Which are the challenges?
Language and culture
Communication is one of the most fundamental challenges for a centralized payroll team regardless of the region. Most multinationals have English as an official company language so communication is not a problem that arises when we are referring to employees.
Dealing with local vendors, liaising with in-country statutory authorities and understanding the requirements of local business managers are the main areas where communication could be a challenge. For example, in Russia, a large number
of documents need to be signed, stamped and kept on site and they all have to be in Cyrillic alphabet. Multinational companies have to know how to make a difference between a legal obligation and the local company culture.
The battle to stay legal can be a tough one especially if you are already facing language and cultural challenges. Some countries tend to be overly bureaucratic and for an outsider it can be very difficult to keep up with local regulations and with all the reporting requirements.
Some countries are prescriptive about what can and cannot be included in contracts and in some there are mandatory employment registers which should contain all the previous jobs of each employee. Each country has its own labor code which may differ significantly from one country to another.
There are different approaches that multinationals take to make payments to employees and regulatory authorities. In addition, in some countries, payments are still manual and companies still use paper pay slips.
Vendors and systems
In Eastern Europe the vendor landscape is more mixed than in the US and UK. Even if there is a number of long-established providers and outsourced managed services the choice is still limited.
Multi-country Payroll Management
In some countries of this region, the challenges surrounding payroll and HR administration can be onerous for the multi-country payroll manager at various points in the payroll cycle. Major stumbling blocks include:
In some companies, tasks such as employment contracts, job changes and promotions, transfer and vacation applications are also managed by the payroll professionals. Every country has its particularities when it comes to the activities mentioned above. For example, in Russia and Ukraine, vacation must be paid in advance, which differs from most Western European countries.
HR records management
In some countries, there are some special records that must be kept on-site for a specified period: employment orders, vacation orders, last name changes, business trip orders, welfare payments, average earning notices, organizational chart changes.
Even though in Hungary, Poland and Romania this activity is eased by the increased amount of electronic communication rather than manual there are some other countries were difficulties still remain.
Because the bureaucratic overhead can put pressure on both systems and processes, HR and Payroll, many companies keep two separate systems: one for local accounting and one for central records management. Companies have major issues in handling interfaces between their systems when people move from one entity to another. For example, in Russia, changing the entity requires a lot of configuration for tax purposes, such as multiple personnel numbers. If you are using a global system which is not configured in the required way the interfacing becomes difficult and manual reconciliation is necessary.
The high volume of online tax forms, frequent changes to tax codes and descriptions, forms being rejected because the correct information has not been provided are only some of the challenges met when it comes to payments to authorities.
The general preference regarding pay slips is that these should be electronic and managed centrally. However, because of statutory requirements in some countries, the limitation of vendors and cultural norms, the impossibility of using all the perks of technology in other countries, paper pay slips are sometimes still required.
Strategic approaches to handle the challenges
Faced with some or all of the above challenges, multinational companies have taken a variety of approaches which can be grouped in three categories.
Separating out HR
One option is to separate tasks according to conventional organizational responsibilities and move non-payroll tasks to other in-country functions. The separation of HR administration and record management is a good option but it will not necessarily help smooth the interface between HR and payroll. Tracing back an error or bad data provided by in-country staff will not be an easy task.
The regional hub, where centers are based in one location, serves multiple EE countries and usually consists in a handful of payroll admin staff. The advantage is that these payroll professionals from the regional hub are close in culture and location to the countries they serve and they are able to overcome the language barrier. They can both meet the in-country requirements and communicate with company headquarters.
In theory, at least, the hub can solve some of the visibility and control issues that come with the local model. Through the hub the local management can easily be kept close aboard with the local actions while all HR administration tasks can be carried and overseen by a hub.
Unfortunately, the hub has also a downside: it is very difficult to find employees with a broad range of skills: multiple languages, payroll expertise across multiple countries, good people management and process skills.
There is a big number of companies that believe outsourcing to be the only effective model to support their employee services needs in the region.
One of the most important advantages of outsourcing is that the burden of understanding legal and statutory requirements is passed to the service provider. The outsourcing providers are able to deal with the authorities and employees in the local language while reporting back to the customer in another, usually in English. They provide multilingual support and they have specialists that understand the impact of changing labor regulations and provide support when it comes to the reporting requirements.
Some multinational companies adopt also the multi-country outsourcing model, which provides customers with a single point of contact, a standard way to structure interfaces into payroll and back to their accounting systems, a consistent support model and standard reporting across each country.
About the author: Alice Anghelea has over 12 years of experience in Payroll & HR BPO operations, both in-country and multi-country level throughout Europe. At UCMS Group, Alice is responsible with regional business development and sales, offering solutions and developing projects for multinational companies looking for adopting new payroll service models across their regions in Europe. This article is based on Alice’s experience but also on a special report made by Webster Buchanan Research and UCMS Group and which examines the challenges of multi-country payroll in Eastern Europe. Based on interviews with senior international payroll managers, this independent research report assesses the approaches multinationals are taking to tackle these regional issues. You can contact Alice by email at: firstname.lastname@example.org
Picture: reway2007, via flickr
This article was first published in the Special Edition of The Outsouricng Journal “CEE – A Colorfurl Outsourcing Landscape”, which is available for free download here (PDF, 85 pages)