult with others affected before making such changes.
TOP TIP: Make sure any action which incurs a one-off cost charge from your payroll suppliers is authorized by a manager first. For example, if retrospective salary changes incur an additional cost, ensure these have manager approval. You will be surprised how quickly these items add up, and how quickly they stop when a manager has to approve them.
We offer a range of methods to help you reduce your international payroll costs:
- choose from our vast international network to find the right foreign payroll suppliers for your business
- read Part 2 of this blog here, and other free global payroll material from our blog archive
- contact us at www.galvininternational.com, and our award-winning experts will be glad to help.