Managing The EU Payroll Paradox

With many of the features of an administrative task, payroll often sounds like a commodity to many executives. Does this mean payroll is of secondary importance or perhaps considered as a minor function? In a word, does this mean payroll is not strategic? When positioning the cursor separating strategic and non-strategic activities, businesses usually treat payroll administration as a non-core activity. But this should not mask the activity’s vital importance. Payroll is at the centre of the relationship between companies and employees. It is the main – if not the only! – tangible part of the company’s reward for the skills and work supplied by its employees.

In addition, payroll data is the foundation of a reliable HR Information System. Payroll thus ends up being a paradox: perhaps non-core, but in many cases extremely mission-critical. And all HR departments have to face this paradox. Can they free themselves from that burden – as it is a basic HR function – in order to focus on truly strategic HR issues?

Have you ever dreamed of harmonized payroll rules in all your subsidiaries across Europe? Of course, the "European Social Chapter" aims to harmonize work rules, and its influence on HR management is growing. Breakthroughs are significant, notably with regard to working time, fixed-term contracts, collective bargaining, vacations, etc. Nevertheless there is still a long way to go. Companies operating in several countries still have to cope with very different payroll rules in each one.

Managing in-house payroll requires a dedicated infrastructure that has to be maintained. Consolidating many of these country-wide infrastructures is expensive. Outsourcing payroll globally is a way to support a global workforce while minimizing investment in infrastructure. Finally, multi-country payroll outsourcing facilitates the consolidation of payroll data at the company level and the subsequent integration of an HR management system including payroll and self service into a company-wide system – typically an ERP.

Let’s assume payroll outsourcing is a journey. If you are well prepared, there is no reason why it shouldn’t go smoothly. Getting ready is a matter of learning from the people who have been there, hearing from the people who will take you there and packing your luggage carefully.

Last but by no means least, it has been adopted by countless businesses that have tremendous potential, are passionately committed to their work, and are being swept along by the whirlwind of their growth. Over and above the objective opportunities offered by their business models, opening up to the idea of outsourcing their payroll, a function that is both critical and external to their core business, is a sign of early maturity in their managers. It is an unmistakable sign for investors.

Why resist, with globalization, enhanced flexibility and optimization added to the above motives? In today’s business environment, payroll outsourcing is the winning choice for HR managers and for the organization.

Looking at a general HR picture, studies converge to evaluate payroll combined with personnel administration as representing 30% of total HR costs. An average estimation of annual HR costs across Europe is €1,500 per full-time employee (FTE), of which €450 are spent on payroll and personnel administration. Being around half of this, payroll cost amounts to €200 per FTE per year at least with respect to its visible and most easily measurable part.

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