The HCM + Payroll Integration Guide!

Human Capital Management (HCM) + Payroll Integration For HR

The purpose of this HCM Payroll Integration Guide is to help Human Resources (HR), Finance and IT teams understand why you might want to integrate your HCM and other HR systems with payroll, provide options for integration and practical items you need to think about before commencing a payroll integration.

What is a HCM Payroll Integration?

In short, a HCM payroll integration refers to connecting your HCM or Human Resources Information System (HRIS)?(i.e., your single source of HR truth)?with either a payroll services company or separate internal payroll systems to automate the flow of HR data between your HCM and payroll solution.

What are the main reasons to set up a HCM payroll integration?

The most common reasons that clients look to implement HCM payroll integrations are:

1. Undertaking HR transformation and wanting to free the HR team up so they can focus on strategic HR initiatives rather than payroll. To achieve this, you need to have an automated, scalable, and robust payroll model so that payroll doesn’t break down when the business grows. Connecting your payroll with your HCM and other HR systems to streamline your payroll processing is one of the best ways to achieve this.
2. They are rolling out or using a global HCM that doesn’t support payroll in the locations they have employees in, or they don’t want to use the HCM’s payroll product (due to cost, lack of time or not wanting to own payroll internally). This situation is VERY common in Asia and the frequent question we get from clients who are using Workday, SuccessFactors and Oracle Fusion is:‘We’re rolling out Workday, SuccessFactors, Oracle Fusion but they don’t process payroll in all my locations?(i.e. Asia)? How am I going to process my payroll when we go live on our HCM??

• In short, there are 2 options:

1. Integrate your HCM with a payroll service provider who can process your payroll based on the data you enter your HCM.
2. Buy a local payroll system and integrate the HCM with the payroll system yourself.

The purpose of this guide is to provide an overview of what you should think about when integrating your payroll with an HCM, however, if you want to check out the pros and cons of each of the above approaches, learn more?here.

What are the key benefits of a HCM payroll integration?

In short, your life should be easier and you will have more time to work on strategic objectives (or whatever you enjoy doing more than payroll!).? Some of the key benefits include:

1. Efficiency: Integrating HCM and payroll systems eliminates the need for duplicate data entry and manual transfer of information. This saves time and reduces the risk of errors that can occur when managing data in separate systems.
2. Data Accuracy: With integration, employee information such as hours worked, leave balances, benefits, and tax withholdings are automatically synchronized between the HCM and payroll systems, ensuring accuracy and consistency.
3. Compliance:?An integrated system can help ensure compliance with employment laws, tax regulations, and reporting requirements, as data is consistent and up-to-date across both systems. For example, if you need to pay employees within 7 days of termination, an HCM integration will help you ensure that payroll teams are always aware of any terminations in real time rather than waiting for cutoff date.
4. Reporting and Analytics:?The combined data from both systems allows for better reporting and data analysis, enabling HR and finance departments to make more informed decisions.
5. Better payroll controls:?Integration strengthens your internal controls by reducing the risk of manual manipulation of data and introducing robust payroll workflows through automation to prevent incorrect payroll due to human error or fraud.

How many employees do I need to have to justify an HCM and payroll integration?

In our experience it depends on the clients’ reasons for implementing the HCM and payroll integration. Generally speaking, it’s important to look at the cost/benefit of implementing the integration.?(I.e. – How much time and cost will it take to implement the integration vs. the internal time save each month + other benefits like the increases in payroll accuracy, stronger controls, etc.) As a rule of thumb, an HCM payroll integration usually starts to make more sense once your headcount in a particular country exceeds 100 employees as you are more likely to have enough monthly data changes that impact payroll that you will start to save time and also reduce material risk by having better payroll controls and payroll compliance, etc.

However, it also depends on the risk profile of the client and goals of your payroll project, as well. If the client puts a large emphasis on internal controls and payroll governance, they may want to implement the HCM and payroll integration for all locations regardless of their headcount.

What are the common data transfer options when integrating my HCM with payroll?

Historically the most common option being adopted in Asia for HCM and payroll integrations was?File-Based?integration, however, nowadays most clients are asking for direct?API-Based integrations?going forward or via their internal middleware or iPaaS solution. Your technical team will usually have a preferred option, however, here are some common data transfer options and their pros and cons:

1. File-Based Integration: CSV/Excel Files: This is a basic and widely used method where data is exported from one system as a CSV or Excel file and then imported into the other system. This method is relatively simple and can work for small to medium-sized organizations with less frequent data transfers.Flat Files: Similar to CSV files, flat files contain data in a structured format with fixed-length fields or delimiters. They are suitable for bulk data transfers between systems. Note some HCMs have specified interface file types like Workday and their PECI file.
2. Application Programming Interfaces (APIs): RESTful APIs: Many modern HCM and payroll systems provide RESTful APIs that allow for real-time data exchange between the two systems. APIs enable more secure and efficient data transfer compared to file-based integration but require more technical knowledge and can take longer to setup SOAP APIs: Some older systems might still use SOAP (Simple Object Access Protocol) APIs for integration. While less common nowadays, they can still be utilized for specific scenarios.
3. Middleware Integration: Often enterprise clients will have an existing integration software or iPaaS solution that they use for all their integrations.?(i.e. Mulesoft, Boomi, Microsoft, etc.)? Middleware solutions, such as Enterprise Service Bus (ESB) or Integration Platform as a Service (iPaaS), can act as intermediaries between the HCM and payroll systems. These platforms provide pre-built connectors or custom integration workflows to enable seamless data transfer between the two systems.

What questions should I think about before I implement a payroll integration?

1. What is my HR system landscape now? What will it look like in the future?

This is one of the first questions you should ask yourself to ensure the integration is designed well and is future proof. The fundamental best practice is that you need to identify what HCM, or single source of HR truth will form the ‘hub’ of your HR landscape as your system of record and that can communicate and be relied on by any other HR systems you have?(i.e., payroll, time and attendance, leave etc (the spokes). Additionally, think about whether it’s likely any of your existing systems will change over time?(i.e., are there any plans to replace the HCM globally, etc.?). If there is, you need to pick a payroll system or payroll services company that supports integration with major HCMs so you are future proof.?

2. How well is my HCM currently used? Is the data in my HCM complete and reliable?

Another critical question is whether people use your HCM well and whether the data in the HCM is of good quality. The old adage of?“garbage in = garbage out”?is the golden rule when it comes to integration – if your data in your system is not accurate, your integration is going to be painful as you will have to compare data in the system to other data to validate the information. In addition, it’s worth reviewing what HR data or data that impacts payroll is not currently stored in your HCM as you will need to confirm and document how this information is transferred to payroll. Very common examples include:

• a. Commission, sales incentives, allowances, time and attendance information which are almost always stored in separate systems to the HCM.?

• b. Country specific information – If you are based in Asia, your Global HCM may not be configured to store all the mandatory information that is needed for payroll for each country in Asia in the HCM?(i.e., national ID, dependents information, local pension, or social insurance information).

The time spent on ensuring your data in the HCM is well worth the effort as you will have cleaner and more accurate reporting and analytics for your decision making.? In addition, one of the biggest ‘side benefits’ of HCM payroll integrations is that?everyone will start using the HCM properly?as they won’t get paid if they don’t use the HCM properly!!! Check out this article for more ideas

It’s well worth reviewing your HCM data and doing a clean-up before going live with your payroll integration.

3. Does my employee headcount justify a HCM payroll integration?

As per?above, it’s worth considering whether the cost/benefit of implementing an integration makes sense as part of your business case for the project. Learn more?here.

4. Can I harmonise or standardise any payroll workflows or processes before I implement the HCM payroll integration?

If you’re undertaking a regional HCM payroll integration and looking to control or run payroll from a central SSC or team, its worth thinking about how you can harmonise and standardise your payroll and processes to make it easier for the SSC or payroll team to run payroll across the region and as the business grows. Key areas to look at include:

1. Wage types?– If your business has grown without any centralised control on payroll or through M&A, it’s likely that you have a large number of different wage types across the region. Standardising these will reduce the time spent on mapping wage types for reporting purposes and reduce risk associated with using incorrect wage types and tax treatment, etc.
2. End-to-end Payroll processes?– While it’s not always possible to have the same payroll process across all locations due to local country specific nuances, having a standard payroll process that forms 80% of all countries process is key to driving an efficient payroll process with strong internal controls as well as ensuring that the SSC, payroll team and approvers can easily understand the payroll process regardless of the locations. For example, if you have stringent requirements for generation of bank files?(i.e., touchless or encryption requirements),?it’s not good practice from a control perspective to have different solutions in every market.?
3. Pay dates?– Some clients prefer to align pay dates across the region assuming compliant with local labour law. However, it’s important to consider the workload of your SSC or payroll team as having all payrolls occurring in the same time period may not be possible for the SSC, payroll team or approvers to handle.
4. Consolidating your payroll service providers?– Consider if you can consolidate your payroll services under a single payroll service provider so that you have?‘one throat to choke’?and build an HCM payroll integration with as little payroll providers as possible while not affecting your service quality.

5. What do I want the employee experience to be?

The reality is that most employees outside of the management team have limited experience with the HR team, so it’s important that the HR and payroll experience is a positive and simple experience for employees.? While this largely depends on your HR system landscape, as part of the HCM payroll integration you should think about where payslips should appear for employees. Typical options include:

1. Interfacing payslips back into your HCM?– This is a very widely used approach where the payroll system or your payroll services provider will automatically interface the payslips and tax forms into your HCM so that employees access all their HR information from one system. This is a very easy solution to put in place and leverages a PDF packet of payslips plus a mapping file to ensure that payslips and tax forms go to the correct employees.? It’s also a great option in terms of getting sign off from your information security team as all publicly accessed information is hosted in your existing systems.? However, if your leave or time and attendance experience is not currently in your HCM (eg, hosted in a third party solution) you may want to investigate ways in which you can have a single employee experience for all HR systems via SSO or leveraging a payroll service providers HR Portal.?
2. Hosting the payslips in your payroll providers HR Portal and connecting it with Single Sign On (SSO) to your existing systems?– If you don’t have an Employee Self Service (ESS) or want to use your payroll providers ESS or HR Portal for other reasons?(i.e. they have E-leave or Attendance functionality)?a great option is to connect their HR Portal with your HCM or intranet/HR environment using SSO. This results in a?VERY?easy employee experience as employees are automatically signed into the payroll providers HR Portal using the credentials of your existing system and saves you all the questions employees usually have around forgetting usernames and passwords. In addition, SSO is the best practice from a cybersecurity point of view, as well.?
3. Hosting payslips in Microsoft Teams or other commonly used applications?– Increasing numbers of companies are using Teams, Slack and other messenger services for their communications. Payroll services companies can also bring the payroll and HR experience into these solutions as well using applications. A good example of this is our?Links One Microsoft Teams Integration.Check out other ideas for having an awesome HR Shopfront here

6. What non-HR systems or teams should I also connect payroll with??

• Finance Integration?– Typically the actual payroll results need to be provided as a GL file to the finance team each month. Leveraging a HCM payroll integration means you can generate this GL file automatically and interface it straight into the finance system.? Remove all the back and forth between HR and finance each month!

• Business Intelligence Integration?– Are there any other BI reports based on payroll data that need to be generated??(I.e. – Integrating FTE (Full-time Equivalent) headcount reporting, Diversity reporting, and Absence reporting)

7. How frequent should the integration be?

The frequency of your payroll integration (eg, real time, daily, weekly monthly etc) depends on several factors, including the specific needs and requirements of the client.? Here are some considerations to help determine an appropriate frequency:

1. Payroll Schedule:?The frequency of payroll processing in your organization is a key factor. If your organization processes payroll on a weekly, bi-weekly, semi-monthly, or monthly basis, the integration should obviously be timed to align with these payroll cycles.
2. Regulatory Requirements:?Depending on your country or region and notice period of employees, there might be specific regulations governing payroll processing and reporting (eg, the requirement to pay employees within a certain timeframe of their termination). ?As such, its common for most clients with regulatory requirements to pay within x days of termination to use a daily interface.
3. Employee headcount:?If you have a large employee headcount you are more likely to have frequent changes and need to know in real time if you have data issues that will impact payroll rather than wait for the payroll processing cycle to start.? ?Medium size office populations may be able to get away with monthly interfaces but clients with large frontline staff volumes will likely need a real time or daily interface.

8. How do I track any integration errors and performance of the integration?

The integration needs to make life easier and so tracking errors and performance of a payroll integration is crucial to ensure accurate and timely payroll processing. Some of the essential ingredients to track and measure performance for your integration include:

• Implement Logging and Monitoring:?Set up comprehensive logging for your integration process so you can troubleshoot as well as have a comprehensive audit log is an essential first step.
• Define Integrations KPIs:?What does a successful payroll integration look like for you?? Identify relevant KPIs that reflect the integration’s performance and accuracy to ensure you have a benchmark and target that you are working towards. Examples include processing time, error rate, data completeness, and data consistency.?? Good payroll services companies will often include this in their reporting functionality.

• Alerts are your best friend:? Setting up rule based data validation and alerts (with error reasons!) to notify of missing or incorrect information is essential to troubleshooting your payroll integration and ensuring it continues to improve over time.?

9. How long should a HCM payroll integration take? What testing phases do I need to go through?

The length of time your HCM payroll integration will take depends on the size of your project, tech landscape and existing processes, etc.

Key testing phases you should include in your project plan include:

• SIT (System Integration Testing) Test Case Scenarios –?A 1–2-week process where the integration mechanism is tested to make sure the HCM and the payroll system communicate well with each other.

• UAT (User Acceptance Testing) –?A 2–3-week process where payroll calculation is tested using a test script of common use cases, edge cases, etc. are tested here to confirm that payroll calculation is accurate.

• Parallel Run –?Once you have passed SIT and UAT, this is where you compare the calculation of your existing payroll to the payroll calculation derived through the HCM payroll integration. Any differences should have root causes investigated and fixes applied to ensure that payroll is 100% accurate before going live. As a rule of thumb, if you have less than 200 employees in a country and a good payroll services company, you can usually only have 1 parallel run before going live. If your headcount is above this, we generally recommend having 2 months’ parallel runs to ensure any issues are identified.

As all HR, Finance and payroll teams know, payroll is either 100% or 0% – anything less than 100% and you will hear about it!

Interested integrating your HCM with payroll??

Links International focuses on streamlining HR by integrating SAP certified cloud and on-premises solutions with 100% in country managed payroll, leave and benefits services in Asia. As one of Asia’s leading HR Outsourcing Technology Partner, we provide clients with 100% in-country service delivery, highly integrative solutions, and user-friendly Payroll tech. Our?Links One?multi-country payroll solution built for businesses in Asia, allowing us to help clients undertaking a digital transformation to integrate a single payroll solution with SAP and SuccessFactors, helping them future proof their payroll solutions. Learn how you can?transform your HR?today with Links International!