Payroll management: challenges and best practices
What is payroll management?
How do you manage your payroll?
What's special about international groups?
International groups with subsidiaries in several countries face even more specific problems. Indeed, there are as many social legislations as there are countries in the world, which makes the global deployment of any HR cost planning & management software a real challenge. Here are a few examples:
1. Social security charges
2. Pay periods
Pay periods vary from country to country. While in France, employees are generally paid at the end of each month, in the USA and Canada, employees are paid in 2-week periods, which do not coincide with calendar months. The accounting rule is that costs are recorded in the calendar month to which they relate. It is therefore necessary to distinguish, within these 2-week pay periods, the costs that must be recorded in the month, from the costs of the month before and the month after.
These different elements complicate the management of payroll and the ability of a company to have a real and complete vision of its various costs. This implies the need to centralize all this data and implement various algorithms.
The challenges of centralizing HR costs
Payroll information can come from a variety of sources, such as human resources departments, accounting, time management systems and so on. The challenge is to bring this scattered data together in one place, to get a complete and accurate picture of the situation.
Data from different sources may be structured differently, making it difficult to compare and analyze. Standardizing data involves formatting it in a consistent way to facilitate comparison and analysis.
Payroll records contain sensitive information on employees, such as salaries, benefits, deductions, etc. It is therefore essential to guarantee data security. It is therefore essential to guarantee data security, and to put in place appropriate protection measures to prevent leaks or unauthorized access.
To centralize payroll information, it may be necessary to integrate various software packages used by the company, such as payroll software, human resources management systems, accounting systems and so on. This integration can be complex, requiring development and configuration.
How do you plan your payroll?
Once you have an overview of your actual payroll costs, you can start planning. Payroll planning is a strategic process for proactively determining workforce requirements and effectively managing costs. It involves forecasting, analyzing and managing payroll expenses to meet organizational objectives while remaining competitive in the job market.
Numerous parameters need to be taken into account when managing your payroll. Here are just a few of them:
- Average cost per FTE
- Sales by productive workforce
- Change in payroll N and N-1
- Rate of payroll growth by job category
- Fixed-term contract payroll as a percentage of total payroll per month
- Comparison of overtime and complementary hours
Analysis of workforce requirements
Assess the company's current and future staffing needs. This may include identifying the positions to be filled, the planned recruitment volumes...
Workforce forecasts
Consider the number of employees needed in each department or function to achieve business objectives. This may involve using historical data, market trends, growth projections, etc.
Compensation analysis
Review the company's compensation policies, including base salaries, benefits, bonuses, incentives... The aim is to ensure that compensation is competitive in the market while remaining aligned with the company's budgetary constraints.
The ratios (payroll/employee) and (payroll/FTE (Full-Time Equivalent)) enable us to assess our competitiveness on the labor market and thus identify pay gaps, guide pay negotiations and optimize our compensation budgets.
This data enables you to compare your payroll with the average ratio in your sector, to better visualize your business model and to develop your long-term strategy.
Preparing the payroll budget
Taking into account projected salaries, social security contributions, benefits, salary increases, etc., we are able to offer you a wide range of products and services.
Once the payroll budget has been approved, it is implemented throughout the organization. Actual expenditure against budget is then monitored, making it possible to identify any discrepancies. Corrective action can be taken if necessary.
Payroll planning is an ongoing process that requires regular review and adjustment to reflect internal and external changes. This may include quarterly or annual budget reviews, adjustments to compensation policies, reallocation of resources...
Steps for managing your payroll
1. Carrying out a scoping study
First and foremost, launching a payroll management project requires a scoping study. It is imperative to define the issues at stake.
For example, a lack of visibility on actual payroll is a handicap when it comes to calculating reliable forecasts based on realistic assumptions.
A scoping study is carried out in three stages:
- Inventory of existing facilities, including bread points
- Defining target objectives
- Drafting of complete specifications, and proposal of a project strategy (functional scope, technical architecture, schedule and cost).
2. Choosing an EPM tool
Choosing an EPM tool is a strategic decision. Every company has its own specific needs, and some EPM tools are better suited to these than others.
The selected tool will need to offer robust functionality for workforce planning, benefits management, and scenario modeling in order to make informed decisions on payroll modeling.
In addition, it's important to ensure that the tool enables seamless integration with payroll systems and other HR software used by the company.
Finally, the ease of use of the user interface and the ability to generate customized reports are additional criteria to be taken into account to facilitate the adoption and effective use of the tool by human resources management teams.
Deploying an EPM tool
We propose to explore 3 applications enabled by EPM tools that provide effective solutions:
- Implementation of an HR cost database - the HR Hub - which stores all personnel costs per employee, calculates monthly provisions and variable personnel costs (such as commissions, bonuses and other incentives).
- Payroll planning
- Consolidation of personnel costs in international groups operating in different countries
To calculate and analyze actual personnel costs, EPM tools can be used to set up an exhaustive database of personnel costs, which we'll call the HR Hub.
The HR Hub enables you to store all personal expenses, per employee, per cost item and per month. A certain amount of information on the employee, such as name, seniority, department and function, can be loaded into the HR HUB from the system that manages the employee repository (payroll or other system).
The list of cost items stored in the HR Hub is defined by parameterization with HR Controlling, and may vary from one country to another, even if the main cost items are common. The cost items are, for example :
- Base salary
- 13th month
- Overtime
- Vacation bonuses
- Annual bonus
- Commissions or other variable salaries
- Social security costs
- Mutual insurance companies
- Life insurance
- Employer's contribution to transport, parking and lunch expenses
- School fees for expatriate children, ...
Part of these costs can be directly charged to payroll. The HR Hub is therefore interfaced with the payroll software of the various countries. Another part of these costs, which is not available in the monthly payroll, must be provisioned in the accounts.
The HR Hub is a great help to HR management control by calculating these provisions, according to rules to be defined according to the nature of the cost item. These rules and calculation assumptions can easily be justified and explained during an audit.
Another major function of the HR Hub is to calculate variable remuneration, which generally depends on sales. Whatever the rule, the EPM tool will take it into account. Of course, to calculate these variable remunerations, sales have to be loaded into the HR Hub at the finest level - at receipt line level if necessary - and the employee who made the sale has to be clearly identified. Once the sales have been loaded, the HR Hub will calculate the variable remuneration and export it: firstly to the accounting department, so that it can be recorded as provisions for the past month, and secondly to the payroll software, to trigger payment at the end of the following month.
The HR Hub will therefore have loaded or calculated, and stored, all the remuneration elements for each employee for each month: elements from payroll, provisions for fixed or variable person costs, and reversals of the previous month's provisions.
By aggregating all these elements by accounting account and by cost center, and making them available in a specific report, it will be possible to compare and reconcile the HR vision with the accounting vision, which, without the help of an application, can represent a daily problem for HR management control.
Payroll planning poses a well-known dilemma: at what scale should the payroll forecast be calculated?
Calculating payroll by employee - i.e. at the finest level - has its advantages - especially when all actual costs are available in an HR HUB - because you can simply budget for % increases.
One solution may be to plan at the "position" level. A position is a function within a department. If the department consists, for example, of a manager, a senior analyst and 2 junior analysts, it comprises 4 positions.
These positions can be occupied by an employee, in which case they inherit all the employee's costs. In the HR HUB, each employee is assigned to a position.
Planning at position level makes it easier to compare actual with forecast, and above all to justify any discrepancies.
Budget planning will therefore consist of :
- Plan personnel movements - openings/closures/position transfers
- Apply increase assumptions to calculate payroll per position.
It should be noted that variable commission planning necessarily depends on sales forecasts, and it is therefore useful to interface the payroll planning application with the application - or Excel file - used to draw up the sales plan.
To take this a step further, EPM tools can also prove invaluable in drawing up a sales plan... but that's another story.
As mentioned above, each country has its own social legislation, and therefore its own list of personnel cost items.
To obtain a consolidated view of payroll, international groups will define aggregate cost families: fixed salaries, overtime, social security charges, 13th month, variable salaries, etc.
The detailed cost elements for each country will be attached to these aggregated families in the payroll management application, so as to provide a consistent, consolidated view of the whole.
Of course, EPM tools are also perfectly capable of handling different currencies and consolidating currency conversions.
Our partners in payroll management
In a nutshell
Deploying an HR EPM tool will meet many of the challenges faced by HR management controllers on a daily basis:
- It will provide the employee with a complete view of HR costs, whether fixed or variable, and will calculate accounting provisions, as well as variable salaries based on sales.
- It will calculate headcount and FTE according to common, auditable rules.
- It will make it easy to reconcile the HR view with the accounting view of HR costs.
- It allows HR costs to be planned by position, and enables variances between actual costs and budget to be calculated and justified.
- It will offer both a coherent Group-wide view, and a detailed vision tailored to each country.
Ready to start managing your payroll?
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