The year ahead is poised to be an important one for global payroll and connected business functions. With GDPR and heightened data security regulations changing how international organizations operate, and more advanced technologies expanding the possibilities of payroll data and analytics, 2018 is already full of opportunities and challenges for multinational companies. In light of these, as well as ongoing trends, our SVP of Payroll and Payments, John Pearce, sat down with our Global VP of Marketing and Learning, David Barak, to talk compliance, automation, and what it all means for global payroll teams.
The Compliance Focus
David Barak: Hey John, great to kick off 2018 with a discussion of what’s in store for the industry. Let’s start with a topic that may define 2018. For a while now, professionals working in global payroll, as well as HR, Finance, and any related, data-reliant function, have equated 2018 with employee-data related compliance. GDPR means fundamental changes to how employee data is acquired, processed, stored and, importantly, deleted. How much of multinational organizations’ decision-making this year will be influenced by GDPR?
John Pearce: Very true that GDPR regulations are guiding a lot of decisions right now in terms of technology and process choices, and I think many of those same decisions would have been made in the near future anyways, just because they make sense and are good practice. Things like process automation and data integration enable multinational organizations to operate better, irrespective of their compliance responsibilities. We’ve been concerned with improving data protection for years. Now GDPR gives clear requirements and sets a deadline to act.
DB: Right, the payroll industry has been heading this way for a while. However, many people are worried about meeting the new requirements. What do you say to them?
JP: The struggle now is managing the cost and burden of all the additional oversight and evidencing needed to be GDPR-compliant. New policies and procedures will need to be implemented and maintained, and depending on an organization’s size, industry, and region, the documentation requirements could be significantly more compared to before GDPR. That plus additional auditing requirements are really going to drive up the cost of maintaining compliance.
All processes, ours included, will face a similar change. First you've got to be able to understand the legislation in the area that you're operating in, then you have to go through a process of making sure you are compliant. You have to have a third-party come in to audit you and essentially prove your compliance. That's going to be a big piece of work and has been a big piece of work at CloudPay as we prepare for GDPR.
DB: That’s compounded by the fact that every process within a company, not just payroll, has to be GDPR-compliant. Any function that involves personal data, whether of employees or customers, has to meet these requirements and give evidence to that.
JP: That’s actually a significant point to make regarding global payroll. Companies using a legacy aggregator payroll model shoulder the burden of compliance for every provider they use. If they’re in 30 countries with 20 different providers, they have to do their due diligence to check the compliance of all of those providers. In contrast, a customer who uses CloudPay in 20 countries just has to verify our compliance, and they’re done checking their payroll.
DB: Particularly when it comes to our role in organizations, a lot of GDPR is concerned with employee data. Do you think multinational organizations will go through an education process to help their own employees understand how their data is handled? Will employees demand something like that, or do you think this is going to have more of an impact behind the scenes?
JP: I think organizations will need to be ready to explain it, but in general the larger impact will be behind the scenes. Specifically around the right to be forgotten, GDPR will be a big change to a lot of companies' internal business processes. If an employee leaves your organization and requests you delete all information on them, as an organization you're going to need to have a process in place to ensure that happens and to provide evidence of the deletion to the employee, if requested.
Whilst I don't think a mass training program will come behind this or all employees will suddenly demand to see everything going on, there is a distinct increase to employee rights with regard to data retention. That’s going to require companies to be ready for all these scenarios if they want to be sure that they're staying compliant with the new framework.
DB: GDPR is just the most prominent example of this, right? There are other regulations coming into play this year that impact data security and protection requirements for global payroll. For example PSD2, which comes into force later this month as the update to the original European Payment Service Directive. PSD2 increases the requirement on companies who are authorized or regulated as payment providers.
JP: Absolutely. Whilst PSD2 won’t have the kind of direct impact on companies as GDPR, they do need to ensure that any third party making payments on their behalf has the right authorization or regulation in place. PSD2 is not just about compliance—it’s actually giving customers protection over the funds that are being moved around. It's important for customers to be aware of this change, especially if they're using a payment service instead of doing it all in house. They should be leaning on their providers to reassure them, to provide the evidence that they are compliant with the latest legislation.
Technology for the Uncommon
DB: Technology is really the way for providers and companies to address these compliance challenges in a forward-looking, scalable way. Multinational companies in particular are either starting or continuing to adopt new technologies in a variety of functions—sales, HR, finance. Whether it’s robotics, advanced analytics, or predictive technology, organizations are becoming more adept at managing their data and exploring its use within their business.
Payroll is traditionally slower in this respect; however, we could be seeing the shift happening. As companies realize the benefits of more intelligent technology and systems in other departments, there could be organizational pressure to do the same in payroll.
JP: That incentive is certainly building in global payroll. We’re seeing the market start to mature, so more second-round buyers are exploring their options. They’re more experienced now, having used advanced cloud solutions for HR or finance, so there will be an increased expectation on providers of global payroll to deliver a more forward-looking, efficient, automated solution.
I think that's going to be a challenge for some of the other payroll providers as opposed to CloudPay. Our solution is quite technology-driven, and we’ve embraced new technologies like automation and robotics to help us provide a modern, unified system.
Of course, global payroll, and payroll in general, is not necessarily ideal for automation. When you try to automate things, typically you look for the common, standard processes—the ones that are repeated the most—and automate them first. You’re hoping for the 80/20 rule, where you get 80% of a process covered by automation. In global payroll, there's a phrase I quite like the sound of, which is ‘nonstandard but not uncommon.’ Payroll has a lot of activities that are nonstandard but very common.
In an average payroll run, everything can be happening as it should and you still have a deviation. Maybe it’s a supplemental run caused by a local requirement or a calculation that gets triggered by some scenario. Nothing is wrong, but the usual process must be altered to account for a typical, perhaps even anticipated deviation. Payroll differs from most industries or sectors like finance or HR in that nonstandard is normal, and those processes happen much more frequently than 20% of the time. For this reason, the challenge around automation will continue to exist in payroll.
DB: So the challenge for payroll professionals and business leaders will be to find a way to help company stakeholders understand that the application of these technologies is going to take longer in payroll than in other functions. It takes more time and attention because of irregularities across the organization and across the globe. Payroll professionals will need to be able to address that, while at the same time having an action plan for how these new technologies are going to be brought into their function.
JP: One important consideration for that is how things like advanced analytics in payroll can offer a strategic benefit to organizations. A lot of business leaders don’t take into account the wealth of intelligence that lies within payroll data, so a key part of convincing stakeholders to choose an advanced, technology-led payroll solution will be helping them to understand the added value from a strategic standpoint.
DB: Actually that opportunity is just going keep growing. The phrase I like is AI infusion—the idea that global organizations will be ramping up their system intelligence across functions, which is going to increasingly include payroll. Where do you think multinational organizations will see the greatest opportunity to use robotics in payroll?
JP: Robotics and AI will enable multinationals to reduce the human capital effort spent on the manual, repetitive aspects of delivering their payroll service. Just one example is Data Validation, a critical step in payroll that we have now automated using robotics. All the customers we work with always do their own validation, and many of them have specific validation requirements as part of their own internal audit procedures or compliance obligations. Depending on their process and the volume of their data, some customers spend a significant amount of time during each payroll run validating their data as well as monitoring and regulating their internal validation procedures. This automated validation workflow will go a long way to reducing that effort.
It allows those customers to replace a majority of the manual tasks involved in validating payroll results with one automated procedure that also provides a globally consistent format for all of that data. The automated procedure can validate a payroll run in minutes, which is an incredible time savings. Plus, by removing the manual aspect and the natural variations in that, customers see fewer errors, fewer breaks where something was done incorrectly or someone in the process missed something. The hope is the technology will start to capture that and give you a much cleaner, consistent result.