payroll complexity index _2014_-_full_report (1)

Payroll Complexity Index 2014 Ranking countries based on their payroll complexity level

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NGA HR Research | Payroll Complexity Index 2014

Copyright 2015 NGA Human Resources

Contents Introduction

Global Payroll Complexity Index

Categories Impacting the

Payroll Complexity Index

Country Overview

Conclusion

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Introduction

When growing a business and expanding internationally, companies are faced with all kinds of business-related and regulatory challenges. One of them is finding a reliable way to pay their workforce in all countries where they operate.

Managing and rewarding employees across the globe can be costly and full of legal, cultural, compliance and data quality challenges. Local differences in employee and payroll related data; a large variety of social security regulations, legal frameworks and labor agreements; and a multitude of policies related to government reporting & declarations are only a few of the elements that make international payroll a complex environment to navigate.

As a market leader in HR & payroll services, NGA HR initiated a global Payroll Complexity survey to provide an objective overview of the complexity of managing the payroll process in 35 countries across the globe. For the second year in a row, we surveyed a select group of in-country payroll experts working at NGA.

This report offers an overview of which geographies are more complex than others when it comes to compensating your international workforce. We based our research on the following 5 categories impacting payroll complexity:

Managing employee data Managing payroll data The payroll calculation process Government reporting and declarations Geographical influences on payroll

The first chapter of this report provides a global overview and ranking of each country based on its payroll complexity - the Payroll Complexity Index. In the following sections, we have a closer look at the impact of each individual category on payroll complexity. Finally, we take a deep dive into the Top 5 most complex countries and summarize the main reasons of their higher complexity levels.

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Global Payroll Complexity Index

Payroll departments around the world have a lot of things in common – they all

manage time and payroll data, organize payments to employees and provide

declarations and reports to government instances. However, this process needs

to be managed differently in every single country. In some cases, it even differs

between regions within a country. As it will be demonstrated in the next chapters

of this report, these local aspects have a significant impact on each country’s

payroll complexity level.

By compiling the rankings from the 5 categories we analyzed in our research,

we have come to the below Global Payroll Complexity Index, which ranks all 35

geographies included in this survey based on their in-country payroll complexity:

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The following chapters focus on each of the 5 individual categories impacting

payroll complexity that have been analyzed during our research.

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Categories Impacting the Payroll Complexity Index

1. Managing employee data

First of all, a wide range of employee related information is required in order to

be able to manage and reward your workforce. The most common data items

needed in this context are the employee’s name, address, age and/or seniority

level, bank account number, type of labor contract and population type.

Key findings

Data items: Across all countries, our survey shows that an average number of

16 to 20 data items are needed in order to manage and remunerate one single

employee. In general, no significant differences have been found between the

geographies included in our survey.

Number of employee populations: Because each employee population has

its own payroll regulation, it’s easier to run payroll in countries with fewer

employee populations. More employee populations, on the other hand, make

the overall payroll process more complex. By ‘employee populations’ we mean

the employee groups that can be identified within a country that require a

dedicated calculation method for payroll. Typical examples of employee

populations are blue collars, white collars, students and pensioners.

The number of employee population types varies widely across countries: With

an average number of 11.5 different populations, Western European countries

have the largest variety to manage. On the opposite side, Asian and Latin

American countries have the smallest average number of populations (7.5).

Complexity of managing employee populations: Of course, measuring the

complexity of employee populations is not only about quantities; the

characteristics of each individual population can equally influence payroll

complexity.

o In this regard, we found that expatriates and impatriates are the most

complex populations to manage globally, closely followed by blue collars.

Students and interns are the easiest populations to manage.

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o From a geographical point of view, managing employee populations is the

most difficult in France (7.04/10) and Germany (6.98/10). In contrast,

employee populations in Asian countries such as Thailand (4.50/10), Brunei

(4.50/10) and Malaysia (4.53/10) are much easier to manage.

Complexity of managing employee data

When adding up the above key findings, the survey clearly shows that the top

complexity levels for managing employee data can be found in Western Europe.

This is the result of a larger number of employee populations combined with a

higher complexity level to manage these populations. Conversely, Asian

countries have fewer populations that are also easier to manage, and can as

such benefit from more easily manageable employee data.

The below graph highlights the top and bottom 5 countries regarding managing

employee data:

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2. Managing payroll data In addition to employee data, an employer also requires payroll related data –

such as an employee’s gross salary and extra-legal benefits – to be able to

calculate the employee’s net payroll amount. In addition, other payroll related

parameters – sickness, overtime, economical unemployment, garnishments,

taxes, social security, etc. – also impact the outcome of an employee’s net

salary.

Key findings

Payroll parameters: Across the globe, an average amount of 15 different

parameters impacts the result of a net salary. Just as in the previous chapter,

our survey demonstrates that Western European countries have to take into

account more parameters (17.8) than other geographies.

o With an average score of 6.40/10, the complexity of managing all of these

parameters is quite similar across the regions. Italy (7.47/10), France

(7.35/10) and New Zealand (7.29/10) top the parameter complexity ranking;

Malaysia (5.08/10), Thailand (5.13/10) and Luxembourg (5.31/10) can be

found at the bottom.

o When taking a closer look at each parameter at the global level, we see that

tax and social security have the biggest impact on payroll complexity. On

the other hand, data related to the personal & family situation of employees

are the easiest parameters to manage when running a payroll:

Benefits: Employee benefits are non-wage compensations provided to

employees in addition to their normal wages or salaries. In most countries,

these kinds of employee benefits are taxable to some degree. Typical

employee benefits are group term life insurance plans, transportation benefits,

vision and dental plans, child care benefits, etc. These can be given to the

entire workforce or just to some individuals in the organization.

o European and Latin American countries offer the highest number of benefits

to their employees. However, offering benefits to its workforce is much less

common in Asian countries.

o When analyzing how complex it is to manage employee benefits on a

regional basis, North America (United States & Canada) and Oceania (New

Zealand & Australia) top this ranking.

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Complexity of managing payroll data

Merging the results of the individual categories described above leads to the

below ranking related to the complexity of managing payroll data:

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3. The payroll calculation process The payroll process consists of multiple components that can influence its

complexity. From basic payroll to highly complex payroll situations, the

complexity level of running gross-to-net payroll calculations is determined by

different parameters, such as the number of payroll runs per month, the number

of legal or HR-related updates per year, retro-calculations, etc.

Key findings

Payroll runs: On average, employers have to run payroll for their workforce 1

to 2 times per month in a majority of the geographies included in this survey.

However, in some countries gross-to-net calculations need to be performed on

a more regular basis every month. The United States are ranked first, with an

average number of 4.57 payroll runs per month, followed by the United

Kingdom with an average of 4 payroll runs on a monthly basis. Australia closes

the Top 3, with 3.64 payroll runs per month.

Legal / HR updates: Ongoing government decisions, regulatory changes and

HR related modifications necessitate that organizations keep their payroll

systems and processes up-to-date at all times. Making sure that all changes

are being applied correctly is time-consuming. The frequency of these updates

also directly impacts the payroll calculation process. Some countries group the

required changes and update them all at once, while other geographies don’t

mind the recurring work and apply new rules on a more regular basis. The

kings of performing payroll related updates are Italy, France and Germany – all

applying more than 15 updates to their payroll systems and processes per

year. At the other end, Thailand, Malaysia, Turkey and the Philippines perform

less than 5 updates per year.

Retro-calculations: All countries surveyed reported that they allow retro-

calculations on previous payroll periods. But the number of retro-calculations

being performed per employee on a yearly basis varies widely across

countries, just as the complexity of executing retro-calculations. And here

again, Western European countries (Italy, France, Germany and Spain) end

up at the top in terms of having the most complex retro-calculations - all 4

countries show an average complexity score of 7.80/10. The North American

countries are just behind this top 4, with a regional complexity score of

7.00/10.

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Complexity of the payroll calculation process

The complexity of the gross-to-net calculation process is influenced by a

multitude of changes, decisions and processes. By combining the above results,

we came to the following ranking of top and bottom 5 countries:

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4. Government reporting and declarations The responsibility of a Payroll Manager is not limited to HR & payroll data

management and gross-to-net calculations. He or she also needs to report on

employee and payroll data to multiple instances, both internally (e.g. the finance

department) and externally (such as social security instances and tax

authorities). This chapter focuses on the complexity of government reports and

declarations.

Key findings

Data items: All organizations must provide payroll related information to local

government instances, in order to determine the social security and/or tax

contribution of each citizen. Globally, companies need an average of 20 data

items per employee to provide the required reports and declarations to the

government.

Reporting frequency: Differences in reporting frequency have a direct impact

on the overall complexity and workload for an HR department.

o Depending on the type of declaration or report, the submission frequency

varies widely, from once a month to less than yearly. However, this

research demonstrates that a majority of declarations or reports need to be

submitted on a monthly or yearly basis.

o Most countries have hybrid reporting schedules: some declarations or

reports need to be submitted on a monthly basis, while other information is

only reported at the end of the fiscal quarter or year.

Reporting complexity: A third parameter that impacts the complexity of the

payroll process is the difficulty of creating each report and declaration

requested by the government. Italy (8.76/10) and France (8.19/10) have the

most complex declarations and reports. On the opposite side, Singapore

(2.60/10) and Brunei (4.40/10) are the easiest countries for government

reporting and declarations.

Government instances: The number of government instances companies

have to report to, also varies widely from one country to another. Although half

of the countries analyzed in this survey only have to report to a maximum of 3

distinct instances, this number increases to more than 6 in countries like

Japan, Germany and Italy.

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Complexity of government reporting and declarations

By adding up the above parameters influencing the complexity of providing

declarations and reports to government instances, we got to the below overview:

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5. Geographical influences on payroll The payroll process is influenced by multiple parameters, but the greater

‘geographical environment’ also plays an important role in defining its complexity.

By geographical influences, we mean the different geographical and company

related ‘decision making levels’ that can impact an employee’s net salary –

ranging from international guidelines, over industry related policies to employee-

specific agreements.

Key findings

Levels impacting payroll: The number of levels impacting the payroll

calculation and reporting process, is the first geographically related parameter

we analyzed to determine its impact on payroll complexity.

o Our study shows that all companies worldwide have to take into account

national/federal rules and company-specific agreements when processing

the payroll. In addition, more than half of the analyzed countries need to

manage rules at the regional/provincial/state level, as well as agreements

specific to departments or business lines within the company.

o Besides (inter)national or company related legislations, certain industries

may also have specific labor agreements. These industries must apply any

specific regulation to their payroll process. In the research, we found that

the vast majority of countries allow industry-specific regulations. Only a few

countries don’t support this approach, including Brunei, Canada, China and

Singapore.

o Every country has its own cultural and regulatory tradition that determines

the impact of unions on payroll. In our research, we found that a large

majority of countries is impacted by some level of union involvement. Only 3

countries have no union involvement at all: Thailand, Singapore and Brunei.

o Lastly, in 28 countries, the payroll can be influenced by employee-specific

agreements. As this kind of agreements can impact every single payroll

calculation or reporting process individually, employee-specific agreements

have an important impact on the overall workload for a Payroll Manager.

Frequency of changes: Rules, legislations and agreements at all levels are

continuously being adapted to comply with the evolving economic reality and

our changing working environment. These updates need to be monitored and

implemented on time, in order to guarantee a correct payroll output at all

times. This implies a significant workload for HR departments. Globally, rules

at the country level are the most frequently adapted and require the heaviest

workload; international rules change the least often and are as such easier to

manage:

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Complexity of geographical levels on payroll

The below graph highlights the countries in which managing guidelines, rules and

agreements coming from a multitude of levels is the most and least complex.

These results are based on the frequency of changes applied to these rules and

their complexity to implement them in the payroll process:

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Country Overview

Based on the results of this survey, we can conclude that Western European

countries appear to have a more complex payroll process as compared to the rest

of the world. Our (at this point untested) hypothesis is that this relates to the nature

and history of the various legal traditions in Europe. Despite the European Union’s

move to further unification of the regulatory framework, the ways in which member

states manage payroll regulation is still not aligned.

The below bullet points summarize the specific parameters that impact payroll

complexity for the Top 5 countries in our Global Payroll Complexity Index:

1. According to our research, Italy has the questionable honor of being the first

country in our Global Payroll Complexity Index. Payroll complexity in Italy arises

from the numerous calculations of social security and taxes, which can also vary

by region and city. Additionally, legal changes happen very frequently and labor

agreements vary widely across industries, organizations and employee

categories (C-level, director, manager, white collar, etc.). Finally, monthly

government reports and declarations are quite complex and require a high

degree of detail.

2. German Payroll Managers encounter wide-ranging types of social security and

tax calculations, and have to take into account many exceptions to the general

guidelines. Gross-to-net calculation and post-payroll activities can be very

diverse due to the variety of reporting procedures. Every tax-related reporting

procedure has its own group of reports and tables. Government also supports a

range of beneficial tax calculations for activities such as financial investments for

pensioners, specific regulations for semi-retirements, and others. Moreover,

company specific requirements and differences in managing multiple employee

populations add up to the complexity of German payroll. The combination of the

above aspects position Germany as the second most complex payroll country in

our survey.

3. France is the third country in our ranking. Social security regulation in France is

notably complex, as declarations and contributions need to be made quite

frequently and to several government instances, depending on the specific

industry. Legal reporting also involves many data to be reported. Running payroll

is extremely complex as well, because payroll managers need to take into

account a wide range of legislations defined at multiple levels and which also

include quite some exceptions. In addition, the high frequency of legal updates

leads to challenges in following up on these changes and in implementing these

correctly in the payroll process.

4. Just as the above countries, Belgium also experiences rapidly changing social

insurance deductions and legal updates at all government levels, which

complicates the gross-to-net calculation and increases the number of retro-

calculations needed. Additionally, the automatic wage indexing mechanism has

an impact on key parameters in the gross-to-net calculation. The recent

delegation of labor related policies to other government levels also influences

payroll complexity in Belgium. When we look at post-payroll processes, there are

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multiple reporting schedules for social security (quarterly), taxes (monthly &

yearly) and pensions (monthly), and all this must be sent to different

organizations. Due to these highly complex post-payroll and reporting

requirements, Belgian companies have dedicated teams for managing the post-

payroll process, or often outsource this to an external payroll provider. Finally,

the impact of unions on payment regulations cannot be underestimated, and

each industry is subject to its own set of collective labor agreements. However,

with the high adoption of social services bureaus by organizations of all sizes,

Belgium has been instrumental in the creation of the payroll outsourcing concept

across the globe.

5. Australian Payroll Managers have to deal with complexities due to multiple

jurisdictions and variations within each. On top of this, each company has its

own payroll related variations and can opt to offer its employees greater than the

standard allowable conditions. From a government reporting perspective, a

combination of frequent changes to tax legislations, different tax rates and

multiple calculation methods highly impact Australian payroll complexity.

At the other end of the spectrum, we see that Asian payrolls are much easier to

manage than elsewhere. This is not surprising, as these countries are making huge

efforts to attract foreign businesses, to streamline payroll processes and to ease

the administrative burden for organizations that want to grow in these areas.

1. The easiest country is Singapore (with an index of 3.28). This is not a surprise,

because Singapore invests heavily to attract foreign businesses and is a

regional hub for many international companies. The information needed to

calculate payroll is clear and easy, which creates an undisputable method for

applying payroll rules. The Singapore government has also defined a very

simple and straightforward tax calculation process, which requires minimal

efforts from employers. The Doing Business report issued by the World Bank

also describes Singapore as the least complex market for starting a business.

2. In the same group of ‘easy’ countries for running payroll, we see a group that

includes Thailand, Brunei and Malaysia. These countries are making great

efforts to streamline payroll processes and to ease the administrative burden on

organizations that want to grow in these areas.

For a complete overview of the specific characteristics that make up each country’s

payroll complexity level, we refer to the Payroll Complexity Survey 2014 –

Country overview.

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Conclusion

This research highlights the key elements that influence payroll complexity, and

provides greater insight into global payroll practices and requirements. This

enables organizations to be better prepared when expanding into new geographies

and to better understand the complexity of payroll, including the associated risks

and workload, in a specific country.

Although setting up a multi-country payroll solution is still seen by some as high-

risk ventures, managing payroll correctly & efficiently, and being aware of the local

payroll flavors provides a company with substantial economic, process and cultural

benefits. In contrast, a wrongly managed payroll process might cause damage to

your business, but also to your external reputation and employee engagement.

The past years, NGA HR perceived a growing interest from companies in exploring

multi-country payroll solutions, as a result of maturing Cloud technologies and an

increasingly connected globe. Therefore, employing an international workforce is

becoming more and more common for companies of all sizes, across all industry

sectors.

Payroll, once a perfunctory HR administration function, now becomes an

increasingly complex, detailed and important tool in retaining top-quality talent

around the world. More and more organizations are recognizing the benefits of a

mature payroll solution in delivering financial savings, a substantial reduction in

risk, a potential for process standardization and greater adherence to compliance

standards. As such, having a robust payroll system and process in place is an

absolute must for companies who want to take their business to a higher level.

Sample Description

NGA HR’s Payroll Complexity Survey 2014 is based on an analysis of the local

payroll situation in the countries where we operate. By sharing a questionnaire with

all of our payroll experts globally and by conducting online interviews among a

sample of local HR experts with deep payroll expertise, we have compiled a

representative overview of the payroll complexity in each individual country.

Geographical scope: 35 countries

Respondent profiles:

Subject matter experts in payroll

Local payroll consultants and outsourcing experts

System engineers responsible for updating global payroll systems

Respondent volume: 854 submissions

Survey methodology: Online questionnaire

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NGA Human Resources is a global leader in helping organizations transform their business-critical HR

operations to deliver more effective and efficient people-critical services.

We help our clients become better employers through smarter, more streamlined business processes - to

save money, manage employee life cycles and support globally connected, agile organizations. This is how

NGA makes HR work.

What sets us apart is The NGA Advantage. It’s a combination of deep HR expertise and insight, advanced

technology platforms and applications and a global portfolio of flexible service delivery options.

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