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A One or a Two- Headed Dragon: The Anatomy of HR and Global Payroll Services

By Julie Fernandez, And Partner, ISG

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Julie Fernandez,

Human resources (HR) is an animal all its own, requiring both rigorous administrative efficiency and shrewd strategic planning. As HR technology evolves, so does the architecture that links HR employee data to payroll, either by design of a single system with both functionalities – in the form of a one-headed dragon – or by integration – in the form of the two-headed dragon. How does the latest wave of software-as-a-service (SaaS) address the need to keep HR and payroll data in synch, automated, and robust for reporting? Are HR and payroll most effective when bundled into one system, or has integration advanced so that they can perform better separately?

From Payroll to Talent Employers have spent the better part of forty years trying to optimize and automate HR and payroll service delivery. Over that time, operations have been centralized, decentralized, outsourced and in-housed in the search for efficiency. After decades of automation, employees were still the single largest investment for most businesses, and HR arose as a discreet discipline motivated to find, incent and develop workers. HR set out to identify key areas of value across all human capital activities, including hiring (recruiting, mobility), rewarding (compensation, benefits, payroll), developing (learning, performance, succession) and retiring. HR leaders looked for ways to shed lowervalue administration and articulate HR’s strategic value in hopes of earning a place at the C-suite table with IT, Finance, and Operations.

The demand for functionality to track and administer these dimensions of the employee lifecycle has exploded. Traditional Enterprise Resource Planning (ERP) software lagged while SaaS applications with more full-featured learning, recruiting, and performance tools came quickly to the market. These niche systems were the front runners of today’s cloud-based technology. Market demands for these combined talent suites caught on, and a wave of consolidation followed with SuccessFactors and SumTotal leading the way.

Companies with heavy investment in the single HR/ Payroll system insisted that employee master data and payroll remain on complex-but-proven systems.

Flashier cloud talent solutions have focused on HR, especially on the salaried workforce. But companies don’t always put into place the organizational hierarchy needed to determine reporting relationships, roles and escalations between managers, employees and HR, and role-based security determines who can view and change data and what level of data is allowed on Julie Fernandez reports and dashboards. This is why core HR/Payroll will always need to ensure that the entire workforce, including hourly workers, can be properly managed, promoted, transferred and paid.

How to Build Your Own Dragon Creating a highly functional user experience now tops HR priority lists around the world. The market has seen three approaches to this. First, companies already invested in ERP systems work to integrate internal modules with third-party software to extend talent features to hourly employees. Second, companies with ancient or little technology in place often seek a cloud-based solution that combines employee data for HR and payroll into a single (one-headed dragon) offering—an approach taken by Workday, ADP (Vantage), Ceridian (DayForce), and Ultimate Software (UltiPro). The third approach is what ERP market leaders SAP and Oracle/PeopleSoft did in 2011 when they acquired talent software giants SuccessFactors and SumTotal, respectively. In these cases, one head of the dragon swallowed the other! Vast armies of techies now focus on integration, incorporating the talent modules or using them as the foundation for a next-generation challenger to the one-headed dragons that rule the new HR cloud.

What Part of the Dragon is Global Payroll?  While HR technology offers a rolesbased, self-service user experience for workers around the globe, how does it address payroll? The answer is that it depends on the employer’s unique global footprint of countries and populations.

Companies with only US-based employees have the most number of options. Single, combined HR/payroll systems are available from several providers, including ADP, Workday, and Ultimate Software, which place HR employee data at the top and have a strong core that includes US payroll. While their talent features may not be the most robust, global payroll can connect as the tail via interfaces. At this time, no HR system provider has plans to build payroll modules across the globe. Instead, companies create interfaces to each in-country payroll system or outsource to a third party specializing in multi-country payroll delivery using a single HR system interface.

Dayforce and Kronos have cloud products that operate with payroll and time as the head and the heart of the dragon. Employers challenged by complex hourly payroll and time may benefit from a single-system approach, in which simpler employee data and talent features suffice. These products address non-US payroll by means of separate systems and require interfaces to connect the rest of the world’s payroll, if they do at all.

Large ERP providers SAP and Oracle continue to commit massive investments to swallowing the talentrich software for the cloud. For now, payroll remains a separate instance ERP-based system for the US and the rest of the world. Employers in large countries use these provider’s former ERP payroll systems, but, as HR moves its core to the cloud, payroll remains a separate system or module and is considered to be too costly to deploy anywhere with less than 500 employees.

HR transformation today is focused on increasing self-service, improving user-experience and optimizing analytics and dashboards. Cloud platforms are delivering on these HR demands, but enterprises must plan carefully to ensure their HR technology does not limit them, or they may risk leaving payroll behind!