Nothing is more debated in the field of Human Resource than which between
centralized versus decentralized global payroll is a better payroll system. It
would be smart to first have a comprehensive understanding of the differences
of these two systems before making a decision.
If it is your responsibility to handle the employee’s payroll in your company,
you most probably have a lot of questions, including and especially the right
approach to payroll. Are you stuck on wondering whether centralized payroll is
better than decentralized payroll, or the other way around? What are the
benefits can you get from either approach?
Looking for the perfect approach for your organization will never be an easy-
peasy job. Luckily, Rivermate did the job for you. This article will help
you understand more about the two approaches to payroll for you to decide
which option is more suitable for your organization.
Decentralized Payroll Benefits and Advantages
A decentralized global payroll model incorporates multiple payroll teams
inside an organization’s headquarters with outsourced in-country payroll
management partners for every country where the company operates.
Based on a
study by
Deloitte, an accounting and consulting firm, only 13 percent of large-scale
companies are employing the decentralized global payroll approach, while 60
percent of the respondents said that they are implementing the centralized
global payroll approach. This may be because of its affordability.
Requires Only a Small Number of Resources
In centralized payroll, a company must have a dedicated department and staff
to perform its payroll responsibilities. There ought to be a continuous
investment allotted for the more technical facets of payroll such as hardware,
employees, space, and software. In contrast, the decentralized approach avoids
these issues. In this payroll approach, any employee who has an extra hour to
spare can perform payroll management and tasks even if they are not assigned
to perform Human Resources-related tasks. As a result, less resources, money,
and time are required to accomplish payroll tasks in this system.
Cheaper Costs of System Transitioning
Transitioning from one system to another can cost a lot and hurt your
company’s finances. With a decentralized payroll approach, it would be easier
and cheaper to merge compatible accounting systems, especially when the issues
concerning your information system and management structure start to arise.
This benefit, in particular, is one of the significant reasons why more and
more companies are upgrading and expanding with decentralized payroll systems.
Reduced Risks
One drawback with a centralized payroll system is when it goes down, employees
will not be able to receive their monthly salaries or wages. If truth be told,
this may just be one of the many risks your company might face if you
subscribe to the idea of centralizing your payroll. In a decentralized payroll
approach, however, when the system fails, the only employees whose salaries
will be delayed are those served by that system, but all other employees will
get paid.
In selecting the better payroll approach you need to keep in mind that your
employees are working on getting paid so delaying the payroll due to a
system’s failure can cause ripple effects, and these effects will most
probably harm your company.
Improved Employee Records
Another good thing about decentralized systems is it comes with the benefit of
better headcount management. In this approach, each employee can keep track of
their record without the need to provide lengthy instructions. With this, you
no longer have to assign a person or hire a staffer to perform this task. This
does not just reduce your company’s expenses but also saves you a lot of time.
But then again, it is still your responsibility to set up an effective
scheduling system for your employees. Additionally, if your employees are
swamped with requirements, they may no longer have time to perform the
payrolling assignments.
Real-time Response
A decentralized payroll system implies that the employees have better access
to their paychecks, and a closer relationship with the people who issue these
paychecks. This makes it easier for the employees to fix any issues concerning
their paychecks that may arise. For instance, if the staffer tasked to count
the employee’s working hours mistakenly tallied that the employee worked for
30 hours in one week, which should have been 34 according to the actual count,
the employee can easily approach the staffer and raise this concern.
This benefit also comes with a bigger picture advantage in that more feedback
and suggestions regarding the payroll system are lobbied toward the top
management. For instance, one decentralized payroll office might observe that
the workforce it employs may be better served when they are paid twice or
thrice a month instead of weekly. The top management can then decide to make
the tweak especially if the organization is still smaller and more flexible.
Centralized Payroll Benefits and Advantages
Many companies, especially large global enterprises, perform their payroll
tasks using the centralized payroll system. In this approach, employers and
senior executives have more control over their organizations’ costs and
expenses which is advantageous considering it is their prime responsibility to
handle any issue or concern in their company. The following are the benefits
and advantages of the centralized payroll approach.
Secured Data
One drawback of a decentralized payment system is the lack of security of
payroll data. This approach may stimulate errors in documentation,
maintenance, technology purchase, knowledge loss, anda number of other
consequences. Many companies utilizing a decentralized payroll approach have
troubles providing solutions to these problems. But companies on the
centralized payroll avoid these problems by imposing more security and control
over payroll data.
Besides the better control and authority over your employees, a centralized
global payroll approach can also reduce your organization’s cost and will
likely produce high-quality products.
Organized Data
As previously mentioned, data associated with payroll have better security in
the centralized payroll system. This is largely due to the fact that if your
payroll system is centralized, your data will be more organized because it is
stored in just a single system or place. As a result, issues such as
duplication of data, the inconsistency of data, and wasted storage will all be
avoided.
Better Access to Data
A well-organized centralized payroll system provides better and more
convenient access to the data used across the organization in a single place.
This means that all the staff, employees, contractors, and the entire
workforce can readily access the database. This makes it both faster and
easier to undertake organization-wide activities. Central planning and
operation also allows compatible technology and skills to be introduced.
Moving Forward
Now that you have a better understanding of the benefits and drawbacks of both
the centralized and decentralized payroll approaches, you can now have a more
comprehensive analysis and discussion of the approach you think would best fit
your organization. While it is true that either approach suits any company
regardless of size or the industry it belongs, it is still wise to perform an
extensive scrutiny on the perfect payroll approach for your organization.
For multinational companies, the challenges can come along with diverse
regulations, languages, and currencies. This is why you have to be strategic
in choosing a suitable payroll model for your company. Payroll global
management plays an integral role in driving success to your organization.
Hence, planning and handling these obstacles alone will be tough, and a single
mistake in one department can harm the rest of your organization’s department.
Rivermate offers services and tools to help you plan and manage your payroll effectively without draining your pocket. Contact
us to learn more about these services.