Global payroll – your most undervalued asset - EY

Global payroll – your most undervalued asset Leading practices, trends and impact

Disclaimer ►

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US.

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This presentation is © 2015 EYGM Limited. All Rights Reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party.

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Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP.

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This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer’s facts and circumstances.

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These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice.

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Agenda ►

Introductions

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The Global Payroll Value Stream

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Page 3

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Strategic alignment

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Global expansion

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Gaining operational control

The Wells Fargo Global Payroll Journey ►

Background

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Challenges

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Today

Addressing the payroll challenges ►

The global payroll dilemma

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Gross-to-net operational excellence

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Payroll analytics and talent management

Closing remarks

Introductions Dimitris Papageorgiou

Dimitris is a human resources and payroll professional with lengthy background in managerial positions within large organizations (20,000+ employees) in the US and abroad. He has been involved with offering knowledge in global payroll, HR transformation, shared services strategy and HR systems implementation. As a founder of EY’s Global Payroll Advisory offering, he is committed to improving global payroll service compliance and simplifying delivery.

Norbert Braun

Norbert has over 20 years of Global HR/Payroll support and outsourcing experience across multiple clients and sectors. He has held various management, project management and consulting roles and has driven positive client experience. Norbert has led large HR/Payroll operational teams with IBM, Lockheed Martin, Fidelity Investments and currently with Wells Fargo. .

Maria Delmoro-Hultman

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Maria currently serves as Vice President for Wells Fargo in its corporate human resources organization. She leads the Global Payroll Services: Center of Excellence for Solution Design and Readiness. Maria recently returned from a short term assignment in Manila as HR Service and Delivery Leader to collaborate with the local team to concentrate intellectual power toward defining the right solutions, the prerequisites to those solutions, and the plan forward for optimum, scalable HR Service Delivery for the rapidly growing operation.

Top CEO challenges For the third consecutive year, respondents to The Conference Board CEO Challenge placed human capital as their top-ranked global long-term challenge to drive business growth. Global N–1,020

Challenges 2014

Asia N–479

Europe N–105

United States N–233

Latin America N–114

China N–179

India N–47

1

Human capital

1

1

2

2

2

1

2

Customer relationships

4

3

1

3

5

5

T3

Innovation

2

2

4

4

1

4

T3

Operational excellence

3

4

3

2

3

2

5

Corporate brand and reputation

5

7

T5

8

6

T8

6

Global political/economic risk

T6

6

7

6

7

3

7

Government regulation

8

9

T5

5

9

6

8

Sustainability

T6

8

8

10

4

T8

9

Global/international expansion

T9

5

9

7

10

7

10

Trust in business

T9

10

10

9

8

10

Note: in addition to other countries, the Asia category includes China, India and Australia. Source: The Conference Board CEO Challenge 2014: People and Performance, Reconnecting With Customers and Reshaping the Culture of Work, The Conference Board, Research Report 1537, 2014, 16.

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Agenda ►

Introductions

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Strategic alignment

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Global expansion

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Background

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Challenges

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Today



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Closing remarks

Global Payroll Value Stream

Payroll is a universally accepted necessity and the single recurring touch-point every employee has with their employer. A truly globally integrated service delivery model must have access to and be able to quickly mobilize local and global resources to support all aspects of payroll and workforce management initiatives, spanning the entire payroll value stream and all the payroll vendors and systems.

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Mobility

Workforce management

Talent and rewards

Global Payroll Value Stream HR performance improvement

Employment tax

Contingent workforce

Payroll’s contribution to strategies that meet senior leadership challenges ►

Strategic contribution: Payroll professionals control your biggest controllable cost and wages, and protect your reputation by ensuring compliance with a wide range of legislation.

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New offerings are typically accompanied by local or global expansion, which puts emphasis on the effectiveness of payroll’s service delivery and vendor relationships.

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Gaining greater control of processes increases management accountability and alignment and reduces compliance risk.

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Key challenge #1 – Growth and globalization Successfully navigating and benefiting from expansion Planning to expand business ►

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Successfully delivering an accurate payroll across a variety of legal frameworks, labor contracts, government reporting and compliance requirements, without the benefit of a single technology solution can be difficult to navigate. Service placement and outsourcing are critical areas impacting payroll delivery costs and service levels. Most organizations that choose to outsource payroll operations don’t reap the full benefits: ► ► ►

Primary issue with global payroll delivery

Fail to take advantage of transforming processes prior to shifting services Overstaff remaining in-house services Don’t possess appropriate vendor management skills Source: EY Global Payroll Survey, 2014.

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Key challenge #2 – Compliance Payroll compliance considerations No market segment can escape the risks of wage and hour litigation. More than 15,000 Fair Labor Standards Act filings in Federal court have occurred in the last two years with a likely increase given the current national debates on wages and “white-collar” exemption. ►

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Global – Rapid increase in labor disputes (e.g., Philippines, South Africa, UAE, China, Brazil) US – Wage and hour litigation has led to unprecedented costs for employers in all industries; according to the Department of Labor Wage and Hour Division (DOL) 70% of employers are not fully complying with federal and/or state wage and hour laws US – Affordable Care Act (ACA) is fully effective in three months ► And if the all the above were not challenging enough, the below are arriving soon: ► Minimum wage ► White-collar overtime (OT) exemptions

Settlement

Issue

1.

$56.5 million – Food and dining

General wage and hour violations

2.

$26 million – City government

Meals and breaks

3.

$23 million – Retail

Unpaid wage

4.

$21 million – Retail

General wage and hour violations

5.

$16.5 million – Health care

Unpaid wages

6.

$16 million – Bank

Compensable time/OT pay

7.

$15 million – Telecommunications

Inaccurate wage statements

8.

$15 million – Bank

Unpaid wages/OT pay

9.

$14.3 million – Services

OT pay/minimum wage

10. $12 million – Bank

Compensable time/OT pay

Source: Seyfarth Shaw 2105 Workplace Class Action Litigation Report, 2015, Seyfarth Shaw. Page 10

Key challenge #3 – Operational control Global payroll and mobility challenges

► ► ► ► ► ► ►

Data availability and compatibility Tax compliance Immigration Compensation and benefits Policy management Funding As complexity, speed-to-market and global growth converge, international assignments will increase, putting further pressures on payroll

Source: Global Mobility Effectiveness Survey 2012, EY.

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Payroll operations impact 46% consider processes to be the first or second most pressing area in need of improvement. 68% of companies do not have a formal payroll tax and social security compliance risk control framework. 65% do not have a formal tracking process for cross-border business traveler.

Agenda ►

Introductions

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Strategic alignment

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Global expansion

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Background

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Challenges

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Today



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Closing remarks

Wells Fargo Team member presence EMEA = 933 TM (0.33%); 12 Countries France 11 Netherlands Germany Great Britain Ireland

7 Turkey

12

Israel

2 UAE

27

Total EMEA

Chile

9

Mexico Total Lat Am

882 Singapore

104

Japan

12 Thailand 7,205 Taiwan 58 Vietnam Total APAC

7 5 7

*TM headcount as of report date 9/1/2015

Slide courtesy of Wells Fargo Page 13

Hong Kong

20

70

Total 285,707 team members in 36 countries • •

8 2,312

3 11

26

107 Philippines

India 8

5 Korea 11 Malaysia

China Indonesia

Brazil

Ecuador

933

APAC = 10,896 TM (3.81%); 14 Countries Bangladesh

Dominican Rep

6

Italy

Australia

Colombia

4

96 Spain

USA = 273,630 TM (95.77%)

Bahamas

5

740 South Africa

Canada = 178 TM (0.06%)

LatAm = 70 TM (0.02%); 8 Countries Argentina

1

22 Russia

USA – 273,630 (includes 59 Ex-Pats) Outside the USA 12,475

11 145 10 10,896

Wells Fargo Background ►

Domestic and International Payroll had separate and unique operating models after Wachovia merger Domestic Payroll

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Common Governance and SOPs

Disparate Governance and SOPs

Central Support

Decentralized Support

2012 – External Vendor provided consultation on International Payroll Service Delivery Model Design and Payroll Consolidation Playbook 2013 – Deep dive on current state of the projects and production activities; further evolution of model and refocus of priorities, including stabilization of current implementations, risk mitigation, global expansion and acquisition support Implemented current GPS model intended to better support payroll policies, business requirements, and regulatory demands while we establish a strong infrastructure and strengthen controls


International Payroll

Wells Fargo Background GPS vision statement ►

A dynamic and forward-thinking Global Payroll team which provides cutting-edge products and services that are accurate, timely, compliant, and delivered in mediums to suit the diverse nature of our global team members, lines of business, and the enterprise

GPS Centers of Excellence ►

Solution Design and Readiness – provide strategic direction and execution on projects and initiatives to support GPS through tools, technologies, and vendor relationships; and through ongoing core system support

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Data and Record Management – maintain and provide timely and accurate workforce information

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Payroll Processing – provide an efficient, timely, and accurate payroll production for all cycle activities including variable compensation, funding, reporting, and delivery of payroll products and services

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Regulatory Specialties – administration and support for Tax, Compliance, Reporting

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Effectiveness – manage data and information, align strategy to goals and benchmarks


Wells Fargo Background

Primary goal has been to move International Payroll toward One Wells Fargo strategy, establishing a common global model and consistent processes for payroll activities, such as: ►

Global oversight of payroll risk and compliance, business continuity, and vendor management

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Consistent, scalable, and streamlined payroll processing, payroll accounting, and operational support

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Consistency in team member experience

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Increased security of confidential, restricted data, and confidentially

The International Payroll Consolidation (IPC) project complimented this transformation as it evolved


Wells Fargo Background Building an ideal regional model Guiding principles and standards clearly defined up front (70/30 rule) Future Model ► Compliance oversight and audit support for all WF payroll ► Regional payroll support ► Preferred vendor relationship ► WF treasury solution partnership, as possible

Service Level ► Wells Fargo team members paid on time and accurately ► Pay calendar consistency (monthly, semi-monthly, bi-weekly) ► Published paydates ► Standard payslip and tax statements Slide courtesy of Wells Fargo Page 17

Systems ► Select payroll processing system/s with managed access ► Single sign-on payslip access through Teamworks ► Payroll GL posting interface with common currency conversion ► Secure transmission of data

Future Business Process ► Established workflow; configurable based on local regulatory need ► Regional Payroll 1st tier support contact ► Compliance controls ► ►

Separate payroll funds ( not comingled) Segregation of duties

Wells Fargo International payroll consolidation

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The value proposition included : ►

Risk mitigation and efficiencies through select vendor relationship with compliant contractual agreements

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Alignment with Wells Fargo data privacy and confidentiality requirements

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Streamlined payroll processing

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Bringing consistency to the team member experience

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Minimizing compliance and reputational risk through additional audit controls and centralized payroll administration

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Regional Tier 1 escalation support

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Technology support – BCP

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Creating scalability to support the business as Wells Fargo continues to expand


Wells Fargo Background ►

International Payroll Consolidation - Historical context

2012

2011 Wells Fargo selects CloudPay as our Global Payroll Partner

2013

Payroll consolidation completed for most entities in EMEA and Canada

Continued support of business expansion and acquisitions in all regions

Supported business growth, expansion, and acquisition activity

Paused to refine methodology, set playbook, and establish repeatable processes Project focus directed to APAC


2014 Payroll consolidation implementations completed: Australia Bangladesh Canada France Germany Malaysia Philippines Rep Office Shanghai Singapore South Korea Spain Thailand Vietnam

2015 Payroll consolidations will be completed for countries in progress: Taiwan (January) South Africa (March) Japan (May)

International payroll consolidation Historical context – multi-year and dynamic scope

Pilot

• Inclusions: Canada, HK, UK • Entities: 9 • Not project funded

2011

• • • •

Inclusions: EMEA Entities: 11 Forecast: $176k Actual: $66k

2012

• • • •

Inclusions: Canada, EMEA, New Entities Entities: 20* (+10, -1) Forecast: $68k Actual: $118k

2013

• Inclusions: APAC, Canada, EMEA, LatAm • Entities: 56 • Forecast: $1.39M • Actual: $1.47M • Inclusions: APAC, Canada, EMEA 2014 • Entities: 48: IPC 8:LatAm • Forecast: $813k IPC, $261k LatAm • Actual: $812 *includes existing, new, and closed entities


Global Transformation Global payroll transition Transformation journey

Questions to ask? Why? What? How? Who?

These questions need to be addressed in the context of overall Business and HR/Payroll/Finance strategy

Global Oversight, Audits, Control and Scorecards Optimize: Sourcing Model (Inhouse/Outsource processes) Determine: Selected processes in Regional/ Global Shared Service Center Identify: Common, standardized, repeatable processes

Single Payroll/HR platform

Take a hard look at where you are today:  Organization design  Process design  Technology infrastructure Slide courtesy of Wells Fargo Page 21

Open your mind to where you want to be:  Business strategy alignment  New role of HR/Payroll  Redesign of processes

Identify the tools to create your new reality:  Information/education  Data  Global Community

Wells Fargo Today

Corporate

Location Agnostic Policy Oversight

Regional Delivery Controls BCP

Local Delivery Interactions with Regulators

EMEA

Americas (Canada, US, LATAM) HR Insourced/Near-shored Payroll Outsourced/Nearshored

Local Practice

Compliance

Governance Slide courtesy of Wells Fargo Page 22

APAC India / Philippines

Agenda ►

Introductions

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Page 23

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Strategic alignment

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Global expansion

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Background

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Challenges

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Today



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Closing remarks

Payroll was among the first functions to be outsourced, but vendor frustrations prevail Global payroll complexity means: ► ► ► ► ► ► ► ►

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Country

Complexity index (scale 1–10)

Italy 9.16 Only 20% of companies have processes that do not Germany 8.85 require manual intervention. 8.44 Only 34% of companies have a formal payroll governance France model in place. Belgium 7.21 More than 60% lack enterprise-wide reporting capabilities. Australia 6.87 Less than 40% of multinational companies have a global Spain 6.76 payroll process owner. Japan 6.65 Sixty percent are considering changes to their payroll Netherlands 6.65 systems. United States 6.44 Only 25% express a high level of satisfaction with their New Zealand 6.35 current payroll technology solution. Sweden 6.31 The average multinational had 10 payroll systems plus 10 additional HR systems across their business. Brazil 6.27 The movement to cloud technology is increasing with 45% Austria 6.17 of companies planning to move to the cloud in the next South Korea 6.06 two to three years. Denmark 5.87 Payroll is not just about putting cash in the employee’s Canada 5.60 pockets. In many countries around the world payroll is the mechanism for imputing wages for mobile employees (aka Switzerland 5.60 shadow payrolls). In some countries this is the mechanism India 5.56 for paying income tax withholding, eliminating the need to Luxembourg 5.55 file tax returns. Portugal 5.51 Sixty-five percent do not have a formal tracking process for cross-border business travelers. Source: Payroll Complexity Guide, 2014, NGA Human Resources.

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Global enablement across a single solution is more a myth than a reality Is there a single vendor that can handle all of your payroll needs globally? (2014 vs. 2013) 23%

Yes

30%

44%

No

2014 55%

2013

33%

Unsure

15% 0%

10%

20%

30%

40%

50%

60%

Source: Global Payroll Survey, 2014, EY. Page 25

Global payroll challenges ► ►

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In 2014, the focus on compliance had intensified. Payroll reporting and tax withholding ranked as the number one global compensation challenge faced by our survey respondents. Thirty-six percent responded they experienced queries and findings related to payroll omissions as a result of local tax authority audits.

Source: Managing Global Compensation, 2014, EY. Page 26

Key performance metrics

Type Process cost

Key performance indicator (KPI)

Quality

$275.75

$161.62

Process cost per payment

$2.10

$24.62

$9.09

$109.29

$357.95

$223.70

$3.78

$31.96

$12.38

99.88%

99.80%

99.88%

43%

6%

21%

0.792

2.028

1.771

65%

23%

54%

2

3

3

Total cost per payment Payroll processing accuracy rate

Full-time employees (FTE) per 1,000 employees Inquiries resolved within 24 hours

Timeliness

Days between payroll closeout and interfacing of payroll entries to general ledger

Source: Global Payroll Performance Study, The Hackett Group, 2013. Page 27

Asia-Pacific peer group

$58.56

% employee self-service for personal data Productivity

EMEIA peer group

Process cost per employee

Total cost per employee Total cost

Americas peer group

Global payroll landscape Main drivers of existing payroll operating models Organization’s historical practice

Cost

54%

of companies anticipate entering new global markets

1 Global compliance

14%

2 Process consistency

Lack of confidence in alternative models

7%

Control/risk management

6%

11%

Source: Global payroll: Myth or reality, April 2013, EY. Page 28

35%

Top three payroll issues organizations are facing

of companies are actively pursuing a global payroll solution

3 Right payroll talent

Selective sourcing is a common approach to improving efficiency and effectiveness Employee Data Maintenance Payroll Inquiries

93%

7%

91%

9% 36%

64%

Gross to Net

41%

59%

Garnishment Administration Pay Statement Distribution Garnishment Payments

52%

48%

50%

50%

Verification of Employment

47%

53%

Check Printing

46%

54%

W-2/T-4 Tax Filing & Payment

43% 31%

Source: 2014 Payroll Sourcing Optimization Study Results, The Hackett Group. Page 29

57% 69%

In-house Outsource

Payroll remains the most outsourced transactional HR/finance activity globally Which of the following best describes how your payroll operation is currently serviced? 47% 65%

60%

28% 25%

In-house

57% 54%

Both outsourced and in-house

Outsourced

Source: EY Global Payroll Survey, 2014. Page 30

In-house

EMEIA

Outsource

Asia-Pacific

Source: 2013 Global Payroll Technology, APA.

Driving the trend for tighter payroll management ►

Training for payroll teams to understand the nuances of international compensation, payroll and workforce management (WFM) issues

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Greater collaboration between the home and host payrolls as to the application, tracking and sharing of data

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Assigning a global payroll leader who enforces the payroll process globally, and for all local payrolls to have a subject matter resource for assignees and local employees

Source: Managing Global Compensation, EY, 2014. Page 31

How do payroll leaders prepare for the upcoming changes? ►

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Regardless of process governance, improving efficiency and effectiveness is the foundation of all transformation efforts. The payroll maturity framework provides a structured approach for assessing operational performance. Most leading performers assess their operations every two years.

When did you last baseline your performance?

Where does the payroll department report? 7%

4%

Accounting/finance HR

26%

Shared service center

63%

Other

Source: Bloomberg BNA’s Payroll Benchmark and Analysis 2011.

Governance

Process 5.0 4.0 3.0 2.0 1.0 0.0

Data and Technology

Organization

People

As-is To-Be

Performance Management

Leading Practice

Payroll maturity framework, EY. Page 32

Payroll analytics: an overview ►

Payroll analytics are not just benchmarks, metrics or reports

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It is not just a data warehouse

Payroll analytics are … the use of forensic data, statistical and quantitative analysis, explanatory and predictive models, and fact-based management to drive payroll strategy, planning and decisions to create business value. ►

Analytics are business driven and technology enabled

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Payroll analytics utilize business intelligence to provide the organization with an improved view of the workforce and highlight insights that can drive workforce and payroll-related decisions and actions

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Employee DNA 5 2

Performance under pressure

Responsiveness ►

Identify the characteristic that constitutes a productive response

►

►

Performance near engagement deadlines Total initiatives that employee is involved in

3 1

Loyalty and longterm dedication ► ►

Years of service to the firm Promotion rate

7 4

Leadership capabilities

Problem solving ►

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Feedback text analysis to gauge ability Engagementspecific metrics

►

►

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Benchmark analysis against peer group Past feedback on individuals' capabilities Performance metrics over time

Networking and teaming ►

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Network analysis for influence assessment Peer feedback

Benefits: ►

Employees’ costumer training – targeted skills

►

Feedback targeting – better feedback process and data

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Employee at risk – performance driving actions

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Attrition and retention – Who do we want to keep? Are we loosing the right people?

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Promotion indicators – Who are the individuals we should look at first?

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Area of improvement – Targeted development based on past data

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Management pipeline – Do we have the right people at the best location?

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How predictive retention analytics comes to life ►

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Collect last 12 months prior to departure of benefit, pension, payroll queries and voluntary HR and payroll transactional activities for a group of departed employees that were classified as undesired attrition

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Identify repeatable patterns/trends in the types of queries, sequence of events, payroll behaviors prior to departure and create an algorithm that reflects all the mined parameters

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Apply algorithm to relevant employee population to identify intention to depart

Agenda ►

Introductions

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Page 36

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Strategic alignment

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Global expansion

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Background

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Challenges

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Today



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Closing remarks

Final thoughts ►

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Many factors are contributing to the changes affecting payroll operations in 2015: ►

Push to the cloud

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Regulatory changes or increases in audits

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Growth and globalization

There are opportunities for payroll leaders to drive true business value: ►

Reassess the payroll operating model

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Take ownership of the Payroll Value Stream components

Questions and answers

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Global payroll – your most undervalued asset - EY

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