Acquisitions and their Impact on Payroll
At some point in our lives, many of us will have worked for an organization that begins “Acquisition Mode”. This occurs when they’re growing rapidly, adding new employees and other companies, left and right. This is a normal phase to go through, yet there always seems to be some confusion surrounding the impacts on payroll!
During my time as a Workday Payroll Consultant, I’ve had many clients ask for a checklist of items to review when a new company will be added to an existing Workday tenant. I always respond in the same manner, explaining that the process should be considered a “mini implementation”. If they’re able to envision it in this way, it prepares them more for the work required to complete the acquisition successfully. Although this blog is specifically geared toward Workday Payroll for the US, many of the considerations I’ll share will also apply to Canada, the UK, and France.
The following table details common questions we ask our payroll clients during the project scope process and the applicable impact(s) and/or considerations. It’s important that you coordinate with all Workday functional areas from the beginning rather than “wait to see” if you find an impact. Payroll overlaps with so many other areas; other teams will be just as concerned with coordinating efforts as you are!
|Questions to Ask||Impact and Considerations|
|What is the Acquisition date?||
The answer to this significantly impacts what data needs to be loaded into your tenant. A mid-year acquisition may require loading payroll history to ensure taxes and benefits are not over-deducted.
You also need to prepare for the time required to not only acquire the data but to validate its accuracy prior to processing the first payroll with the acquired company(ies).
|How many companies and employees are included?||For payroll, this not only impacts the potential history data to be loaded, but it will also impact payroll processing time. Will these employees be set up in a new company or merged into an existing one? You’ll need to confirm these answers before fully understanding what’s required.|
|Employee Data: what do we need and what should it look like?||Employee data conversion can be very time-consuming. Will need to determine what legacy data will be loaded into Workday and what format works best for data conversion.|
|What is the pay frequency?||This will allow you to consider how you will group your employees into Pay Groups and determine if additional pay period schedules are required.|
|Is the new company using a different bank?||There could be additional testing needed for any new bank added to your tenant, such as pre-noting or “penny testing”.|
|Will there be a new Accounting Schedule and/or new GL account numbers?||If yes, you’ll need to include Account Posting Rules and Ledger Periods in configuration and testing.|
|Are there any Costing Allocation requirements?||Costing allocations are very helpful to know as soon as possible. For example, if the new company has many accounting layers (i.e. cost centers, projects, locations, etc.) that they use to allocate their employees’ pay, it could impact the time it takes to configure and test payroll and accounting for the acquisition.|
In the table below there are some items that you can review to compare the new company to existing values. Doing so will give you a headstart on designing your tenant for the new employees to be added.
|Workday Payroll Area||Tips and Recommendations|
|Testing||End-to-End and Parallel testing are very important regardless if you are making tenant configuration changes or not. This is your chance to make sure that all of the new employees added are working as expected. You are able to validate any worker data and history errors to make sure you have a successful go-live.|
|Federal, State, and Local Tax Authorities||
Determine if additional withholdings – such as income and unemployment taxes – are required from the new authorities. Be prepared to do some research on those locality requirements to remain compliant once Live.
Another item to consider is how you want the Supplemental Tax to work on the first and separate checks. There are options for both Federal and State for how to tax supplemental wages depending on what you require.
|Earnings and Deductions||
Ideally, you can find similarities in your existing pay codes (aka Pay Components) to any legacy codes coming from the acquired company(ies).
Too often we see that a company is added to a tenant and all new pay components are created when it is not actually necessary to do so. Workday is capable of performing complex pay calculations and allowing for varied Worker eligibility so we always recommend keeping it simple.
|Pay Groups||The only reasons it’s necessary to separate employees into different pay groups is due to them working in different countries OR if they’re paid on a different frequency or pay period. Workday allows for multiple companies to use the same pay group as long as employees are in the same country and are paid at the same time. You may need to consider separate pay groups for reporting or security reasons.|
You may need to make updates to your existing Regular Run Category, but also consider any other special payments.
Will you have Bonus or Commission runs that need to be separated from the regular payroll?
Consider how the legacy payrolls are being processed and taxed and compare them to your process to determine if changes are required.
|Payroll Period Schedules||Before you’ll know if any changes are required to your existing period schedules, you’ll need to determine if changes are required to the pay groups and run categories. They are all related and one’s configuration and requirements will drive another’s!|
|FLSA (US only)||Do you have the correct FLSA periods (work week) for the new company? Consider which legacy earnings should be considered FLSA Wages or FLSA Hours after the acquisition.|
This always seems to be an afterthought and at times there is no way to avoid that. It’s important to look at your existing reporting process, as well as that of the acquired company(ies), along with the changes you’re making in this “mini implementation” to determine what reporting updates are required.
Take the time to copy your existing reports and make edits that are appropriate for the future state, using them when you test.
Although Payroll will often feel that everything is out of their control during an acquisition, we all know that without the payroll function, the business would break down. Payroll can take a lead by gathering information ahead of time and coming into the situation prepared. Using the lists shared in this blog will make the job much easier, setting your team up for success in your company’s acquisition process.
If you need additional support to lead your team through one, Kognitiv would love to hear from you! Please contact us to discuss the options today!