The economy is both expanding and reopening in some parts of the world these days. Businesses are adding headcount and opening new sites. Growth is a good thing but it must be done well to be both effective and financially prudent. Poorly planned and executed growth is expensive and painful.
The acid test for many firms when it comes to growth is how well the systems, processes, etc. scale especially when the growth includes new offices, new locations, or new countries. One software vendor intimated that it costs his firm approximately $15 million to open a new office in a new country.
An uncomfortable truth for many HRMS and ERP vendors is that their solutions really don’t serve all sized locations/operations well. Few large customers actually use their enterprise solutions in every location where they operate. If you have a large enterprise solution that works for the locations with 1000 or more employees, that solution might be overkill for a country location where the operation only has a five-person sales office.
It’s for this reason that many software buyers have one solution for their largest entities and one or more different local solutions in other locales. One of my recent clients had operations in 18 countries and 22 unique payroll systems. The one-size-fits-all approach to IT is actually rare.
There’s also another truth in that many firms don’t want to invest in big IT solutions for all-new locations. Why should they acquire (or extend) expensive, high-end solutions for a small startup site in case it doesn’t pan out? That could be one very expensive mistake.
A third point to ponder is the difficulty in establishing a new work location/office especially if this site is in a new country. The list of problems can include:
- Lacking in-house expertise on local regulations, tax filings, banking relationships, hiring laws, etc.
- Some countries require employers to have a local bank account (which can take a foreign entity a while to get approved).
- Difficult to know what the legal and best practices are for hiring in the new country.
And, heaven forbid one of the first new hires turns out to be a PURE (previously undetected recruiting error). Terminations are quite problematic in some countries. Let’s also not forget about labor councils, unions, etc.
A final truth is that many application software products don’t work in every country or territory. Payroll products are the least transportable technologies with few products capable of producing payroll in more than a handful of countries.
Creating a new business location is not for the faint of heart.
One hope for expansion?
I recently had an opportunity to speak with Bjorn Reynolds, CEO of Safeguard Global. His firm’s solutions make expansion considerably easier for employers. Safeguard can find new staff, pay employees, and more for those firms looking to grow. Specifically, Safeguard provides Payroll and employment outsourcing services to its customers.
One discussion area that Reynolds and I delved into involved the integration of different, country-specific payroll systems’ data to/from a company’s HRMS. Employers would love to have real-time, accurate payroll information in their HRMS as it makes it possible to do have more accurate and useful analytics and reports. My own client experience is full of companies struggling to know basic employment information like how many people actually work for the company.
Safeguard possesses a standardized integration mechanism to send/receive data between an HRMS and country-specific payroll solutions within its product suite. Reynolds indicated that something like 70% of their customers are Workday HCM users. Safeguard has fairly tight integration with the Workday products.
Another integration concern that my clients encounter involves the Payroll to General Ledger interface. This can be a major work generator for the Accounting/Finance and Payroll groups if the integration is missing, incomplete or inaccurate. It also gets wonky when base pay data is changed (eg: to correct a time-entry error) in a payroll application but these changes don’t get replicated back into the feeding system and other dependent systems (eg: cost accounting, inventory accounting, time tracking, etc.).
This issue is getting a lot more attention now as more and more employers want to offer daily pay as a perk for its employees. If a company can’t get its payroll and financial systems integrations correct once or twice a month, how can they hope to do it every single day? Smart employees need to fix these integration issues NOW!
Safeguard’s Reynolds was quite confident that their payroll/general ledger interface works well. He mentioned that one of their clients has 180 legal entities operating in 78 countries. That customer’s payroll/general ledger interface operates with a 99.3% accuracy rate.
Given all the Work From Home (WFH) going on these days, why would a company need a service like Safeguard’s? Reynolds indicated a couple of factors to consider:
- Only a small percentage of workers will permanently remain WFH employees. While up to 80% could experience a hybrid work location situation, businesses will likely need people (and more to boot) in new and various work locations.
- Your competitors may be offering more flexible (eg: WFH) employment opportunities. This will make recruiting to fill open positions (and to open new work locations) more difficult.
- Some verticals will be experiencing big hiring changes in certain locales. Specifically, Reynolds mentioned the pharmaceutical industry as one such segment as pandemic-related hiring has been intense globally. New anti-viral drug releases and hot spots will likely continue for some time.
WFH can create tax nexus issues for those workers who have an option to return to the office but choose to WFH. Reynolds commented that 2020 saw a record number of tax changes globally. My own experience suggests that tax filing responsibilities are a major work (and anxiety) generator for Payroll and Accounting personnel.
Reynolds indicated that the typical Safeguard customer could be:
- A multi-national company with employee headcount in the 500-5000 range
- A fast-growing technology firm that has already expanded into 4-16 countries and wants to expand further
Safeguard knows about international growth. Its solutions support clients in 165+ countries. Reynolds expects the firm to sell direct in more than 50 countries in approximately 3 years. The company is headquartered in Austin but it is big in the UK with some employers processing payroll for 20,000 employees there.
Safeguard’s not the first tech firm to go after this space. PapayaGlobal has been at this for a while (see this November 2020 piece on their recent funding round). Blue Marble Payroll, ADP Celergo, CloudPay and others also offer a global payroll solution. Paying people isn’t the sole issue. It’s also finding them, giving them a career and dealing with the tax filings, regulatory reports, etc. in each locale. That adds significant difficulty to the mix.
Payroll is not going to get simpler. As Safeguard stated in a recent press release:
Much of the past year's media coverage has focused on evolving WFH policies, what hybrid work will look like, and transitioning to a remote-first workplace. Less attention has been given to the new skills companies, and those in charge of Human Resources must develop for a 'hire everywhere, work from anywhere' economy.
That hire everywhere, work from anywhere soundbite is right on. Businesses, like their supply chains, continue to grow globally and so are their work locations. These trends will continue to stress pre-existing payroll installations. And while smart firms will embrace technologies that make hiring and paying people in new locations, these same firms may need to do some serious cleanup work on their existing HCM/Payroll/Shared Services environments to meet the new market and regulatory requirements. Specifically, firms need solutions that:
- Pay employees, contractors and temps first time, every time no matter where they live and work.
- Produce highly accurate integrations to/from a number of HR, Accounting and Operational systems.
- Find potential employees, at scale, in numerous labor markets around the world.
- Flawlessly deal with regulatory, tax and other governmental matters.
That list of requirements is not for the faint of heart and not all vendors do all things well. Some solutions are merely a network of third-party, in-country payroll providers whose integration capabilities can leave a lot to be desired. Some providers have a limited coverage area that might not deliver all that you need. Only a few of them might actually help you find the talent you need in those countries you’re about to expand into. Bottom line: shop carefully!