What is a global payroll? How do you define it? To help you answers these questions, I use several different scenarios for implementing global payroll:

• One single in-house SAP payroll system-based global strategy solution. This scenario is a system in which all applicable countries run on a single instance of the SAP ERP HCM platform (employee master data, Personnel Administration [PA], and Organization Structures). Payroll operations and support are local, country based, or region based, but the platform is a single global platform.
• One single outsourced vendor-based global payroll solution. This scenario is similar to the first one except that it is outsourced to a single global vendor.
• Regional outsourced payroll solutions. This scenario has multiple vendors or solutions across different regions — for example, Asia, Europe, and the US.
• Large country payroll solutions. An organization has a large employee population in countries that have a business case to implement an in-house SAP payroll system. In certain countries for this organization, the payroll could be outsourced to external service providers. The external service providers may or may not have SAP payroll solutions and are interfaced with the organization’s SAP ERP HCM system.
• Individual country-based payroll solutions. These individual country payrolls could fall into one of the following categories (the size of the country as well as the organization’s HR IT strategy also factor in making this decision): SAP country payroll, SAP international payroll, or outsourced payroll.
• In addition to these different strategies and approaches, the other elements you have to take into account when discussing global payroll solutions are: 
  • The type of HR or employee master data systems being used. Is it a single SAP ERP HCM instance or are there multiple systems worldwide?
  • The support structure of the organization for IT applications as well as for HR users
• The system landscape and IT strategy for the following applications (that have to integrate with payroll systems): time clocking and time management; benefits administration; finance (general ledger and accounts payable); reporting, analytics, and data warehousing; and year-end processes (tax documents and compliance reporting).

XYZ Corporation Case Study

XYZ Corporation is a global company operating in more than 15 countries. It is headquartered in Ann Arbor, MI, in the US. XYZ has the employee population shown in Table 1. The numbers are rounded for simplicity. XYZ manufactures and sells computer peripherals such as computer mice, hard drives, and Web cameras. Table 1 also shows where XYZ manufactures its products and where they are distributed. Some of the countries are new to their business as noted in this table.

Table 1

XYZ Corporation employees by country and country’s operations focus

 XYZ Corporation’s application systems landscape is described as follows:

• XYZ has a global SAP ERP HCM instance in the US, and it currently runs PA and Organizational Management (OM) modules for all the countries where it has employees
• As shown in Table 1, XYZ has a combination of in-house custom payroll solutions, local country payroll solutions, and outsourced payroll solutions
• In countries where XYZ has manufacturing operations, the payroll solutions are slightly more complex than the other payroll solutions owing to manufacturing unions and interfaces with time-clocking systems
• XYZ prefers to keep its application landscape as a global instance for both HR and payroll because its HR IT strategy is SAP based
• XYZ prefers to implement its SAP payroll solutions internally with operations support from individual countries

• XYZ expects the SAP payroll implementation to pay for itself with cost savings realized over the next four years

Analysis of the Case Study 

Table 2 is based on Table 1 but has two different columns. One is related to SAP module availability, and the other column is related to region. For simplicity, I divided the world into three regions, and have included Africa and the Middle East in the regions that they are most close to by proximity.

Table 2

XYZ Corporation’s employees with region and SAP solution columns added

XYZ Corporation has also decided to continue to outsource payroll in the following countries where core SAP solutions are not available:

• Costa Rica
• Peru
• Nigeria

The countries that are in the three different regions need support within their respective time zones and perhaps with supporting local languages as well. Therefore, the division into three regions helps establish the support models for the payroll. This discussion could continue into the topics of HR and payroll shared services, but here I focus on the global payroll topic and discuss the shared services and HR service delivery models later in this article.

Create a Global Framework for Payroll

It is well known that payroll is a country-specific, local application. However, there is still a scope for global payroll standardization and a need to identify global payroll processes. Figure 1 presents global and local aspects of payroll and the global framework that you can leverage for payroll implementation.

Figure 1

Global payroll framework

The upper portion of Figure 1 shows local aspects of payroll for a country with these examples:

• Country-specific topics such as garnishments in the US or a provident fund in Singapore are country specific. The business processes as well as SAP functionality are country dependent for such topics.
• Tax regulations as well as calculations are country specific. Therefore, associated employee data maintenance, tax table maintenance, and tax calculation processes are country dependent. In some cases there are other business processes that depend on this topic (e.g., handling expatriate taxation in certain countries or managing hypo [hypothetical] taxes). In my HR Expert article, "System Tips for a Global SAP Payroll Strategy," I discuss in more detail global employee and expatriate-related aspects of global payroll, including hypo taxes.
• Local regulatory or compliance reporting and data transmission are purely local and country dependent. The functionality, technical objects, and calendars are different. For example, compliance reporting timing (calendar) for one country might be January, while in another country it might be April.
• Local vendors and local systems integration, such as time-clocking systems and local benefits providers’ interfaces, are country dependent.

The lower portion of Figure 1 shows global aspects of payroll that can be leveraged to create a universal global payroll framework. Beyond just a discussion around business processes, you need to think about this kind of framework. The framework addresses opportunities to make a global payroll discussion easier for the teams implementing an SAP payroll system. Examples of the topics include:

• Reusable objects. Custom or SAP objects can be reused across different regions and countries. For example, an interface can be reused across different countries with minor modifications. A custom rule in a payroll schema may have purposes across different countries. A new operation can be used across different countries.
• Standardization and harmonization of pay frequencies, pay practices, and payroll calendars
• Data definitions. Establish common global data definitions for earnings, deductions, and employee types — for example, definition of a temporary employee or definition of an executive employee.
• Guidance on policies and procedures to establish global procedures to the maximum extent possible

If you look at payroll from a purely process angle, you discover that there are some processes that are global and not local. Such process discussions need to take place at both the global and local levels. Some examples are:

• Basic pay maintenance. You need to standardize the configuration associated with the SAP system’s basic pay infotype (0008); therefore, this process can be standardized. In addition, basic pay data elements such as pay scales, pay groups, and pay structures for hourly and salaried employees’ pay are always candidates for global standardization.
• Earnings maintenance. There can be variation of earnings wage types by country, but the process to maintain these earnings should be standard across different countries.
• Annual salary increase, merit, and bonus processes. Some of these processes could land in the talent management space and may have an overlap with payroll.
• Wage type catalog. Although wage types are country dependent, 40 percent to 50 percent of the catalog can be standardized globally (e.g., the most common earnings and deductions). Note that even if the currencies are different, the wage types can be standardized.

Examples of the country-specific payroll processes are:

• Voluntary deductions maintenance. The nature of deductions can be different by country; therefore, the process to maintain them can vary by country. It is possible to standardize about 50 percent of deductions in a global payroll implementation.
• Tax processing. Taxes are country specific; therefore, tax data maintenance, tax table maintenance, and similar processes have to be local and country dependent.
• Time integration. Time management, time clocking, and integration with payroll are local processes.
• Benefits integration. Benefits administration is a country-specific, local topic, and therefore integration with payroll is a local business process.
• Garnishment processing. Garnishment handling and processing are country-dependent processes.
• Specific local earnings. In many instances, specific earnings processes (such as sales incentives and bonuses) are country dependent. The data handling and payroll calculations also could be different for each country.

In Figure 2, I show four classifications of global payroll. The x-axis presents availability and maturity of the SAP system payroll solution (e.g., countries such as the US, Canada, Germany, Singapore, and Australia all appear high on the x-axis), whereas new countries (such as Chile) may appear in middle of the scale. For example, in Chile the SAP payroll system was released in enhancement pack 5, and therefore is relatively new. In contrast, payroll systems in other countries, such as Canada and Singapore, have had SAP systems available to them for a longer time.

Figure 2

Global payroll solutions and four classifications

The y-axis represents the size (based on the number of employees) of the organization under implementation. Sometimes the y-axis can also represent the criticality of the payroll country for the organization. The criticality of the country for an organization may depend upon its business, its growth strategy, and its go-to market strategy.

The four classifications in Figure 2 are:

1. A best-case SAP solution for implementing a global payroll system. Based on the size of the country, the maturity of the SAP payroll system, and the functionality this solution is the best one.
2. A medium-sized SAP solution for implementing a country-specific payroll system. In this scenario, functionality and the SAP payroll system maturity make a good case for SAP implementation, but size may potentially cause issues.
3. A custom or local non-SAP payroll solution. The size of the country could be reasonable or high, but the SAP payroll system may not be available in that particular country. 
4. An outsourced payroll solution. This last classification has a smaller country size as well as no availability of an SAP payroll system solution in that country (new solutions, local partner solutions, or lack of tax updates). Such countries could also be outsourced with local vendors.

In Table 3, I map out these four classifications (in Figure 2) to the case study to align with best-case and worst-case scenarios. Note that the numbers in the last column in Table 3 align with the preceding list of classifications. This provides you with glimpse of XYZ Corporation’s alignment with the SAP payroll system.

Table 3

XYZ Corporation’s employees with payroll solutions and classifications added

Now, I discuss HR service models. In any HR and payroll organization, an effective service delivery model is essential and affects global payroll strategy as well.

HR Service Models

Payroll cannot exist without HR data. Therefore, data inputs, data maintenance, and related HR service models are key to global payroll. The different types of HR services related to my case study are:

• Regional HR services in Europe, Asia, and America, servicing the countries in that region
• Local, large country-based HR services (e.g., US, Canada, Singapore, and Australia)

The HR service delivery model presents its own challenges, including these:  

• Payroll schedules and calendars in each country and associated HR transaction entries (e.g., new hires, salary changes, transfers, and promotions)
• Language, which includes the language for support as well as the language for data entry
• Time zones. If the HR service delivery models follow a regional service center model, then the time zone discussion becomes relevant. For example, in my case study, a regional service center is created by XYZ Corporation in Singapore to service Asia. As per Table 1, it includes Australia, China, Dubai, and Singapore. In this scenario, the time zone would present a challenge if, for example, Dubai has to do transaction entry for its payroll and, therefore Singapore needs to support Dubai in its time zone.

The success of a regional or local HR service model also depends on standardization as discussed earlier in Figure 1. The five categories for standardization are as follows:

• Business process
• Earnings and deductions catalog
• Policies and procedures
• Global reporting

• Data definitions

Potential SAP ERP HCM Scenarios

The potential SAP ERP HCM scenarios that can play a role in the approaches adopted are:

• One single SAP ERP HCM system global instance for HR and payroll
• Multiple SAP ERP HCM system instances by regions or businesses. Acquisitions frequently cause multiple instances.
• A combination of SAP and non-SAP ERP HCM system instances. Like the second example above, consisting of multiple instances of SAP, the regions or businesses could have a combination of SAP and non-SAP systems.

In Table 4, the payroll solutions rely on the SAP ERP HCM system scenarios in the preceding bulleted list. Here, when I say the SAP ERP HCM system, I am referring to the modules for employee master data, PA, and OM. I expand the list of scenarios by combining Table 1 with these SAP ERP HCM system scenarios. Table 5 presents the different scenarios between ERP HCM, the SAP payroll system, and outsourced payroll systems.

Table 4

SAP HCM scenarios and corresponding payroll solutions

Table 5

Impact areas for different options of country payroll solution

In the case study you learned that the XYZ Corporation preferably wants a single instance SAP ERP HCM system. What does the classroom solution look like for the case study? The options and the impact for each of these options relative to the criteria are listed in Table 5. The columns are related to the options, and the rows represent the impact area. The cost for the solution depends on this impact analysis having more detail such as individual cost elements. For example, the infrastructure topic may have cost elements such as office space, telecommunications, or utilities.

For XYZ Corporation, the suggested solution for the case study is shown in Table 6.

Table 6

Suggested solution for case study

Other Resources

For more information on this topic, read these HR Expert articles: “Considerations for Defining an SAP HCM Global Template,” by Mark S. Jackson, and my "System Tips for a Global SAP Payroll Strategy" article.

Satish Badgi

Satish Badgi has been helping clients implement SAP ERP HCM and payroll for more than 15 years. He has been involved with large full-scale SAP ERP HCM and payroll implementations using the breadth and depth of SAP modules. Satish works for a large management and systems integration consulting firm and handles global payroll for clients. He has published two books on SAP payroll, Configuring US Benefits with SAP and Practical SAP US Payroll.

You may contact the author at sbadgi@comcast.net.

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