you Probably do…until outsourcing enters the equation. Then it’s incumbent on the buyer to have a deep and detailed conversation with the provider to clarify respective responsibilities.

by Paul Davies

If there’s an area of HRO we all think is nailed down, it’s probably payroll. After plant protection, medical, and catering, payroll is arguably the most well-developed, bundled HR service.

Payroll is a technology-dominated commodity that has been on the outsourcing circuit for a long time and is understood in relatively standard terms. So much so, that one or two payroll-specific providers are inclined to tell buyers what they’ll get instead of accepting a scope description. And the proffered service is designed to maximize provider performance and return.

Nowadays, when payroll causes problems in outsourcing, it tends to be because a buyer’s all-encompassing view of the activity does not match the standard practice. The phenomenon is compounded in global deals because everyone’s view of payroll activity is understandably determined by his personal experience. And, while for a good deal of the process the similarities hold true, some peripherals can cause surprises.

For example, the normal practice in Belgium is to have a government-registered intermediary act as the paying agent.

So, some payroll reconciliation activities become entangled with invoicing and accounts. “Not a problem,” say the purists. “Payroll instructs the agent and then washes its hands of the rest.”

Too many similar differences of opinion in a single deal can strain the relationship. In fact, the interface with general accounts for the most part is an area worth nailing down. Sometimes payroll providers want no involvement except for shipping off a file once a month; sometimes it is resolved in a systems interface. However, where buyers want their payroll departments to mix and match account-related data input and reconciliations, the expectation had better be hammered out from the start.

Similarly, insistence on thrashing out scope with respect to time and attendance, payslip printing, and distribution can lower the heat of later exchanges. How payroll gets time and attendance data and who’s responsible for it seems like a no-brainer; but what is obvious to one party may not be to another, and nothing muddies trust more than undeclared assumptions.

There can be a host of things plugging into payroll in addition to time data and payslips, and each one needs the “in or out” and post-outsourcing interface discussion. Until the explicit, detailed dialogue about assumptions takes place, one can never be sure what each party means by payroll. And because the term is so seductively obvious, this potential disconnect can be overlooked.

Ostensibly without advertising it, internal “payroll departments” manage a constellation of elements that make it possible to pay qualified recipients and support accounts without the organization noticing that it’s being done. Recipients of pay can be pensioners as well as employees. Passing audit and producing valid company accounts are just as important as delivering pay. Ditto for managing quirky deductibles like the purchases at the employee shop or reimbursement for returned purchases.

In comparison, an outsourced scope has the potential to be limited. It doesn’t have to be and often isn’t, but the more commoditized the space becomes, the more attention the buyer must pay to what it’s getting. A provider cares about what it contracted to do and consequently is being paid to do.
Scope is intrinsically caught up with headcount costs, quality, and liabilities. For the buyer, there is the problem of outsourcing a department only to find out half the people have to be retained to do residual work. For the provider, there is the matter of ending up with twice as much work as the people hired. And the Damoclesian duo of quality and liability has to be of concern for a provider taking on myriad peripheral, noncore things for which it won’t be thanked later, especially if it gets them wrong.

For these reasons, buyer optimism regarding the all-encompassing scope of payroll will be tempered by providers trying to box up a clear-cut, standard commodity. And in this regard the provider is being sensibly pragmatic. However, an area where providers forget pragmatism to venture into an imaginary world of their own is system capability. To put it bluntly, the rush toward global payroll has so far outstripped the availability of real-life-tested, single-systems offerings.

The problem with payroll is that, although nailing down things like personnel administration is a priority, everyone already thinks he know what payroll is.

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