Global Payroll Operating Model: be efficient, effective and transparent!

Global Payroll Control Framework
In these LinkedIn posts I highlight parts of the Global Payroll Control Framework (GPCF) on a bi-weekly basis. The creation of a GPCF is a best practice method to help ensure compliance with internal policies and international payroll regulations. The GPCF is independent of industry and geographical spread and adapts to ever-changing control environments. Get started with your own and sign-up for this two-part webinar in cooperation with the Global Payroll Management Institute (GPMI).

If we look at how COSO defines internal control in their Internal Control Integrated Framework (May 2013), we can identify four elements that together make up operating models:

• Internal control is a process, effected by an entity’s board of directors, management, and other personnel (people) designed (systems & sourcing) to provide reasonable assurance regarding the achievement of objectives relation to operations, reporting and compliance.

For each Global Payroll Team, this is what their operating model is made up of: processes, people, systems and sourcing. Processes happen in time, and in that process people are acting with utilizing systems, that can both be outsourced. Together they create the needed balance mitigating risks with control activities embedded in them and thus ultimately achieving Global Payroll Objectives. Global Payroll Operating Models are therefore the design of how you run payroll, which processes your are accountable for, which people you involve and if you utilize systems or in/outsource certain tasks and how you can be in control of Global Payroll. Just think about, and you can map your current operating model without having named it 'operating model'.

Perfect operating models
Before we address the four balanced elements, remember that operating models should ideally be:

• Efficient
  Doing the things right to achieve objectives or the route to finish.

• Effective
  Doing the right things to achieve objectives or actually finishing.
• Transparent
  Proper disclosing of information, payroll data roles, responsibilities and raising red flags when events (may) occur that adversely effect the achievement of Global Payroll Objectives.

It can be hard to find the proper balance between these three items. Sometimes the route to the finish can be hard, but without finishing it was all for nothing. Ensure your route will become less inefficient while keep on finishing, as part of your own continuous improvement plan. Do, act, re-act, plan and act again.

P2S2
Remember this simple acronym in all payroll position you will hold. I have used this many times when facing another (restructuring) challenge as Senior Consultant. Where to start, I thought? Break down your operating model by identifying processes you are responsible (and/or accountable) for. In these processes, you will find people performing certain tasks: list them with using the RACI-principle. From these tasks, you can identify if systems are utilized and if certain tasks are either in sourced or outsourced. Make sure you get a clear understanding of how these systems interact and what responsibilities (never an accountability)!) are outsourced. It cannot be explained simpler. You now have your current Global Payroll Operating Model mapped out. This was the relatively easy part...

Now, start asking yourself (and ask others!) more difficult questions, such as:

• In my processes, were are the timelines most stringent and where can I tweak this to reduce workload at peaks?
• Does this operating model support the Global Payroll Team to achieve their Global Payroll Objectives?
• Are my team members capable to perform their responsibilities and does my Global Payroll Operating Model support them in their duties?
• Are the four elements in balance, or do you for instance rely to heavily on a handful of people with too little automation?
• Should those positions be outsourced to a specialized provider i.e. must sourcing be arranged?
• What would replacing or adding a system do with the level of assurance on the accuracy of the output?
• Where are the most risks present and how have you mitigated these risks?
• Does it make sense to outsource my payroll to local payroll providers and have on the ground teams, or will I be better aligned when I centralize my payroll in a Shared Service Center and outsource to one provider?

These are just a few questions you can ask yourself. You may find that you are not always enabled to make changes to the operating model (for instance, it's not each year you change payroll provider or your time and attendance system) but it does help to have a clearer understanding of how it fosters internal control. 

It starts with being aware of the required balance among the four elements in all processes and the effect on internal control is crucial. If there is a gap in knowledge, identify and learn or in-source it. If there is a lack of  automation, incorporate additional manual controls or improve the IT infrastructure. There is no one size fits all: it will always be tailor made per organization.

I for instance found out that I needed to train my team better on certain country specific elements and that I needed someone with more expat knowledge. That would increase the level of assurance I could provide my stakeholders. I starting the recruitment process and training programs to achieve this. Next, I also found out that during the input and output phases of my cyclic processes I lacked automation, that endangered the accuracy and quality of our work. Mapping out my Global Payroll Operating Model and my Control Environment helped me identify this and creating a business case for change. Good luck!

Assessing and designing your Global Payroll Operating Model is part of Section 3 of the GPCF.