Latin America: Gaining Ground in HR and Payroll
By Julie Fernandez, Partner
Human Resource (HR) strategy work in Latin America is trending very hot, with payroll as the primary area of interest. A growing number of global and regional companies are consolidating administration or moving to shared services to achieve efficiencies in their existing Latin American (LATAM) operations.
Why the fevered pitch of activity in Latin America? The following Top 5 dynamics help explain:
- The LATAM payroll market is maturing quickly. Several years ago, in-country payroll providers in Latin America worked with disparate systems that were cost effective only because of low-cost labor pools. Companies are now turning their attention to automating and consolidating payroll in LATAM. Big-name payroll provider ADP has redoubled its efforts in the region by adding its Streamline-brand payroll-only offering with regional support from a Miami contact center. SafeGuard World International, a niche payroll aggregator, has established a regional home base in Mexico City. LATAM-based service providers in Brazil and other countries are rushing to consolidate and expand their services to offer end-to-end payroll. While they still have a ways to go, most payroll providers are maturing more quickly than client companies can develop their own in-house operations.
- US-based employers want to expand their shared services beyond the US border. And many companies that have initiated a Global Business Services model in Finance and IT are looking to expand the scope of their support to back-office functions like payroll. Large companies that began shared services in the US and have their headquarters and operations in the US naturally look to LATAM as a place to grow to take advantage of geographic proximity and shared time zones.
- New labor laws increase complexity. Legislative changes in Brazil, Argentina, Mexico and other LATAM countries are frequent, requiring changes to HR administration, salary calculations and payroll regulatory reporting, which is complex and subject to ambiguity. Instead of trying to keep pace with the rapidly changing legislation by constantly customizing in-house systems and processes, many companies are turning to dedicated payroll firms whose core competencies are to stay current and automate workflows. Companies are looking specifically to LATAM payroll providers for support in tax services, banking and gross-to-net processing and reporting.
- Enterprises must dedicate more and more resources to create central visibility, control and governance. Maintaining manual processes and home-grown systems that pass muster for data security, data privacy and the Sarbanes-Oxley Act is both costly and risky. Funding a regional payroll model in LATAM is unlikely to decrease the cost of operations there. When payroll decision-makers seek increased visibility and reduced compliance or financial risk as a primary objective of shared services, a very different business case and behavior emerges. Many instead are choosing to buy into a payroll model that shifts these pain points to a third-party provider, even if it is at a higher cost.
- New technology simplifies growth. HR software-as-a-service solutions allow for a single payroll interface rather than separate data feeds for each country. Many companies that began global rollout of Workday or other HR SaaS system in the US or in Europe are now implementing these platforms in their LATAM countries. While the payroll systems remain local, key inputs are moving to global platforms meant to serve as a single, unified source of employee data. For many companies, the cost to develop interfaces for small countries may be nearly the same as the cost to transition payroll to a multi-country payroll aggregator.
Now is an excellent time to look into driving operational excellence in your Latin American payroll delivery for the Americas. ISG can help you evaluate what’s right for you. Contact me to discuss further.
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