International Payroll Decision Support Network Bloomberg BNA s resources will change the way you do business

//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// A PRIMER ON GLOBAL PAYROLL PROVIDERS BY JULIE FERNANDEZ International Payroll Decision Support Network Bloomberg BNA s resources will change the way you do business

International Payroll Strategic White Papers 2 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC.,

TABLE OF CONTENTS Introduction... 5 From Payroll Software to Fully Outsourced... 7 Payroll Provider Markets... 11 Final Guidance... 17 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC., 3

International Payroll Strategic White Papers International Payroll Strategic White Papers Greg McCaffery, CEO and President Darren McKewen, President, Tax and Specialty Lisa Fitzpatrick, VP & General Manager George R. Farrah, CPA, Editorial Director Michael Baer, Managing Editor Julie Fernandez, Information Services Group (ISG), Contributing Writer About the Author Julie Fernandez is a partner at ISG, a leading technology insights, market intelligence and advisory services company. Ms. Fernandez brings more than 20 years of relevant industry and consulting experience in service delivery models, vendor evaluations and outsourcing and technology solution implementation. As Global Payroll Process Lead, Julie helps her clients evaluate and execute alternatives for the design, implementation and management of HR and payroll outsourcing, shared services and HR technology solutions. For more information, see http://www.isg-one.com/web/ expertise/payroll/ 4 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC.,

SECTION 1: INTRODUCTION Section 1: Introduction INTRODUCTION For decades, country-level managers at global companies have been charged with ensuring local employees are paid accurately, on time, and as cost effectively as possible. In large and small countries alike, this often means they are using some combination of an internal payroll staff and a third-party payroll system with or without additional payroll administration services. For global organizations, this can quickly add up to one or more different payroll providers in each country with just as many separately maintained interfaces, contracts, service levels and invoices. In search of efficiency, HR, finance, and procurement leaders are increasingly interested in consolidating the long list of disparate payroll systems and providers. Though it may appear that every country has a payroll provider to meet specific country needs, the scope of payroll services delivered ranges from the most basic software diskette program to a complex, web-enabled system with comprehensive payroll processing services. Disparate systems and providers hamper global pay efficiency. Before attempting to rationalize payroll across countries or around the globe, it is important to understand the broad range of providers in place today, their capabilities, and whether they can be leveraged more broadly. The following is a primer for understanding the categories tof payroll providers in the market today. This report identifies and explains the various levels of payroll outsourcing support available globally. The next section details of the types of systems and describes the scope of payroll outsourced services. The different business models of payroll service providers are broken down and covered and some guidance on how to go about identifying the appropriate provider is provided. 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC., 5

SECTION 2: SOFTWARE TO OUTSOURCING Section 2: Software to Outsourcing FROM PAYROLL SOFTWARE TO FULLY OUTSOURCED Purchase or license of a payroll system containing a country s current year tax tables, statutory calculations, and report formats is often the first, most basic level of payroll support. All but the very smallest populations of a workforce benefit from the automation and calculations required of an updated and compliant in-country payroll system. Buying simple payroll software is a top choice for local managers and is the least expensive solution for a single country or location. Local payroll software is usually limited to a single computer or small department of users and has very small update and maintenance charges from year to year. Least expensive solutions start at the single PC level. A payroll system can be considerably more complex for countries that need to handle multiple frequencies and pay cycles, union rules, and interfaces as the source for employee master data, time and absences. Enterprise resource plan-ning software (ERP) modules by PeopleSoft, SAP, and Oracle were common solutions for countries with 5,000 or more employees, but the resources and cost to deploy and maintain have deterred broad, multi-country use for payroll. The availability of templates for country-level payroll requires significant customi-zation and still does not provide the same full functionality as a local payroll system. When companies opt to use payroll technology only, they are constrained by two significant factors. First, newer software-as-a-service, or SaaS-based platforms, such as Workday and Ultimate Software, generally have limited payroll system functionality to a handful of the most in-demand countries (e.g., U.S., Canada, U.K. and France). More importantly, the purchase of software requires internal resources and payroll expertise for all routine back-office processing, with varying degrees of expertise and compliance knowledge. Outsourced Payroll Administration Payroll outsourcing services have continued to evolve to meet the demand for more robust administration of cyclical back-office processes. The chart on the next page shows three common support levels available to organizations wishing to outsource payroll. The levels increase in sophistication from outsourcing niche payroll services to a full service end-to-end payroll that may or may not be inte-grated with other HR back-office activities. Scope of Payroll Services The term managed payroll services is commonly used in today s payroll market to refer to the outsourcing of gross-to-net payroll calculations through the downstream payment, filing, and reporting required as part of each pay cycle run. 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC., 7

International Payroll Strategic White Papers % # # #! % # # #! $ $ $ # $ # $ # # # ' % % '*# '* %!&!+,* -'& '%( &+ -'& $ &, & % &, &,+ *0!-& *&!&! * '&,, &, * 0(('*, ' ' % % % 4+, %!&, & & 8 '& 0* -'&, & % &, : 0!$ 9,'9 *'++; ', $ &, * 8 ($' & % &,,*' "0+,% &,+6 1 *( 4% &,+6 1 *+ $+ 4 $ 0$ -'&+ < ('*-& %($'4 8 & * $ 9 *1! 4*'$$ *0 $+ & '0&-& &!& 4*'$$ '%($! & % ( ' % ( ' )) 4*'$$ ' 2 * : '+, ; (! $ 4% &,+ 8 9 4 $ + '+,9 4*'$$ &, * + & ('*,+ : &#6 6 A* *,4; 0$,'*4 8 3 $ (, + '&0+ 4% &, *' ++!& *'++9,'9, $ 0$ -'&+ #+6 1! +6 &$!& 4+$!(+! * 4*'$$ &)0!*! + $ # # ' % $ % ' % % 3 ('*-& < %!/ & * & 3!$!& + &#!& < 4% &, *1! + *&!+ % &,+ <! &+!+,* -'&+ 8 ' % &,+ : ; 3(,*!, 4*'$$ * = @>?B & '*% -'& *1! + *'0( % *! +6 & 7 $$!,+ + *1 Coined by large payroll providers like market leader ADP, the term is a bit of a misnomer since there is tremendous retained data entry, data management and data changes that take place in order to correctly run the outsourced gross-to-net payroll processing. Global pay solutions can be a hybrid of in-house and outsourced processes. For payroll outsourced in this model, the purchase includes the proprietary payroll system, which is maintained and updated as a core part of the services. Excel templates or a front-end data entry portal are provided as a means to communicate inputs to payroll, including employee pay and status updates, bonus and variable pay amounts, time and absence. The provider-managed payroll activities begin when all of the required entries from clients are received and are complete to the point at which the gross-to-net process can be initiated on the payroll system. Outputs include interfaces and reports to ensure banking, general ledger, benefits, and standard payroll reporting. As growth in company operations in a single country requires additional staff, the retained organization experiences an increased burden in managing the data input and adjustments required before it can run the gross-to-net payroll processes. Scale alone drives the demand for some combination of both a broader scope of payroll administration support and an interface to source systems for HR and time entries. Just as staff is added to an internal payroll department to perform these activities, so will many local payroll providers expand their services to perform complete data management support for payroll. Key activities performed as part of this expanded scope include: tracking and loading source files, ensuring calculations to adjust pay for retroactivity, turning deductions or earnings on and off, and making one-time pay entries. Additional 8 姝 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC.,

SECTION 2: SOFTWARE TO OUTSOURCING efforts are required to ensure that these payroll activities are carried through properly to all payroll outputs and include correcting failed updates. Outsourced payroll in this model is not just a managed service; it is a fully managed outsourcing solution that replaces all but a fraction of the retained operations to oversee, approve, manage, and escalate for policy, compliance and fiduciary matters. To avoid confusion, this expanded payroll service is classified as end-to-end payroll outsourcing. 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC., 9

SECTION 3: PROVIDER MARKETS Section 3: Provider Markets PAYROLL PROVIDER MARKETS Understanding that outsourced payroll administration is available in different models is a key to understanding the payroll provider markets. Payroll providers vary by the depth of services they offer, the payroll systems they use and the geographies they serve. The unique combination of each company s geography and scale of operations will lead to a unique footprint for consolidation and synergies in outsourced payroll. To understand how each payroll service provider fits into the market, consider the following categories: s payroll service bureaus; s in-country payroll and accounting firms; A plethora of businesses operate in the global payroll space. s global payroll aggregators; s global heritage payroll providers; s regional payroll providers; and s business process outsourcers (BPOs) and human resource outsourcers (HROs). Payroll Service Bureaus Many do-it-yourself payroll departments continue to operate with the assistance of targeted, niche payroll services. These service providers are used selectively to perform payroll activities requiring specialized knowledge, such as tax filing, garnishments, expatriate payroll, or regulatory filings, such as U.S. tax credits or lodgments in Asia Pacific countries. Another common area of niche payroll services consists of payment and fulfillment support, such as printing checks or pay advice slips, payroll cards, online pay slips or banking services. While nearly all payroll providers have expanded their services beyond the original service bureau offerings, they still offer stand-alone payroll services and a separate a la carte menu and pricing. As country legislation and payroll requirements evolve, local payroll providers are adding compliance reports and registration of new hires and terminations with local regulatory agencies and add-ons. In-Country Payroll and Accounting Firms Plentiful in all but the least developed countries, the traditional payroll provider is focused on delivering a strong, proprietary payroll solution that combines software automation with process efficiencies. Attributes include: s single-country, proprietary payroll system; s strong command of local process, legislation and employment practices; 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC., 11

International Payroll Strategic White Papers s broad range of services, including service bureau (niche) and managed services; s mature providers offer end-to-end payroll to their large clients; and s streamlined delivery model specific to a single country: automation, calculation rules, interfaces, reports, and single-country commercials and governance. Providers have evolved their products and services to fit local markets and achieve accuracy and compliance with local customs and requirements. Localcountry payroll providers will seek to leverage the scale of operations across multiple clients in order to provide higher quality at a lower price than an internal payroll department. Provider names, such as PayChex, Ceridian (DayForce), and ADP (Enterprise, EV5), are well known in the U.S. Examples from regions outside the U.S. are Populis (Brazil), HP (Germany), and FESCO (China). Aggregators consolidate service providers and options across countries. Companies with very small employee counts often use accounting and professional firms, such as PwC, Ernst & Young, BDO and TMF Group, to perform payroll as an add-on to financial services. Although there is strong confidence that these providers will be highly compliant, payroll activities are largely manual and performed by professionals, not administrators, which drives a higher cost. Payroll is seldom broken out as a line item expense, making it difficult to identify the cost and include it in a business case for savings. Global Payroll Aggregators Growing interest in consolidating payroll service providers across a broad number of countries has led to steady growth and success of these providers. Global payroll aggregators offer a single point of contact and a single system of record for interfaces across all in-scope countries. Commercials and service levels are negotiated with a single provider who, in turn, provides payroll services using local in-country providers or, in some cases, their own systems and services. Attributes include: s a master system for inputs to payroll, leaving in-country payroll rules and processing to the local system and/or provider; s consolidated reporting and data roll-up capabilities; s global clients with smaller, globally dispersed populations; and s a payroll scope limited to managed services only; additional support may be available directly from the local payroll partner. The leveraging of local payroll providers is a key part of making this model efficient for those firms operating in a range of countries but generally have small employee populations in each. For certain countries depending on the partner and experience they have this can mean up to a thousand or more paid employ- 12 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC.,

SECTION 3: PROVIDER MARKETS ees. Several providers are dedicated to this space (CloudPay, SafeGuard World, Neeyamo, Celergo) and are growing in popularity. Larger payroll providers ADP and NGA HR, also known as heritage payroll providers, participate in this market by offering their StreamLine and Payroll Exchange models, which can be combined with more robust HR and payroll services needed by high volume countries. Global Heritage Payroll Providers Among the heritage payroll providers that have dedicated resources to growing their payroll operations around the world, there are two standouts that dominate the payroll market ADP and NGA HR, formerly NorthgateArinso. Each has built its business by investing in and customizing the large commercially available payroll systems-turned-proprietary offerings that include payroll administration services. As a result, tapping their expertise means tapping their unique combination of technology and services. Attributes include: s enterprise resource planning (ERP)-based platform with proprietary version of country templates for greater functionality and configuration; s local third-party providers in a global aggregator model for small countries where the ERP system is too costly or where in-house capability is lacking; Heritage providers offer high technology solutions and services. s managed payroll with full capability to expand scope to support Fully Managed Payroll, inquiry support, and additional HR for large countries on the ERPbased system; and s common interfaces and reporting to a single global system with options to fold in third-party managed data, sometimes with limitations to the data granularity. Both of these providers are uniquely suited to propose a solution that includes a mix of services tailored to fit both large and small country payroll needs. Broad global procurement efforts may find their options somewhat limited to these two behemoths if there is no consideration given to regional or small country providers. Furthermore, both ADP and NGA HR have expanded capabilities to provide some integrated HR services. Regional Payroll Providers In many parts of the world, we find smaller payroll providers that have adapted their payroll systems and services to handle several like countries in a given region. In most cases, a provider has expanded opportunistically, spreading organically to neighboring countries that collaborate to share management teams or other resources. Examples are in Europe where we find providers focused on the 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC., 13

International Payroll Strategic White Papers Benelux (SDWorx, Securex), Nordics (Visma, Aditro, Multidata-Bluegarden), Eastern Block (Elanor, Intercomp, Eurofast), and Middle East/Africa (CRS). Attributes include: s separate country systems or a single platform for a handful of like countries; s managed payroll scope, with the ability to expand to provide end-to-end payroll administration, inquiry support and additional HR; s local expertise and relationships, which often mean separate interfaces, reports, contracts, service levels, and account management by country; and s alliances or referrals used to fill country gaps but without a single provider held accountable. Regional service companies also should be considered. In Asia Pacific, where countries, languages, and time zones are particularly diverse, a handful of providers has emerged (Excelity Global, Talent2, CDP Group). By contrast, Latin America providers are just now gaining momentum to broaden service offerings that started as payroll systems (Meta4, Adam Technology) and are evolving to a broader range of payroll administration services (Toutatis, Stefanini). As these markets mature, many new capabilities will evolve with strong in-country incumbents stretching opportunistically into neighboring countries as they have done in Europe. BPO/HRO Providers Broader outsourcing providers often provide payroll administration support in addition to other core services. However, business process outsourcers (BPOs) and Human Resource outsourcers (HROs) generally are limited in their ability to support payroll because they have no payroll system of their own. To deliver outsourced payroll, these providers may take over processing activities already designed and implemented on the client s customized enterprise resource planning (ERP) system. Where no ERP payroll is in place, they turn to a heritage payroll provider like ADP or NGA HR or assume responsibility for the incumbent providers in countries with large employee headcounts. BPO/HRO providers are not generally willing to consider payroll administration as a stand-alone service. Instead, payroll is sold as one of many services in a broader outsourced offering. Typically, core HR administration of employee master data with other HR and talent support is the primary offering, with payroll attached for the U.S., U.K. or other primary countries of operation. Less often, payroll is outsourced as part of a bundle of finance operations. Attributes include: s service delivery on a client s ERP platform with increasing openness to using underlying software-as-a-service (SaaS) technology; s ability to manage long-term complex HR BPO solutions, including payroll; 14 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC.,

SECTION 3: PROVIDER MARKETS s end-to-end payroll only in conjunction with multiple HRO services; may engage a partner for tax filing and other specialized payroll knowledge s development of interfaces and reporting as needed, often relying upon a broader reporting suite or business intelligence module; and s limited expertise to a handful of countries that generally results in a more limited ability to provide thought leadership and stay abreast of payroll compliance and regulatory events. Leading HRO providers such as Aon Hewitt, Accenture, and IBM all have good reputations in this space and are adjusting their offerings to provide payroll administration support using the newest SaaS technologies. The growing success of SaaS platforms for HR and payroll is driving providers to extend outsourced support to services delivered on a company s own Workday or SAP/ SuccessFactors platform. Even so, these payroll services typically are bought for only the largest of countries. Lesser known BPO providers, including heritage India players like Infosys, TCS, HCL, and Wipro, continue to express an interest in payroll processing usually as an extension of efforts to build and deploy ERP modules. These providers have a wealth of BPO experience, but a further look at the client base and services will reveal this experience is largely in Finance & Accounting with very little HR/ Payroll experience outside of systems integration. 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC., 15

SECTION 4: FINAL GUIDANCE Section 4: Final Guidance FINAL GUIDANCE For most company operations, the motivation to address global payroll in a more strategic manner hinges on the desire to create efficiencies with supplier and interface consolidation, to relieve local operations of routine back-office administration, and to create greater central visibility to compliance and financial risk. The choice of payroll providers and services can have a strategic impact on your regional and global operations. Don t Forget About Support At the very top of the value stack is the nagging question: Who will answer payroll-related questions from employees and managers? The need for more efficientlymanaged operations drives decisionmaking. To understand provider capabilities and services, it is important to first consider that the vast majority of pay-related inquiries are, in fact, due to timekeeping and HR employee data. Providers that offer inquiry services find as many as 80 percent of inquiries are referred back to HR or managers to evaluate and correct source data errors. Furthermore, providing contact center support is costly if expertise must include country-level expertise and local language support for small populations. As a result, most providers will only offer inquiry support to designated HR/Payroll liaisons or as a Tier 2 escalation by a shared services operation. This allows them to provide expertise on the payroll processing itself as part of the scope of their services. Whether the aim is to rationalize payroll across several locations or business units in a single country, across similar countries, in a region, or across the globe, each type of payroll provider brings a unique scope and value to the puzzle. Provider capabilities and the cost structures for each vary and are not captured in broad global requests for information. Navigating the market and articulating an actionable business case is the first step in understanding the true value in strategic sourcing of payroll across the globe. 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC., 17