Guide to successful payroll outsourcing

One of the biggest benefits of outsourcing payroll to a trusted service provider is the freedom it gives companies to focus on the strategic aspects of talent management. In-house HR and payroll professionals can leave day-to-day operations to managed services providers. They are free to turn their focus to truly transformative talent management projects, which help to build the business’s brand and create a compelling employee value proposition.

The Covid-19 pandemic has made remote and hybrid working the norm for many companies, and prompted people to reevaluate their work–life balances. In many ways, it is now easier for employees to move on if they are not happy. A smooth payroll process contributes to employee engagement and satisfaction by always ensuring people get paid accurately and on time, and by enabling easy, secure access to guidance and documentation.

Delivering this on a global scale requires specialist payroll expertise in each jurisdiction where a company has employees. However, keeping on top of complex, ever-changing rules and regulations is a major headache, even for large corporates – especially in smaller markets, where there may only be a handful of employees with very limited, or no, payroll-related expertise. Outsourcing payroll to a global provider with local expertise on the ground overcomes this challenge.

A further benefit of payroll outsourcing is business efficiency and risk reduction. Outsourcing payroll offers a cost-effective, secure and comprehensive solution for payroll processes and technology. Companies can gain access to the latest technology from a professional service provider, with the in-depth expertise to ensure high levels of visibility, control, compliance and data security to minimise business risk.

Source: paper ‘Multi-country Payroll (MCP) Consolidation Demystified. Key Considerations for an Employee-Centric Payroll’ by Everest Group.

Businesses have several options when it comes to payroll outsourcing, in which day-to-day management of the payroll function is handed over to external payroll outsourcing service providers to a greater or lesser extent. There are advantages and disadvantages to using each of these models, and the ultimate decision depends on the type of support the business requires.

The main approaches are:

‘Processing’ – a hybrid solution – also known as a ‘bureau’ model – where some of the functions are outsourced to a payroll vendor. These might include calculation of the gross-to-net, and production of the payroll outputs, such as reports, payslips and bank files. 

Hybrid in-house/outsourced – to get around the challenge of using the fully in-house approach, some organisations employ in-house payroll resources in larger markets and outsource payroll to partners to cover smaller markets on a regional or local basis. This provides a flexible and relatively cost-effective way to access local payroll expertise and knowledge in smaller markets. 

Managed service – aggregator outsourced – this model partially deals with external provider management challenge by handing global responsibility for payroll to a main contractor, which manages third-party providers in smaller markets where it does not have coverage. Again, this can lead to poor visibility and blurred lines of responsibility, with third-party providers potentially playing the ‘blame game’ when things go wrong.

Managed service – partner – in this model, a single payroll outsourcing provider takes on complete responsibility for global payroll delivery in every country the organisation operates in. This allows for a single point of contact for the organisation to go to when there are changes to be made or issues to address, and lines of responsibility are very clear.