The ultimate global payroll merger & acquisition checklist

There is no way around mergers and acquisitions when businesses enter the playing field of global expansion. M&As are a convenient way for expanding businesses to set foot in a new market, gain market shares, or to simply eliminate competition. 

While M&A activities provide many advantages, they also come with a whole lot of challenges because they are extremely difficult to oversee and manage. There are many different aspects businesses need to consider during M&As, one of them being how to merge the different payroll systems.

How to manage M&As from a payroll perspective? What needs to happen on both sides to successfully harmonize two or more payrolls? We have created the ultimate payroll merger and acquisition checklist for you.

The main reason why managing payroll during mergers and acquisitions can be a real headache is that you have to harmonize two systems that are built on different processes, IT infrastructures, and policies. These differences can relate to:

• Procedures for PTO and employee benefits management,

• Pay periods, payroll cycles, and pay dates,

• Tax and social security employer identification numbers for filing and reporting payroll taxes,

• Pay structures,

• Payment methods,

• Payroll vendors,

• Structure of the payroll departments, and

• Reporting procedures.

Managing mergers and acquisitions is a difficult task that involves a multitude of different aspects. With so many different things to consider, it’s easy for businesses to forget about payroll although it should be high up on the list of priorities.

Payroll may be considered more of a back-office function, but it can have a major impact on the overall success of a merger or acquisition since it’s linked to many other business functions.

Also, payroll plays a crucial role for employee experience, employee financial wellbeing and employee retention. Businesses therefore cannot afford to make mistakes in payroll, especially not during M&As.

There are a myriad of things to consider when merging two or more payroll systems. Especially for businesses that are new to global expansion and only have little experience in managing M&As, the number of tasks can be overwhelming. This payroll merger and acquisition checklist will guide you through the process from start to finish.

Stage 1: Involvement and team appointment

One key success factor for payroll harmonization during mergers and acquisitions is to get the payroll department involved early in the process—instead of thinking about payroll as an afterthought. Get key payroll staff members a seat at the M&A table and consider the implications for payroll right from the beginning.

In the next step, you should appoint a project team that is charged with overseeing the harmonization of the different payroll systems during the merger. Within the team, roles and responsibilities should be clearly defined to ensure everyone knows what they have to do.

Stage 2: Assessment

Before starting to merge the different payrolls, you need to get a good understanding of the existing payroll landscape in both organizations. This requires a thorough assessment of systems, processes, and data on both ends to identify similarities, differences, and potential synergies. Aspects to assess in this context include:

• Number of employees on the payroll,

• Structure of the payroll function,

• Legal entity type and requirements and obligations linked to it,

• Payroll policies,

• Payroll onboarding and registration of new employees,

• Severance pay and processes surrounding employee termination,

• Administration of payroll accruals,

• Payroll data management,

• Payroll processing workflows, payroll cycles, pay periods, and pay dates,

• Payment processing,

• Tax filing and reporting,

• Compliance management,

• Internal payroll reporting,

• Employee benefits and compensation structures, and

• Existing payroll commitments, such as payroll outsourcing agreements.

Also, you will have to assess if you have the necessary in-house competence to manage the payroll harmonization without external help. This includes both payroll staff with experience in managing payroll during M&As and IT structures to combine different payroll systems and processes. If this is not given, you might want to get help from a specialist firm to support you during the transition period.

Stage 3: Payroll considerations and open questions

Assessing the payroll set-up in both organizations allows you to get a clear picture of the data, processes, and systems you need to merge. Once the assessment process is completed, it’s time to think about how you want to approach this. Questions you need to answer in this stage include:

• How to structure the payroll department?

• Will payroll be kept in-house or outsourced to a payroll service provider?

• What will happen to payroll staff members?

• Where should payroll report to, HR or Finance?

• What payroll vendors to keep and which ones to replace?

• What are the local and global compliance risks and how will they be managed?

• How will payroll audits be managed?

• Is the current system set up for adding a large number of new employees to the payroll?

• How will tax compliance be managed?

• How to ensure payroll security in the new set-up?

• How to align pay periods and payroll cycles?

• Which employer identification numbers for tax and social security purposes will be used (keeping the old one vs. applying for a new one)?

• How will the business’s payroll needs change after the M&A and will the payroll system be able to handle these changed needs?

• What will happen to existing employee pension plans?

• How will payroll liabilities be handled and who pays for the payroll, parent company or acquired company?

• What will happen to existing bank accounts and payment orders?

Stage 4: Strategy development and decision-making

Successfully managing payroll mergers and acquisitions requires a firm strategy and clearly defined goals. Your payroll harmonization strategy should be based on the decisions you have made regarding the questions outlined in the previous section and incorporate different aspects, including:

• Change management priorities and strategy,

• Strategic workforce planning,

• Payroll data governance,

• Payroll compliance management,

• Overall organizational strategy,

• Global payroll strategy,

• Employee experience, retention, and financial wellbeing.

Whatever direction your strategy takes, make sure to prioritize global payroll efficiency and process standardization across geographies.

Stage 5: Execution

Once you have established a timeframe for merging the payroll systems, you’re all set to start with the actual execution. The main activities and process steps include:

• Changing your payroll policies with regard to expense management, payroll schedules, international benefits management, and more,

• Implementing the changes in the new payroll system,

• Sorting out your service contracts with payroll vendors,

• Merging payroll data and analytics,

• Setting up new reporting structures,

• Adding new employee benefits, salary payment methods, self-service functions, and more,

• Mapping country-specific payroll processes,

• Getting familiar with local payroll rules and regulations,

• Training payroll staff on using the new system and on following the new procedures,

• Testing the new payroll system, 

• Having a parallel payroll run, and

• Taking the payroll live.

Managing payroll during M&A is anything but easy. Even if you meticulously follow your strategy and schedule, there is always a slight chance that you might have overlooked something. Here are some additional tips to set you up for success:

• Make payroll a priority: During mergers and acquisitions, everything seems of vital importance. Despite the fact that there are many decisions to make and many requirements to fulfill, you should prioritize payroll to ensure employees receive their pay on time throughout the merger.

• Allow for enough time: Depending on the scale of the M&A, merging the different payroll systems can take up to six months. So give your team time to properly assess the situation and come up with a workable solution. Ideally, your go-live will align with the start of a new tax year.

• Keep your staff in the loop: Whatever you decide, make sure to communicate any plans and changes to your employees. Depending on the size of the company, it could pay off to create a FAQ document to share with employees across the organization. Also, determine who is responsible for answering questions from employees.

• Have an additional parallel payroll run if necessary: Payroll errors can put your employee’s financial security at risk. To make sure everyone gets paid on time, better play it safe and plan for an additional parallel payroll run.

• Consider the payroll merge as an opportunity: Merging payroll systems is a challenge, but it’s also a great opportunity for your business to make improvements to existing processes. For example, you could move from in-house payroll management to outsourcing payroll.

• Document everything: Creating a detailed playbook for the M&A process will allow you to backtrack on processes should you hit an obstacle or be faced with an open question.

• Back your payroll data up before the merger: No matter how you approach the harmonization of your payroll data, make sure to back up all data sets before you start the process.

• Brush up your global payroll management knowledge: Every merger and every acquisition makes your global payroll more complex and creates new challenges you need to solve. Before going all in, make sure your payroll management skills are up to scratch. If you feel like you need a little refresher, check out Lano’s ultimate guide to global payroll management.

Even if you have an in-house payroll team that has experience with managing payroll mergers and acquisitions from an operational point of view, you might still find that managing the tech side of the operation can pose problems. That’s where working with a global payroll provider can offer several advantages.

A unified global payroll solution like Lano allows you to easily scale your global payroll operations by adding new payroll countries, entities, and in-country payroll partners. Keep on top of your global payroll even during mergers and acquisitions and add payroll for new entities as you grow. Book a demo with our expert team to find out more.