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17 March 2023
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5 minutes

Considerations when choosing a global payroll solution

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The classic model of having an internal payroll department doesn’t work for many multinational businesses today. Here we explain why delegating global payroll back office activities to a professional business service partner is a time- and cost-effective solution.

HR and payroll are some of the most important tasks within the back office arena. After all, we are dealing with employees’ salaries and wellbeing … and no business can run without its people. It is vital that the employees get paid correctly and on time, because even a small mistake can send a shockwave of discomfort and mistrust through the business.

Global payroll challenges and pitfalls

The classic model of having an internal payroll department doesn’t work for many multinational businesses today. It is quite common for companies to have operations in 20-plus countries, but with fewer than 100 employees (and often a lot less) in most of them. This presents a challenge when trying to provide full back office services – including payroll – in each country, and is the main reason independent service providers exist.

When considering a global payroll solution, the focus should be on finding one that best meets the compliance needs of every country in which the company is operating. If, on top of this, the solution is cost efficient and provides the right level of technology to meet business needs, it will not only be right for the company, but also easy to sell to key internal stakeholders.

For many businesses, however, the thought process is often the other way around. They start with a ‘cost saving’ mindset. The issue with this approach is that as companies build their solutions, they soon realise that the initial cost savings do not last long. Often, additional services are needed, and inefficiencies appear in the management of the process, which can quickly multiply when applied to a multinational operation. Cost-cutting can also create compliance issues, with the risk of hefty fines or even prosecution.

Another common error is to rely too heavily on a costly technology solution, and assume it will work in any other country the company operates in. Technology-focused solutions can work well in some countries, but can never meet the needs of every country around the world. While they can offer an appealing platform with lots of functionalities, when it comes to local compliance, most solutions:

  • fall short of meeting local rules and regulations
  • are not fully adapted to the local market, or
  • require additional work (at additional cost)

In many cases they still don’t do the job.

Another common pitfall when rolling out a global payroll solution is to opt to work with an aggregator, with promises of high functionality and cost savings. The reality, one or two years later, is often higher spending despite of the higher level of involvement needed from the company in managing the operation globally.

A simpler, more efficient approach

This is where expert support can really help global payroll execs make an educated decision that really works for the business. The starting point with any global payroll solution should be compliance with local regulations, along with the hygiene factors of getting employees paid on time and accurately. Then other requirements can be added, like those related to platform functionality and integration.

There are two common ways to engage external payroll support:

  1. through contracts with local vendors, who will have the required local knowledge and are fast to adapt to changes in local regulations
  2. through an aggregator, which acts as a global contractor that subcontracts to local vendors (all or most of the time), and often provides a platform to manage the work and provide visibility

The big disadvantage of using local vendors is the huge amount of time the inhouse payroll team will need to dedicate to managing these relationships. In addition, language barriers and lack of inhouse knowledge of local regulations can often mean placing blind trust in the local vendor.

When it comes to using aggregators, the common issues are: lack of access to the local vendors, lack of flexibility to quickly contract new services or change existing services (because of longer chains of command), and, perhaps most importantly, an unwillingness for the aggregator to provide additional services in locations where the local vendor would lose money.

In addition, most aggregators’ platforms are not truly global – they may not work in all countries, or may require expensive interfaces.

The best of both worlds

Find a partner that manages global payroll in a way that offers the best of both worlds. The ideal scenario would be to work with a payroll provider that helps you remain compliant with local regulations, while offering high quality platforms and coordination services.

Make sure you find a partner:

with global presence and payroll experts on the ground, that speak the local language and understand the local legislations

  • that provides you with access to their in-country professionals
  • with offices that adhere to standards of compliance and international law
  • with the ability to respond to payroll-related needs in any country
  • with independence that enables them to work with any law firm and the technology platform (T&A, HRIS, ERP etc.) of your choice

TMF Group's global payroll services tick all the boxes above. Talk to us to find out more.

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