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Payroll Cross-Country Cheque Cutting The recession and a surge in M&A have complicated comptrollers' agendas. By Debbie Bolla Like wine, global payroll outsourcing has become better with age. As the market has matured, the adoption of the business operation has continued to grow as well. According to research firm Gartner, the payroll business process outsourcing (BPO) service market increased 5.2 per cent in 2011 and is forecasted to grow 1.4 per cent worldwide in 2012. This comes to an estimated five-year compound annual growth rate of 3.3 per cent through 2015. Outsourcing global payroll certainly has its benefits. Cost containment and increased efficiency have been favoured reasons for years. But with increased merger and acquisition (M&A) activity and new technology disrupting the market, businesses are seeking to outsource payroll in pursuit of other benefits. In its Magic Quadrant for Payroll BPO Services for 2012 (see sidebar), Gartner reports that large enterprises are looking at multicountry payroll BPO for as a way to align global operations on a common platform with access to consistent data analysis across all countries. "Doing business globally has become more of a challenge— organisations need to focus on business efficiency and need access to new technologies to achieve scalability and greater flexibility," explains Anthony Verrone, vice president of product management at Patersons. "The uptake in M&A activity has increasingly forced organisations to become globally focussed. Organisations are taking advantage of the growth of economies with highly qualified workforces that are attracting foreign investment and are naturally forcing international expansion." The surge in M&A activity, for some a survival tactic during the recession, has added a layer of difficulty for global organisations seeking to manage their payroll systems. NelsonHall's November 2011 Payroll Market Analysis Report (see sidebar) found that increases in M&A have led to fragmented payrolls, which may have increased the desire to have a multi-country platform managed by a single vendor. (In 2011, it was the second driver of payroll BPO, whereas in 2010 it was third.) NelsonHall reports that multinationals are looking for one contract with global visibility of cost and aggregated reporting of data. Other benefits include standardisation, particularly within regions, and flexibility and scalability to add new geographies. [32] HRO TODAY GLOBAL | SUMMER 2012 "Especially in the case of M&A, it makes a lot of sense to outsource payroll in order to free up resources and management attention to focus on the actual business integration side of things," says Michael Custers, vice president of global alliances and strategic marketing for NorthgateArinso. "Rather than reinventing the wheel for every separate payroll, provider and customer can start from a common logic to develop efficiencies of scale." Reigning as top payroll BPO client driver for the second year in a row, according to multiple experts, is reduction and control of costs. While forward movement of other outsourcing drivers show cost might not always be the top dog, 85 percent of all buyers report having outsourced payroll to reduce costs, notes NelsonHall. Both the public and private sectors are under financial pressures, and clients seek to gain better control and predictability of costs. "Cost savings in payroll is most often achieved when large internal operations are replaced by an outsourced payroll administration," explains Julie Fernandez, director, global payroll lead for ISG. "Even clients beginning with select outsourcing tend to increase the scope of services performed by their payroll provider, until little remains of internal payroll expertise. Payroll is all about scale, so large employee populations are most often funded from savings to payroll FTE in a centralised administration group, eliminating a payroll system or module and related IT expenses, and any specialised payroll support for third-party tax filing, printing." New developments in payroll outsourcing offerings have led to further cost savings. Process alignment and standardisation across divisions and countries can result in cost efficiencies. Technology can also have a major impact on the bottom line. Moving from multiple platforms to a single platform is a cost saver. Using process automation, adoption of employee and manager self-service, and application configuration all have increased the attractiveness of outsourcing. "Many of these 'new efficiencies' have only popped up in recent years and have been the result of innovations generated by providers where savings can be passed on to customers," says NorthgateArinso's Custers.