Challenges and Solutions
When it comes to Global Payroll there are challenges for any global industry, but the Energy Sector presents uniquely complex demands requiring a very special type of support. Conventional payroll solutions are not sufficient to deal with the fast turnarounds, challenging locations and multitude of employment types and nationalities which come with this exciting and fast-moving marketplace.
However, by understanding the specific requirements of the sector, innovative solutions and best practices can be combined to properly cater to the needs of energy companies, maintaining compliance while delivering increased control and cost effectiveness. This article sets out some of these requirements, and how they can be effectively met.
“Innovative solutions and best practices can be combined to properly cater to the needs of energy companies”
Beginning with the use of rotators, it moves on to the challenging locations and then the difficulty of coordinating all these elements across tax regimes and Global Processes. Building from this, we can then explore some of the ways in which the most suitable and advantageous delivery of payroll can be achieved for Energy Sector companies.
For those in the Energy Sector, the use of Rotators presents more complications than the combination of long and short-term Expats and Locals which many organisations already struggle with. The movement of rotators from site to site, often involving Third Country Nationals, means that we must consider multiple tax regimes within a single group of people on the same project.
Alternately, from the perspective of an individual employee, their rotation pattern over a year may not result in them working long enough in a jurisdiction for their income to be taxable (typically this is 183 days or more). However, if the employee stays in the country for a vacation, this could take them over the threshold to be liable for tax and, if this is tracked by immigration, they could incur costly penalties.
With information increasingly passed automatically between immigration and national tax authorities this becomes all too possible. So for employers with a mobile workforce, strictly managing time in-country to ensure compliant payroll has never been more important, but getting this right can be testing unless the diverse tax regimes involved are properly dealt with.
With locations which are both diverse and very different to other sectors, the Energy Sector raises unique questions. For instance, compliance differs from country to country – tax filings might be monthly in one country and quarterly in another – but who physically undertakes the filings in countries, which may be remote, where the employer has no HR or country management presence?
Some countries will have industry-specific tax agreements; and in the case of Oil and Gas companies, more questions are raised: what is the taxability of staff on offshore rigs? How does the rig’s location dictate what taxes, if any, apply? Is it in national or international waters? And what about drilling ships? When ensuring compliance across complex locations, understanding all the factors involved becomes especially vital.
Between rotators and locations alone, the number of ‘moving parts’ in the Energy Sector is clear, but coordinating these with the Global Processes which are also involved brings more complexity still. The ideal response is to maximize control and minimize costs while maintaining compliance.
We’ve already seen how staying on top of tax-compliance issues is both important and challenging, which is why ensuring this often involves working with international tax providers. Unfortunately, their associated fees mean they come at the cost of, well, increased costs. The question arises: is there a more cost-efficient way to use these firms?
This aside, other problems remain. The variables dealt with are not just employees, locations and tax regimes; there are systems too. Clients may have separate Finance, HR, and Compensation and Benefits systems. These may hold Global Data but are unlikely to do so for Local Data, and local systems will be different again. A single global approach is required to control payroll, reporting and costs.
To guarantee this control, robust and comprehensive reporting is essential, as is the integration of these different local systems with the invariable ERPs (such as SAP, PeopleSoft and Oracle) used in the global systems. Understanding these factors, we can move on to some of the tried and tested solutions which can be implemented.
What are the Solutions?
For the payroll process, many organisations split Multinational/Local payroll and Expat payroll with different registration numbers. This is a start, but with rotators working in different countries in the same month, and shifts sometimes unclear until the week before the end of the month, a late cut-off is also key.
“The cut-off date can be set to 5 days before payment, unlike normal payroll timelines which would set it in the first or second week of the month”
This can be achieved with automation and the integration of systems, allowing us to remove error rates and reduce the payroll cycle and repair loop. This means the cut-off date can be set to 5 days before payment, unlike normal payroll timelines which would set it in the first or second week of the month.
Furthermore, the automated tracking of employees means that we can support the constant movement of personnel, enabling compliance within both payroll and expense management; the high level of rotators is no longer an issue if they are tracked precisely (we have even used the Personnel On Board and Travel systems).
Of course, the most effective process is defined during transition and incorporates all the above. By reducing time spent, and reducing the labour-intensive manual processes used across decentralized and differing systems, cost savings are ensured which are more than 3-10 times the cost of implementation and ongoing support for an average client.
“Cost savings are ensured which are more than 3-10 times the cost of implementation and ongoing support for an average client”
When the payroll provider has a greater reach than just the payroll process, these savings can be increased even more. The need for expensive tax providers can be reduced by combining payroll and taxation; and ‘real time payroll’ can provide a lower cost, compliant and accurate alternative to the ‘modified payroll’ approach used by tax firms.
Further savings can be made when there is an alternative to relying on tax firms extracting information from various sources. We provide use of a web-based portal as a single repository for all auditable instructions and reports, all in one place, improving speed and ease-of-access while assuring secure US & EU compliant data transfer (soon-to-be GDPR, but formerly DPA). This level of control is enhanced by offering management access to global single-format reports, enabling an instant view of disbursements of net pay, statutory and third-party deductions – everywhere at the same time.
Another recommendation is that payments are processed, in bulk, directly through the banking system and not through FX companies. This guarantees faster payment delivery at a lower cost. Of course, there is also the option of combining payroll with tax-compliant expense management and disbursements to bring greater benefits still.
With all these solutions we can see that there are options which can meet the complex requirements of the Energy Sector. First, there must be a complete understanding of industry-specific details such as the high use of rotators, challenging locations and need to coordinate all these factors and systems. Following this, innovative solutions can be implemented which overcome these challenges, drastically reducing costs while maintaining compliance and providing an improved level of control and service.