Wherever you do business – across the street or around the world – you can count on ADP to help you succeed. At ADP, we know you have questions about how to run your business more efficiently and how to manage your workforce better, whether you’re a small business owner or leader in a multinational organization. On this blog, we publish brief and timely posts about Human Capital..
ADP India hosted a webinar on The Most Recent Amendments in Indian Labour Law Legislations and their Effects on Your Establishment on 9 May 2018. The webinar recording can be viewed below.
Indian Labour Law amendments webinar
The Most Recent Amendments in Indian Labour Law Legislation - YouTube
There were many interesting questions that came up during and after the webinar. While Mr. Anandan answered several of them during the webinar, there were some questions that he did not have the time to answer. We have drafted these questions and answers into a quick Frequently Asked Questions (FAQ) format, for the benefit of everyone. If you have further questions, please comment below and we’ll answer as soon as we can.
FAQs: The Most Recent Amendments in Indian Labour Law Legislations and their Effects on Your Establishment
We are unable to approve more than one KYC in the new unified portal. We have a digital signature enrolled in the portal. Currently, we are able to approve one KYC document in the portal and nothing more. The approval screen goes grey and inactive if we try to approve the second one. Request your clarification.
The issue may not be with PF portal. Kindly check with the Vendor who had given you the dongle. If you still face problems, you may have to visit the IT department of the Regional PF Office.
What is the current process of withdrawing EPF and EPS? There are continuous changes in the EPFO and we are not aware of these amendments.
Upon separation from the PF membership of the establishment, if a member wishes to withdraw, he/she should not be employed in any other organisation. The member can apply for withdrawal after 60 days of PF remittance of his last deducted contribution.
Alternatively, a PF member who is female, for the purpose of her marriage can apply for withdrawal immediately, but should not be employed in any other organisation. Further, those who are going abroad for higher education, employment opportunities or for other purposes, can also apply for withdrawal immediately.
Can’t all the companies shift to the online transfer of PF? We approve the transfer requests based on the document provided. But there are still some companies resorting to paper format. Request you to explain.
Online transfer is not possible in many PF members, for reasons, that (1) personal details of the PF member – DOJ, DOB, Fathers Name, Marital status, etc. are not updated (2) KYC details – PAN, AADHAR, Bank details are missing (3) AADHAR was not seeded to UAN
What is the penalty if the person has not withdrawn his PF for more than three (3) years? Some of our ex-employees have moved abroad and not withdrawn their PF.
There is no penalty for anyone – employer or employee. The monies lying with EPFO will accrue interest until the PF member (or) Nominee withdraws.
Under PMRPY, please elaborate as to what you mean by ‘existing beneficiary for his remaining period’.
The establishment would have already registered under PMRPY and the beneficiary’s name could have been included in the portal to avail benefits. The reimbursement of benefits to the establishment, in the name of such beneficiary would be three (3) years from their date of joining/date of registration into PMRPY. Hitherto, the benefit was 8.33% of employer contribution and effective 1st April 2018 wage month, it would be 12%. If availing of benefits was already commenced, the establishment would get 12% for the remaining period of total three (3) years.
The question is in case of involuntary exits: If an employee serves and gets terminated in less than five (5) years, is it mandatory for the employer to pay ex-gratia?
Ex-gratia is not mandatory under the Act.
If Gratuity is a part of CTC, is it the obligation of the employer to pay the gratuity even if the employee serves for a year?
It is only between the employee and employer if such compensation is mentioned in the CTC. Statutorily it is not obligatory under the Payment of Gratuity Act.
As per our understanding, the employee’s service is coming to four (4) years and 214 days. So if the organisation is working five (5) day week, is gratuity payable as per interpretation of gratuity case law in Madras High Court where they told to pay gratuity for service of four (4) years and 240 days (six (6) day working organisation)?
Arrive at the eligibility for Gratuity by totaling number of days including the weekly-off (either one day or two days in a week), as it is paid day. The Act doesn’t state about one day weekly-off or two-days weekly-off.
PMRPY incentive changed from 8.33 to 12% – this is effective from which month?
April 2018 wage month.
Is there any recent amendment for ESI exemptions in Srikakulam and Vizag areas?
There are no recent amendments from ESIC for these locations.
You mentioned that women employees working night shifts will receive one paid holiday. Why is this so?
It is a provision under the recent Maharashtra Shops and Establishment Act, 2017.
One of our employees has changed his name and has a gazetted copy of it. When he tried to change basic details, EPFO is asking for the birth certificate and has rejected the request despite current employer having approved it. How to deal with this?
Apply with the physical Joint Declaration form.
If an employee completes three (3) years in his previous organisation and then three (3) years in the current organisation, then how should we calculate the gratuity for his employment?
Eligibility for Payment of Gratuity is calculated if an employee is continuously working in one establishment. In the above case term of years cannot be considered for arriving at eligibility of the individual employee. What was discussed during the webinar is, if an employee already received Gratuity under The Payment of Gratuity Act, then it would be considered for arriving at maximum Gratuity payable by the establishment, i.e. 20 Lakhs.
What is the percentage ofthe tax deduction for people who have withdrawn in less than five (5) years?
If the service less than five years in an establishment and the withdrawing amount is Rs. 50,000 or more, then the TDS would be minimum 10% and maximum 34.60.
Please give a brief explanation of the Bonus Act. What is the eligibility and how to calculate bonus and disburse? Also, what are the minimum and maximum bonus?
Any on-roll employee who has served 30 days or more in the previous financial year is eligible for payment of Bonus in the following financial year, within 8 months after the closing of books of accounts. Those employees who are drawing a Basic (+DA if any) of Rs. 21,000 per month or less. Upon eligibility, the amount to be considered for bonus calculation is Rs. 7,000 or the Minimum Wages, whichever is higher (MW is to be considered for those employees who are engaged in Scheduled employment). With the account surplus, the establishment needs to declare statutory bonus (between 8.33% and 20%) and disburse before November 30.
For employees leaving during the month, is the salary pro-rated based on 30 days working or the working days of that month (for ex. 22 days working month and the person has worked for 15 working days)?
Working days should always include the weekly-off, which needs to be considered as paid days. 22 days working month has weekly-offs which also needs to be considered for calculation of paying days. Whatever week-offs falls during such 15 days, those days also need to be included and considered as worked days.
An employee wants to withdraw PF and she resigned 6 months back. Is it the employer who has to withdraw for her, or does she have to do it for herself?
If the PF member (who is currently not employed) has updated all personal details including Bank, PAN and AADHAR in the UAN member portal he/she can withdraw the PF on her own, applying through online. Otherwise, he/she has to apply through the establishment.
Is PMRPY applicable to IT Professionals?
It is applicable for all those eligible employees whose Gross wages is Rs. 15,000 or less per month.
In terms of the Gratuity Act, if we have to consider the entire employment cycle, how does the current employer calculate? We currently calculate based on years of service and not on the amount. Is it not right to follow the years of service of the employee in a particular establishment?
During recruitment (employee on-boarding) the details of Gratuity already availed (amount) in their previous employment needs to be considered. Considering the number of years in the previous employment is not mandatory.
Employee joins after payroll cut-off in a month, after which we close the payroll, and remit PF for them next consecutive month. This is beyond the PF cut-off of joined period, we are levied penalty for that. Will it betreated as default?
Yes. The attendance of an employee was considered for specific days, as above which is according to the convenience of the employer. But it is a not a case for EPFO. For EPFO the monthly calendar is 1 ~ 30/31.
Please let us know how to resolve PF & ESI registration issue with Shram Suvidha Portal?
If you register for PF & ESI through Shram Suvidha Portal it would be easy to get the registration through one single application. If you find difficulty, try separately through EPFO and ESIC portals.
In shops and establishments, if an employee is terminated, can the employer stop their PF amount?
PF deducted and remitted to EPFO is PF member’s money. No one can stop withdrawal or transfer of such accumulation.
Can you share the information on display boards to be done in office premises for Karnataka/Maharashtra?
Name board of an establishment should always be in Vernacular language (Marathi in case of Maharashtra) and another language of establishment’s choice. Both the names should be similar in size, font. Notice board should have displays of Abstracts (Shops & Establishment, Minimum Wages, Payment of Wages, Gratuity, Bonus, Maternity Benefit, CLRA, Employee Compensation, Standing Order) and Notices (S &E, MW, PoW, Gratuity, Stranding order, List of holidays), Declaration under Child Act, Committee details on SH Act specific to the State.
What if a newly hired employee is already having a PF account and does not disclose it to the employer, and the new employer enrols him in PMRPY website?
Though this cannot happen because the UAN linking, considering something of such happening – All such money is to be reimbursed by the establishment if the benefit is already availed by the employer.
If an employee goes on sabbatical leave, then will it be considered as a break of service for calculation of Gratuity?
If the sabbatical leave is mentioned in the certified Standing Order, it is treated as continuous service for the purpose of calculation of Gratuity. Otherwise, statutorily it is not.
You can access ADP India’s previous webinar recordings here.
Subscribe to our monthly newsletter to stay up-to-date on the tax and compliance changes in India.
In his book Work Rules!, Laszlo Bock, former head of People Operations at Google, talks about a time when employee referrals for new hires at Google went down. This was very concerning, because their greatest source of successful new hires and talent was actually from referrals from existing employees (Bock, 2015). Surprisingly, doubling the referral bonus still didn’t work. Turns out, it was the candidate expectation and experience in the hiring process – Google employees were actually intrinsically motivated to refer family and friends, because they genuinely liked it as a place to work. But they hesitated to refer because Google didn’t have a great process for handling internal referrals and employees didn’t want to put their friends/family through it. When they changed the process to ensure that internal referrals were given a priority vetting process with a guaranteed first interview, the referral rate increased.
There are a few lessons in this that all organisations can take away:
2. Employee engagement is more important than ever.
Your brand is either being promoted, or eroded, by the people who come to work each day and interact with your customers and talk about your company to their family and friends.
Janany Janakiraman, Associate Vice President of HR at ADP India, says, “Employee Engagement for me is to give every associate ‘a sense of purpose’ for coming to work every day and engaging with passion in performing his/her work responsibilities. In the truest sense, each of us spends the maximum number of hours in our work environment, more than our personal environment, and giving oneself the reason to come to work and work under a particular brand/leader/team is what clicks biggest for bringing people together and feeling the brand.”
So what makes for an engaged employee? Health perks? Foosball tables? According to research from the ADP Research Institute, these things aren’t bad, but they only complement the actual work experience. New recruits want what you promised. Employees are more likely to stay if the role experience aligns with the expectations set during the hiring process.
It sounds simple, but it means ensuring that those talking to new candidates, like HR (through interviews and screenings) and marketing (through your careers website), aren’t selling a work experience that doesn’t exist. It’s a waste of everyone’s time and will be costly to your business when the people you invest time and training in quickly find somewhere else to use their talents.
We’re excited to share more about our latest research in upcoming blog posts. What lessons has your company learned about talent acquisition and retention? Is it time to try something different?
PS: Paying people correctly is also super important for your brand. If you need more info on that, come over here!
In a recent article for People Matters, Abhijit Bhaduri shares his view that it’s time for labour laws in India (and globally) to evolve to encompass and recognise the rise in the gig economy. While the gig economy has long existed for those who provided casual manual labour, these days many people from a wide array of industries are also turning to freelance work, whether it is to provide extra income for their families or to enjoy the freedom and flexibility not currently offered by many companies. Bhaduri is a gig worker – he freely admits to enjoying the freedom and flexibility to pursue projects that interest him and work with different types of organisations as a consultant. And he’s not alone. Bhaduri’s desire for freedom and flexibility is part of a growing trend not just in Asia, but around the world.
With the recent acquisition of WorkMarket, ADP is staking its claim that the gig economy is here to stay and that gig workers will make up more and more of a company’s workforce. But how should large organisations manage these gig workers, whether consultants, freelancers or contractors? How do you find someone else if your go-to is unavailable, or you need someone on-site in the other end of your country?
WorkMarket, although only operating in the US, is a game-changing platform that could allow companies to get a complete view of their workforce, not just those currently holding permanent positions. With the gig economy here to stay and disrupt the current workforce, how will it change your organisation?
ADP India is participating in the SHRM HR Tech Conference 2018, where the gig economy will be a popular topic of discussion. ADP India is also hosting the Future of Work session as well as the SHRM Tech X 2.0 session, both on 27 April 2018. For more information, please visit the event website.
Budget Changes 2018 19 and the Impact on Payroll - YouTube
There were many questions that came up during and after the webinar. While we have answered most of them, there were a few questions that repeatedly popped up. We have drafted them into a quick Frequently Asked Questions (FAQ) format, for the benefit of everyone. If you have further questions, please comment below and we’ll answer as soon as we can.
FAQs: Budget Changes 2018-19 and the Impact on Payroll
1. My question is on the Medical Allowance and Conveyance. How does this reflect on the tax-slip on the ESS portal? We have these components in our CTC, should we leave them as is or make any changes?
There are two options:
keep the same structure and make component taxable;
It is always better to remove these irrelevant components from the CTC.
The standard deduction would be shown as a deduction after Section 10 exemptions along with Professional Tax deductions.
2. What is the limit for housing loan interest deduction for Rented House Property? Earlier it was without any limit, but now it seems there is a limit of Rs. two lakh. Please confirm.
The interest still for let-out property still can be claimed with no limit. But in Budget 2017, there was an amendment in section 71 which states that loss under house property can be claimed only up to Rs. two lakh. That simply means the interest limit for self-occupied is two lakh and let out is unlimited, but the overall loss adjustment of house property against other heads of income is restricted to two lakh rupees.
3. Is the Gratuity amount taxable if total years of service is 4.8 years?
Please check the respective state law; a few states like Kerala and Tamil Nadu allow this policy of 4.8 years gratuity pay-out.
4. Will the 10% tax applicableto equity dividends be automatically tax deducted and credited to our accounts, or will we have to manually declare them when filing tax?
I think this would be an automatic deduction from the banks, but in case it is not deducted then you need to manually pay the same.
5. Should we include Medical Allowance in Gross Salary, or as a part of annual CTC component?
Changing the name won’t affect the taxability. Thus, please discuss internally and restructure your company’s CTC.
6. Are Medical Bills required?
As the component is no longer there, the bills are also not required.
7. For male employees, the first three years government contribution of 12% for the PF does that replace the Employer contribution? Or is it over and above the employer’s 12% contribution?
The 12% is company’s share and not over and above.
8. As informed, we will remove the conveyance and medical from our salary breakup. So these components can be shown as a special allowance which is taxable and 40,000 will be exempted for tax calculation. Is the understanding right?
Yes, you are right.
9. I understand that Budget proposals also seek to provide relief to salaried taxpayers by allowing a Standard Deduction of ₹40,000 in place of the present exemption allowed for transport allowance and reimbursement of miscellaneous medical expenses. Does this mean that:
i) Employees will no longer be required to provide documentary proof towards medical expenses (presently, ₹15,000) and travel expenses (presently, ₹12,000) in FY2018-19?
ii) The hospitalisation cost is also covered under this head and no extra amount will be reimbursable?
Yes. There would be no medical reimbursement from FY 2018-19 and thus no documentary proof required to submit towards such expenses.
Subscribe to our monthly newsletter to stay up-to-date on the tax and compliance changes in India.
Most business leaders know that happy employees are productive employees. Still, many people across the world aren’t satisfied at the office. A 2016 Pew Research Center survey found that 30 per cent of Americans view their employment as “just a job to get them by.”
That’s a problem for business executives, regardless of business size, said Dr. Susan Hanold, vice president of HCM Strategic Advisory Services at ADP. If people aren’t engaged at work, they’re going to burn out or head elsewhere. Unfortunately, executives are busy and don’t often keep their staffers’ well-being top of mind. Employee engagement, Hanold said, drops lower on the list of priorities.
In today’s work environment, employee engagement is critical. Finding talent is more challenging, which makes it even more important to retain good people, Hanold said.
Of course, keeping staff happy is easier said than done. Even the best leaders have trouble satisfying and engaging employees throughout the year. So what can you do?
Here are five ideas.
Give Good Feedback
Employees may dislike the annual review, but that doesn’t mean they don’t like feedback.
ADP’s 2016 Employee Engagement study found that staffers want updates on how they’re doing and they want to receive recognition. Why? Because they need to know how they can grow and move up in an organisation.
“You’ve seen a kind of resurgence around the manager touch point,” Hanold said. Managers want a better connection, a tighter relationship and better-quality conversations with their employees, she added.
Included in this is training and skills development. “Growth and development matter to employees,” she said.
Help Staff Climb the Ladder
One barrier to engagement is that employees think they have no way to climb the ladder. Feedback can help an employee do better work, but that employee still needs somewhere to go.
To facilitate movement, some companies have established more career positions so that people can move higher, faster. These aren’t big leaps upward, Hanold said, but more incremental moves.
“There are more steps than there may have been in the past,” she said, and that helps engagement. “They say, ‘I’m really moving up the ladder, and I have a place where I can go.’”
Hanold sees Millennials mostly taking advantage of this mobility, but there’s no reason members of other generations can’t do so as well.
Be Passionate About Your Business
Contrary to the widespread myth of the passionate business leader who’s following a dream, not everyone in a corner office is as engaged as he or she should be.
And if business executives aren’t happy, their employees won’t be either, according to Jennifer Martin, founder of Zest Business Consulting. Like their employees, executives must be open to personal development, and they must find purpose in the work they do.
“How does the leadership team feel about themselves?” Martin said. “Do they like the business? Are they treating their team with kindness and respect? Are they taking that kind of attitude to everyone who comes in contact with the business? It starts with how they feel and how they interact with their team.”
Give People the Perks They Want
Everyone likes to be recognised for their work. Receiving things like gift cards, a day off or an invite to a special event can help excite workers. According to the Global Business Travel Association, some companies are even allowing staffers to add extra days onto business trips to let them explore the cities they’re in.
Some companies offer bigger incentives, such as tuition reimbursement, gym memberships and even pet insurance. While offering something extra can be a good idea, companies often make the mistake of providing perks that employees don’t want, Hanold said. If your workforce is older, they may not need tuition reimbursement, for instance.
“You have to know your target audience and be progressive,” she said. “If someone’s already working out, then they don’t need a new membership. But can you give them a discount on their existing one? And make it easy for them to get these perks and benefits.”
Ask Employees What They Want
If you’re not sure how to engage your staff, there’s a simple solution: Ask. What do your team members need to stay engaged? A ping pong table in the break room? More nights out as a team?
While people may have different opinions, just talking with them shows them that you care, and that alone will make them feel better about their workplace, Martin said.
“Asking people for their insights tells them that you like and respect them,” she said. “And that gets them engaged.”
Every company should be trying to increase employee engagement. Although it may cost something to take everyone out for dinner a few times a year, for example, your happier and more productive staff will pay you back through increased productivity.
“There’s no downside to this,” Martin said. “If you have a deeper level of engagement, you get higher levels of productivity, and that not only boosts your bottom line, but you’ll have better retention rates too.”
Buckingham has been a revolutionary HR thinker, right from his first book, First, Break All the Rules: What the World’s Greatest Managers Do Differently, written with Curt Coffman. The book dissected the insights gleaned from over 80,000 interviews conducted with managers by Gallup Organisation. It posited the idea of managers creating and sustaining employee satisfaction at the workplace. The popular outlook changed after the publication of this book, with its key ideas of what the best managers do and don’t do influencing hordes of HR professionals in the years that followed.
Since then, Buckingham has started his own company to creating management training programs and tools, apart from writing several other books. His nearly two decades of experience as a Senior Researcher at Gallup Organisation preceded his role at ADPRI®. He champions a “strengths-based approach” towards employee engagement that ties in with the increasingly technology-driven nature of HR work. In his talks, he often demonstrates the correlation between strengths-driven, engaged employees and business fundamentals such as turnover rates, customer satisfaction, profits, and productivity. When it comes to data, he cautions against the proliferation of faulty data.
In the interview with HRM Asia, Buckingham has a challenge for HR: How much of the existing data you collect today is actually, “good data”? How much of that data is truly reliable?
“People are being promoted and fired because of faulty data. That has to stop,” Buckingham warns. “Don’t be a casualty of bad data. Data fluency means knowing the difference between good and bad data.”
For example, he says all performance ratings and 99% of 360-degree HR tools produce “bad data” as they do not measure the competencies that they are supposed to measure. That’s because competencies are inherently unmeasurable. In fact, Buckingham claims that all talent data is bad data. Because of this, most team leaders still do not reach for HR data willingly.
Just as in management, when it comes to data, patterns have to be challenged, and eventually broken.
Buckingham says to achieve this, there are three words all managers must know about data analytics: reliability, variation, and validity. Most HR tools fall short of at least one of these criteria – and many fall short on all three, he says.
Read the article here to find out what else Buckingham has to say about data, analytics, and more.
Every business owner is familiar with the concept of setting goals. Many business owners choose to aim high when setting their goals and measure their progress regularly to stay on track. By taking the same approach with employees, small- and medium-sized businesses can motivate and engage staff simultaneously with improving performance and productivity.
Although many in the working world dread the phrase “annual performance review,” if approached thoughtfully, it can offer real benefits to both employer and employee. Setting goals helps employees understand what is important to their employer and what is expected of them. It also provides direction on what an employee can do to advance their career.
Care must be taken to ensure the exercise is about the results and not just the process. Here are some tips to make goal setting a worthwhile experience for employers and their employees:
Focus on goals that are specific to your company’s objectives and helps employees develop career skills.
Make sure you involve your employees in the goal-setting for your business. By involving employees in the process for setting company goals, they will feel greater ownership and accountability.
Regularly review progress against goals and discuss business objectives, the employee’s role in achieving these objectives, as well as career development opportunities. By checking in with your employees on a regular basis, you have the opportunity to help them stay on track and they have the opportunity to ask questions, request feedback or get assistance. Nothing demoralizes an employee more than being surprised with unexpected critiques, when they have been hard at work all year – but on the wrong things.
Write down the goals you and your employees set. This makes it clear what will be measured.
Get specific on what success or achievement of a goal means and in what timeframe you want to achieve the results. Looking to increase your sales by five per cent over a certain period? Or want to decrease your delivery time by one day by next quarter? This clearly indicates the employees’ collective goals and timing in alignment with what the business wants to achieve. The more tangible and measurable the goal, the easier it is for everyone to know how they are progressing. This is crucial – specifics on timing and measurement helps keeps people focused even during the busyness of day-to-day of work.
Make sure your goals are achievable by taking resources and workloads into consideration. Do not demoralize your team by asking for things that are not realistic or reasonable. Lofty goals (sometimes called stretch goals) are good – but make sure they are possible.
Discuss goals regularly. Receiving negative feedback during a performance review because the manager did not take the time to discuss the employees progress with goals is discouraging and a sure way to disengage employees.
Setting goals, measuring progress regularly and discussing progress toward achieving those goals can help businesses achieve more and sets employees on a clear path to success and greater productivity. The time and thought invested in a clear process to set and measure goals will help businesses and their employees become more productive and achieve more together.
In part one and two of this series we reviewed the challenges of global Human Resources (HR) and payroll and how they can impact your cost and flexibility. This blog explores how poor HR and payroll systems and processes limiting the control you have over your business.
Having a global view of the workforce is essential for business leaders, but only very few actually have this. With 37% of mid-sized companies’ data left sitting in Excel (ADP Global HCM Study, January 2014) or similar types of databases, the value of putting all data in one system, accessible to not just HR, but also leadership, managers and employees, cannot be underestimated. Information from fragmented systems is simply not accurate or up to date, introducing uncertainty into key decision making processes.
Financial Controller of Yankee Candle, Rachael Merrett, explains the challenge, “We just didn’t know the information we needed (to know) about our people. Our US (head) office was asking us for more and more information about headcount, what type of people they were (salaried or hourly paid, male or female, or average salaries).”
Challenge 3: How standardised are your global HR & payroll systems?
Data visibility and a standardised set of processes enables companies to make real time, business critical decisions and focus on the strategy of your company. HRIS Manager EMEA of Covidien (now Medtronic), Dierk Russell, notes, “With consolidated reporting we know obviously a lot more about our payroll than we ever were able to do. Even with a good finance system and good chart of accounts the type of analysis we have today is far beyond what we used to be able to do.”
Visibility into the overall workforce is key to track key metrics and provide insights. A single data repository that enables reporting and analytics requires integration of HR data, common policies, processes and tasks into one platform.
The Webster Buchanan Research report, ‘Multi-country Payroll: Analysing the Business Benefits and Challenges’ identifies that “every international payroll function is geared up to meet unique local regulatory and business requirements, they tend to evolve on a country-by-country basis, with little standardisation around best practices and processes.” Most multinationals will use a mix of in-house and outsourcing. “In a large company operating in a dozen countries, for example, you could easily find 15-20 different processing partners.” It can be difficult to get visibility into individual payroll operations, ensuring they’re all compliant and guard against fraud.
For Yankee Candle there has been a massive impact, “Now, I can run ad-hoc reports, I can write reports, and I can interrogate the data all of the time. We can now extract reports that talk to our finance system. This has paid dividends because now we can easily put wage data into our ERP system,” says Rachael Merrett.
Centralisation is the key to streamlined service delivery and an HR operating model which world-class organisations are seeking to embrace. A network of in-country payroll specialists with deep knowledge of local legislation and HR details would lighten the load of shared services centres or local subsidiaries. By finding new ways to help maintain compliance and mitigate risk, improve business process efficiencies and, ultimately, help to drive organisational growth and international expansion, HR can demonstrate the strategic value they provide to the company.
Learn how you can better support the international growth of your business by choosing the white paper most relevant to your industry:
In part 1 of this series we reviewed the challenges of international payroll and focused on how they can impact your cost. This blog explores how poor HR and payroll systems and processes make change very difficult – limiting your flexibility.
Challenge 2: Flexibility and global payroll
Organisations across India are operating in a more Volatile, Uncertain, Complex and Ambiguous (VUCA) world. Senior fellow at Harvard Business School, Bill George, says in an article in Forbes: “Business is not running as usual…CEOs have little idea what to expect in terms of health care policy, financial transactions, national security, and global trade – all of vital importance to themselves, their employees, and their stakeholders.” In this type of landscape, reactivity is your competitive edge – and business flexibility determines your speed.
Only the fittest survive to fight another day
Change is the one constant in business – though it can take many beguiling forms. Papyrus France (now Inapa), a merchant in paper, supplies and industrial packaging, is part of a declining industry. “The big challenge for Papyrus is to adapt our structure. We are starting to adapt our HR tasks and payroll to be more competitive, stronger, efficient, and to take the time to implement other HR tasks and not to use all our time on payroll. It will provide more flexibility and responsiveness to the business to help it adapt to market changes” says Karima Cherifi, HR Director.
In contrast, Yankee Candle, a manufacture of scented candles, has been experiencing global growth of 30% per year with “HR systems that could not cope” according to Rachael Merrett, Financial Controller. “There was a very poor HR system, and the payroll system, didn’t give us any of the management information we needed – even things like holiday records, which were all kept manually. Nothing was linked up.”
Payroll and HR teams with poor tools and processes can crush business flexibility. Just keeping up with the demands of payroll data capture, processing, disbursements and reporting for every pay cycle can be hard enough – but add unexpected change and the burden quickly becomes overwhelming. Ultimately, there’s little or no time left for supporting your business and enabling the required transformation.
Legislative complexity and magnitude change stretches global payroll
The increasing complexity of legislation and frequency of changes can limit your flexibility – especially if local expertise is not available. For example, in one calendar year, there were over 20,000 changes in payroll regulation globally. Regulations may vary by region, by city, by business activity with collective agreements, or by company with company agreements. Brazil, for example, has more than 10,000 union agreements and Japan nearly 300 different minimum wages.
Adding to this pressure, the time companies have to implement changes required by new tax, employment, and payroll related compliance regulations is shrinking. The Good & Services Tax (GST), for example, was brought in with a lot of fanfare, but not much information. Many companies, and individuals, still have not grasped the nuances of the GST.
Findings from a study conducted by CFO Research in collaboration with ADP show that more than 60% of CFOs surveyed agree that companies have experienced increased pressure to respond to tax, employment and payment-related regulations in increasingly shorter timeframes during the past two years.
Without the right guidance, compliance can limit your flexibility as resources are diverted to coping with compliance requirements – rather than providing strategic input to accelerate your agility.
Simplicity and standardisation is the key
The Jeitosa Group International report, ‘Driving Globally Strategic Payroll: The Paradoxical Journey to Efficiency and Innovation’, argues that, “A key characteristic of the International model is that it is especially adept at understanding the needs of its local business units and sharing best practices and innovations across the global organisation.”
Karima Cherifi understand that investments in HR and payroll is important, “We had to change our policy. It’s a cost saving policy but it’s to also share best practices between the countries.”
Standardisation of payroll and HR systems through global payroll outsourcing can significantly increase flexibility. Companies consolidate consistent processes for all the countries in which they operate and leverage this efficiency to respond quickly to change. New offices are relieved from acquiring local payroll knowledge as they settle in new countries. They simply ask their supplier to “open another country”.
Learn how you can better support the international growth of your business by choosing the white paper most relevant to your industry:
International expansion and having a physical presence in a new country offers many Indian businesses the chance to reach a significant number of new customers and substantially boost profits. Inadequate payroll and HR processes can however quickly derail these plans – by increasing your costs, limiting your flexibility and reducing your control. Trying to solve all these problems could become very complicated. Ultimately your team may be robbed of the time and resources they need for other critical activities that support your growth.
In this blog series we will review the three key challenges of global payroll and HR – sharing real-life examples of where organisations have gone wrong and how your business can avoid these pitfalls.
Challenge 1: The cost of global payroll
Multiple systems multiply international payroll costs
Organisations that expand internationally usually choose to implement either a local in-house, or outsourced payroll system, catered to the needs of that particular market. Therefore, the economies of scale that can be gained from having a shared, centralised global payroll solution is lost. Often this is a bigger financial cost than leaders realise as a large proportion of payroll costs are hidden.
The less visible components of payroll can be easily over-looked as part of the due diligence scoping process – but these costs can add up and affect your company’s bottom-line. Examples of invisible costs could include IT components, system integration and time spent by staff working on payroll systems.
The ADP white paper, ‘Payroll at the heart of HR Outsourcing’ finds that payroll combined with personnel and benefits administration account for 35% of total HR costs.
Payroll costs represent nearly half of this. Multiply this cost by the number of countries you operate in and you get a sense for the large wastage that could be caused by acquiring and maintaining multiple systems.
Split operations splinter global payroll savings
One way for an organisation to enter a new country is to acquire other established, competitive businesses in the new location. Consolidating different payroll information and reporting systems can however create an expensive administrative burden. Philippe Mennrath, HR Director at KNAUF, a global supplier of building materials, explains, “Buying competitors gives us huge integration challenges – everything from getting new people to understand how we work, to getting them integrated into our HR and payroll systems.”
Fragmented payroll and HR systems multiply management costs – and impact your ability to gain clear insight and make timely business decisions.
The high price of retrofitting a local payroll solution
Running international payroll on a local payroll system can come at a high cost – both in terms of resources and time. Often a system built for one specific country’s taxation and employment legislation will not able to accommodate the unique requirements of other nations. Pepita Morales Saldana, Global Payroll Manager at TomTom, a provider of GPS navigation which has gone from having a few offices in The Netherlands in 2006 to being operational in 40 countries today, recalls, “We had one local Dutch system and in there we had to register all the information of all the employees worldwide. There is a lot of local information that you need to store but your system is not built for global information – it’s just built for the local Dutch information.”
Process efficiency drives cost efficiency
Cost is a key driver for most multi-country payroll business cases – and where “organisations automate manual systems or streamline processes, there will be a potential for direct cost savings”, according to the Webster Buchanan Research report, ‘Multi-country Payroll: Analysing the Business Benefits and Challenges’.
Jeitosa Group International’s Global Benchmarking Study found that “High-performing organisations are far more likely to have a global payroll team that has both visibility to and accountability for the functioning of payroll at the country level, across the entire enterprise.”
Dierk Russell, HRIS Manager EMEA at Covidien, a medical devices company that went from a fragmented payroll to a standardised outsourced model in EMEA, shares, “Before outsourcing we weren’t able to review or analyse the costs. Now it is very simple as its one contract.”
India is a country of over 1.25 billion people – but the global community is approximately 7.5 billion. Companies that successfully go global can enjoy a significant growth trajectory. With HR and payroll typically considered a company’s backbone, having standardised and integrated processes can accelerate your international expansion. A single vendor with a single contract can provide transparency on costs, making budgeting and financial planning easier, while relieving your team from the expense of an expanding back-office function. This leaves you free to divert more budget and resources towards successful expansion.
Learn how you can better support the international growth of your business by choosing the white paper most relevant to your industry: