An interview with Reto Ebnöther, Head of Employee Health & Benefits at Mercer Switzerland
1. Why is payroll such a challenge for companies?
A working payroll management is extremely important because any mistakes lead to questions and insecurities of the staff. However, multinational companies normally don’t want to build up know how of country-specific rules and regulations, as this comes with a lot of effort and cost. This is why many of them choose to hand over their payroll activities to an outsourcing partner, which leads to a drain of local know how within the company. They are subsequently tied to the expertise and quality of the payroll provider, whether they want it or not. The objective of the providers in turn is to optimize their cost structure to make their services more economical. Experience shows that this leads to payroll services being managed by “normal” clerks. There are hardly any “real” specialists with years of experience and extensive expertise. But when you look at payroll services in Switzerland, the devil is in the details: Deductions for social security insurances, a variety of salary limits for unemployment contributions which also have to be adjusted pro rata for entries and exits during the year, salary limits for daily indemnity, obligatory and complimentary accident insurances, source tax deductions and last but not least deductions for the pension plan which are in most cases not defined as percentages of the salary. All of this makes payroll management seem like navigating through an obscure jungle.
2. But surely companies are in good hands when trusting an outsourcing partner?
While most outsourcing firms use „intelligent” payroll systems that should overcome the abovementioned obstacles, the question is: Who is able to check for accuracy? What happens if a salary limit is set incorrectly? Who understands all of the relationships and interconnections from A to Z? This is where the crux of payroll management really begins. Our experiences show that the salary deductions are simply wrong in many cases and time and time again, there are discussions, especially around the right deductions for pension plans. At the intersection between (social) insurance and payroll provider, important data is lost, adjustments are done incorrectly or there is just not enough awareness for the importance of certain adjustments. As a consequence of these interface problems – and often after long discussions with all parties involved – corrections have to be done that go back for months, while employees don’t understand their own salary slip anymore and there are enormous amounts of additional work for both the company and the payroll provider. As if this was not enough already, the payroll provider usually charges the correction of his own mistakes to the client. As a kind of “follow-up mistake”, the annual insurance declarations for obligatory and complementary accident insurances and daily indemnities are wrong. If the gross salary that is declared is too high, the client pays a premium that is also too high. Neither the insurer nor the broker that sits in between are able to check and verify the data if they don’t have access to the individual salary information.
3. So how can payroll management work properly?
The solution is actually quite obvious: The interface problem has to be solved. And the easiest way to do that is to choose a payroll provider who has extensive pension knowledge. Insurance brokers that also offer payroll services have “systemic” knowledge of the salary deductions: They are used to explaining employees what salary deductions are made up of and how they are defined. A “one-stop-shop” solution has the advantage that pension deductions are managed right where they are created. The transfer of data between broker, HR of the client and payroll provider becomes obsolete. Data is not lost anymore, uncertainties can be solved by the broker. Annual gross salary declarations are done quickly as the broker already has all necessary data. The synergy effects are enormous. The client saves time, nerves and usually also money because the processes are much easier and also cheaper.
For the employees, there are great benefits, as well: They can direct their questions to a single support contact, no matter if it is about salary deductions or insurance services. The error rate is reduced drastically, the risk of employees being confused by wrong pay slips is minimized. If the payroll provider is working with a state-of-the-art system, information on the insured benefits like pension plan information or an information sheet can be sent from the broker to the smartphone of the employee directly via a payroll app. Moreover, a diversified payroll provider also offers additional services that are usually done by internal HR. If additional tasks are outsourced, clients can profit from scaling effects and a maximum relief of their internal HR functions as well as easier processes and an increased accessibility of data.