3 Risks of Ignoring the Importance of Payroll System Implementation

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When it comes to HR information systems (HRIS), the importance of payroll system implementation may not be as apparent as other emerging technologies. According to the Society for Human Resource Management (SHRM), top HR technology trends for 2016 include a new focus on social tools, education and compliance. Although modern CHROs at global organizations are wise to look toward robust and innovative options for global workforce management, there's risk in letting adequate payroll systems take a back seat.

HR leaders should recognize the risks of implementing a separate payroll option after buying into a new global HR system. According to Forbes, 92 percent of HR professionals believe that "organizational design," including technology, is a critical area of focus in global workforce management for 2016. On a global scale, human capital management carries unique regulatory requirements and risks.

Deloitte writes that adopting a HR technology solution without "resolving payroll-related employee usability and data quality issues" can result in any number of problems, from duplicated work to "significantly eroding the employee experience." HR leaders should become informed of the potential risks before buying into global HR technologies that lack a payroll function.

Here are three major risks to watch out for:

1. Compliance

Even on a national scale, the connection between payroll and compliance risk can present unique challenges. However, as Bloomberg writes, 60 percent of international organizations report "increased 'risks and regulatory requirements'" when managing compensation on a global scale. While international teams may be the wave of the future, implementing payroll separately from HRIS can significantly complicate the process of facilitating and monitoring global compliance.

Some examples of global payroll laws and regulations that may not be included in many HR systems can include, but are not limited to, the following:

  • Hours limits for the European Union (EU) Working Time Directive (WTD), which vary by country
  • Data storage regulations and personnel requirements for the EU's Data Protection Directive
  • Strict overtime pay regulations for the Labor Law of the People's Republic of China
  • The United Arab Emirates Wage Protection System, which requires Ministry of Labor oversight

Unless your global payroll system is built to accommodate the data collection requirements (or storage regulations) in each different country, you could be at risk of non-compliance.

2. Interoperability

The costs of custom interoperability between payroll and human capital management systems is probably much higher than HR leaders think. In fact, Charteris Research indicates that "application integration" is the single biggest cost driver of enterprise-scale information technology. Deloitte highlights the need for "appropriate flexibility to enable payroll accuracy and timeliness" while still maintaining global data integrity. HR leaders should consider both the initial and ongoing costs between getting separate HR and payroll systems to "talk," and how this could affect their tech budget.

3. Data in Silos

While effective system integration can be an expensive solution to separated data stores, a big risk to global payroll systems is data that lives in artificial silos. SHRM highlights that "HR analysts" are becoming increasingly critical to the business, since they leverage smart data to "answer many of the most important questions about their workplaces and their workforce." If your goals for the years to come include workforce modeling and predictive analysis, it's wise to consider how separate systems would impact data availability.

The Importance of Payroll System Implementation: Factors to Consider

If you are considering technology solutions for human capital management and payroll on a global scale, your business requirements may include

  • Global integration
  • Local compliance
  • Reporting
  • Critical function integration (such as payroll, benefits and attendance)
  • Tax requirements
  • Benefits administration

In most cases, global CHROs may find that "centralizing" their global human capital management, or simultaneously implementing HRIS and payroll systems, can mitigate a number of compliance and interoperability risks. By looking at payroll as an extension of human capital management, HR leaders can ensure worldwide compliance, as well as total access to workforce insights.