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Compliance When functions are outsourced, it is the provider who inherits these governance and compliance issues. "It is almost impossible for smaller multinational corporations to take care of all this themselves, which is one of the reasons why outsourcing is growing," says Greet Joos, manager of international employment at provider SD Worx, which handles payroll, HR, and other functions across 27 European countries. Labour's Laws Loved Each country in Europe, Joos notes, has its own legislation with respect to labour laws—different regulations regarding such workplace issues as hiring, job termination, working hours, minimum wage, accident and injury liability, tax liability, holiday pay, and other entitlements. The latter comprise social security, pensions, sick pay, disability, and child allowances—all of which can be starkly different from one European country to the next. In Germany, for instance, certain employee business expenses are considered to be a benefit-in-kind, which then has an impact on the net payment made to the employee. "Often T&E [travel and entertainment expenses] is dealt with in the finance and accounting column, but in Germany it is worthwhile to pull it into the HR scope, as a result of the payroll impact," explains Gido van Puijenbroek, a spokesman at sourcing consultancy Kirkman Company in London. Aside from the varying laws and rules and their respective treatment and impact, employers and providers must also address considerable differences in cultural practices and, of course, language dissimilarities, which can foster communications problems leading to compliance issues. "In Asia Pacific, for instance, there are often vast differences in the cultural aspects of HR compliance," comments Hugh McPherson, director of operations at processHR, an HRO advisory organisation focussed on APAC. As an example, McPherson cited two modern, open economies— Australia and Singapore—each with widely different compliance regimes. "Australia has a minimum wage, a litany of statutes that provide minimum conditions for employees on the basis of industry and/or occupation, and common entitlements such as long-service leave, which, by and large, do not exist in any other Asia Pacific nations," he says. "Singapore, by contrast, has no minimum wage." Big and Small A challenge for cross-border employers and HRO vendors is how to balance the prescriptive requirements of one country against the more general obligations of another—though this is far from easy. "It's a complex thing to stay in compliance with [each country's] state, federal, provincial and/or local changes, not to mention collective bargaining and union stipulations, and assorted and seemingly limitless complexities," says Chris Klein, executive vice president of operations and product, at Patersons, a global payroll provider. Sarah Seabury, director and HR practice lead for the Europe, Middle East and Africa [EMEA] at advisory firm ISG Information Services, shares this view, from a payroll standpoint. "Legislation varies widely between countries and regions," Seabury says. "For example, each European country has a different set of tax reporting requirements required in local language, with specific formats for both the government and the employee. For a multinational corporation with employees in many European states, that's a lot of administration." These laws and regulations are getting more varied and complex by the day. In Holland, for instance, the country recently passed legislation providing tax benefits to employees who buy a bicycle—a kind of environmental subsidy. In the United Kingdom, the country's transfer of undertaking law requires that when an employee's job is outsourced to a third party vendor, the employee must then be hired by the outsourcing provider in the same or roughly similar job capacity. "This law simply does not exist in many other European countries," Herrmannsen says. Nevertheless, a multinational company must be cognisant of the disparate rules to remain complaint. There are basically two ways to go about this—internal or outsourced compliance management. "Organisations have a choice between building internal departments to stay on top of evolving legislation—interpreting it and making appropriate changes to their systems to accommodate it—or they can look to experts . . . that specialise in doing this as their core business," Klein says. Staying one step ahead of the next piece of legislation or regulation requires constant due diligence, given the shifting legal framework. Recent movements in this regard include an increase in the minimum wage and older worker support measures in Australia and Belgium, the introduction of a minimum wage in Hong Kong in May 2011, and the announcement that Malaysia will implement a minimum wage in January 2013 for companies employing more than six workers. Bear in mind that this is a mere snapshot of panoramic changes. With regard solely to payroll, understanding how to adjust processes to accommodate the evolving regulations is key, as well as knowing how these changes will affect the client's overall global employee base, explains Marianne Langlois, global process executive at HRO provider NorthgateAriso. For this reason, she asserts that it is vital that providers combine legal compliance expertise with sound business judgment, "partnering with and arming clients with the necessary baseline knowledge to arrive at effective and compliant solutions." Bridging the Divides While some multinational organisations will seek HRO and RPO solutions from in-country providers, others are looking to contracting with global vendors that share a similar geographic footprint. Each strategy has its pluses and minuses. In either case, as more companies [30] HRO TODAY GLOBAL | SUMMER 2012