A Single SAP HR System for Multiple Payroll Solutions
Bangalore, India — When contemplating a global human resources system, an organization should define a country-specific payroll strategy and determine its impact on local payroll models. Where multiple payroll solutions are chosen, the SAP interface toolbox helps streamline integration between global HR and local payroll.
Multinational companies are increasingly choosing to standardize human resource (HR) functions around a common worldwide system and SAP is often the solution of choice. This global standardization can generate benefits such as uniform processes, cost reduction, better visibility of HR data, increased operational efficiency, and enhanced service levels.
However, payroll systems, which are dependent on HR data, are often country-specific, owing to local tax and reporting requirements. Consequently, implementing a common worldwide payroll system may not be practical. Therefore, the impact on payroll systems throughout the world should be assessed before attempting to migrate HR data into a common global system. Start by evaluating the capabilities of the legacy payroll systems and considering the options available for each country.
Evaluating the Systems
What payroll options are available in the global marketplace? As a result of mergers and acquisitions, some companies are running multiple HR and payroll systems in a single country. As they migrate to a common, global HR system, these companies should consider replacing or consolidating the payroll systems in each nation.
The Following Strategies should be Evaluated:
Standardize on one legacy payroll system per country. The simplest option may be to choose one of the existing payroll systems as the preferred system. This may minimize design and conversion effort. However, legacy applications do not always offer the breadth of analytical and reporting functions that companies require.
Use SAP Payroll in-house – SAP Payroll easily integrates with SAP HR and has all the functions that companies need, but some will find it costly to process SAP Payroll in-house. Our research shows that SAP Payroll is more likely to be economical for companies with many employees.
Outsource the payroll to service providers – the payroll is the service that companies most commonly out-source. Regional and global vendors (such as ADP, CMG, Ceridian) offer comprehensive payroll services. For smaller employee populations, out-sourcing can be the most economical option.
Establish a hybrid solution – this strategy combines payroll processes that are partially performed in-house and partially outsourced. For example, a client may choose to process gross payroll in-house and outsource net processing and pay distribution. Because of the varied options available, companies often find it difficult to identify the best solution in each country.
Finding the best
How should a company determine the best solution for payroll integration in each country?
The following criteria can help:
Functionality – carry out a fit/gap analysis to assess how well the systems match the business requirements
Quality of Service – compare the timeliness, accuracy, and reliability of each solution or vendor
Costs – three types of costs should be considered:
One-time cost – the cost to implement in-house payroll other than to outsource a payroll solution
Recurring cost – the ongoing cost for in-house payroll services, considering payroll services, considering costs of hardware, software, and personnel (such as vendor support, contractors)
Integration cost – the cost to develop interfaces to integrate the payroll system with the global HR system
Flexibility and control – retaining flexibility and control can be a key to enabling the payroll department to respond to changes or urgent requests for information.
Timeline – it is important to ensure that the time it takes to implement the solution does not increase the business risk.
Impact on organization – determine how the decision affects the organization, people, and processes
It is not unusual for these criteria to guide a company toward a selection of multiple payroll systems or vendors worldwide. And even under a single SAP HR system, it is not easy to serve a global employee population from a single geographic location. Why? It is difficult for the support group to maintain in-depth knowledge of country-specific regulatory and tax requirements. It is also difficult to communicate in different languages across widely differing cultures. An example drawn from our recent experience shows how a global enterprise overcame these hurdles by using four regional service centers and a single global SAP HR system to support 16 different payroll solutions.
Consider the payroll requirements when you implement SAP HR
Whichever delivery strategy a company selects, it is critical to factor in the payroll system requirements in each country when defining the global HR data model. Sometimes companies fail to fully analyze payroll requirements because the implementation of the global HR system is controlled by the HR organization, while payroll is the responsibility of the finance department.
SAP’s enterprise and personnel structures provide the foundation for integration between HR and payroll. They are the basis for organizing and controlling the employee master data which supports both HR and payroll requirements. Changes to the structures in the production environment can result in significant network or re-design in other areas. Therefore, it is important to consider both HR and payroll requirements when designing the structures.
How do we integrate?
In addition to the master data structures, SAP provides advanced tools and technology to facilitate integration with non-SAP systems. SAP’s interface toolbox – part of the outsource component – can be used to export the HR master data to payroll in predefined country – specific formats. SAP uses ALE (Application Link Enabling) technology to export the HR data in the form of IDocs. The country – specific IDoc data is imported by the legacy payroll system or the outsource vendor’s system. Some of the benefits of using the outsource component are:
- The IDocs include all the payroll data requirements for that country.
- Development costs are minimized because the extract program is delivered by SAP.
- The IDocs are already fully tested, since many SAP Clients in the same country already use them.
- Upgrade and maintenance costs are low, since SAP maintains the export program and country-specific file format.
The bottom line
The bottom line is that before implementing a global HR system, an organization should define payroll strategy in each country and make sure that the global HR data model includes the country specific payroll data requirements. Furthermore, do not overlook the SAP interface toolbox, which can minimize development and maintenance efforts around the interfaces between HR and payroll.
Article written by
Deloitte Consulting for SAP INFO