One tool for your international payroll and HR processes: myth or reality?
August 16, 2023
A company that grows needs appropriate tools and must reflect on its HR tech stack in time. That growth can go in several directions: in addition to the basic processes such as recruitment and payroll, you may want to further shape your other HR domains such as talent and performance management. But growth can also head in the international direction with increasing presence in foreign countries. So, the question that arises immediately, is: is there a single tool available that can simultaneously support you in your payroll and HR strategy and in this international expansion? Many providers will claim they have the perfect solution, but is that really the case?
From a system point of view, there’s a big difference between a payroll and an HR process: an HR process is a rather generic process that is quite similar in all your countries, whereas a payroll process is very country specific and depends on local legislation, local payroll providers and local systems. Combining the generic HR aspect with the country-specific nature of payroll is already a huge challenge. On top of that, a payroll process is a very controlled process with lots of validations (and these validations are mostly country specific as well) to guarantee compliance and accuracy. This is the reason why payroll systems are mostly very standardized systems, which is in stark contrast to the most popular HR systems where easy customization is the rule.
HR and payroll are like two different animals at the office zoo, and one software to cover both, does mean you will have to compromise. A loss in functionality somewhere in the translation of your generic HR fields to country specific payroll data fields is quite inevitable. A solid translation of generic HR data of your employees to the country specific payroll data fields requires strong “localization” capabilities of the HR application. The localization potential of such an application is determined by the presence of the following elements:
Many HR systems allow you to keep track of all the pay components of your employees. Yet, for a fully digitized data exchange with your in-country payroll provider (ICP), you will need the right pay code for each of the pay components as this code determines how an amount is treated in the payroll calculation (subject to taxes, and/or social contribution). These pay codes are not only country specific, they are also ICP specific and can even be employer specific.
Many HR systems also allow timekeeping features for your employees, whether or not these are paired with a Self-Service application for absence management. For most payroll calculations, the calendar of your employees is a required part of the payroll input. And your ICP requires the right pay code for each of the calendar days (or hours) as this code will determine how the salary for that day (or hour) should be calculated.
Having pay codes at your disposal is not only crucial to provide your ICP with the monthly input, but also for cross-country reporting. Without them, you will not be able to correctly aggregate your calculated data across countries.
Payroll must be accurate and compliant with local legislation. Every payroll system therefore contains a huge number of verifications on the content of all the required data fields, but also in terms of combinations of data fields. These validations can be generic, i.e., you cannot register maternity leave for male employees, but most of them are country specific and relate to the technical data fields that a specific ICP requires in the payroll processing.
Country specific data fields
Each country has its own legislation and history resulting in data fields that you may only find in that country. A notorious example is the “Kirchensteuer” or the Church Tax in Germany.
To assess the quality and localization potential of a tool for international payroll processing, you should check if it can support you with all these 3 elements and that for all your countries of employment. And if it is the customer’s responsibility to set up the integration between the HR system and the ICPs systems, please bear in mind that an integration per country is quite an effort to make. Not only in the beginning of the collaboration, but on a constant basis since all 3 elements keep on evolving.
So, where international HR processes can easily be organized across countries, the same cannot be said for international payroll processes. Most HR applications struggle with the integration with local payroll systems since their localization potential for payroll is too limited: they either lack the key elements that are required for a fully digitized data exchange or fail to go far enough in their localization per country. The effects of a faulty integration are especially felt by the payroll professionals and will inevitably lead to more manual interventions, errors, and longer turnaround times, so a higher cost in payroll.
Even if the idea of an “All in one HR software” is very appealing, from a cross-country payroll efficiency point of view, the localization capabilities of most HR applications are insufficient, and these tools are therefore too limited for a fully digitized, accurate and efficient multi-country payroll process. If the latter is important for your company, it is absolutely recommended to go for a “best-of-breed” scenario and choose both a dedicated HR and a dedicated multi-country payroll integration platform where you foresee an integration for the core HR data but leave the payroll localization efforts to the payroll integration platform.
Hans is CEO at Paybix and a seasoned business manager with more than 20 years on the counter in the payroll industry. As a former Payroll Consultant, Hans is particularly interested in the analytical aspect of payroll and is constantly looking for ways to optimize and digitalize processes.