Three Models of Global Payroll
Dec 10, 2019 | Topic: Optimization
Expanding a business across international borders involves addressing a long list of considerations — and the question of how to pay a global workforce should be near the top. Three different models of global payroll have developed over the years, and while each one is workable, they definitely are not equal.
Understanding the key differences can help you choose a payroll provider that meets your organization’s needs now and into the future. Here, we take a closer look at each model, beginning with the two most common approaches before examining how the latest solution is redefining what’s possible in global payroll.
Model 1: Local Payroll Vendors
A company following the local vendor model of global payroll has multiple contracts with individual local providers, typically one for every country in which they need payroll. Statutory requirements around payroll data and filing can vary considerably from country to country, and using local providers who specialize in payroll for that country can help companies meet their obligations from afar.
The local vendor model was the original solution for managing payroll across multiple countries, before the widespread use of technology we now take for granted. Today the model is most common among companies with a single overseas location or those who think a unified global solution would be cost-prohibitive for a small headcount or footprint.
It’s true that a network of disparate local providers can meet a company’s basic international payroll needs; however, this model is severely limited when it comes to data management, compliance, and process efficiency. Each vendor contracted is another system in which employee data must be input, processed, and managed. Not only will data requirements differ, but formats, processes, output reports, security standards, and nearly every other aspect could vary significantly from country to country, eliminating any possibility for concerted performance improvement.
Model 2: Payroll Aggregators
The aggregator model of global payroll is one major technology-aided step forward from the local vendor model. In this system, a payroll provider based in one major market, like the United States, has either acquired or partnered with local providers in other countries in order to process all payrolls for a company under a single contract.
Functional and familiar, the aggregator system is widely used today, enabling major global enterprises to operate across hundreds of locations worldwide while minimizing vendor management, paperwork, and confusion at home. Multiple versions of aggregator solutions exist, including those tailored for smaller businesses.
Customers of these systems can view details of their payrolls on country- or region-specific reporting tools, or even on a single, streamlined dashboard that is maintained by the aggregate provider. However, it is important to note that although the data may be presented in a standardized format, the source data itself is not standardized. Rather, the information is pulled from multiple disparate systems — those used by the in-country providers — and aggregated into the dashboard for easy viewing.
This is an important distinction, particularly as data protection and security requirements deepen globally, because it is easy to assume that the main contracted provider is actually running those payrolls when they are not. Using such a solution presents several challenges, including limited visibility and less robust analytics, but the diminished capability of an organization to directly ensure compliance with data protection laws remains the greatest risk.
Model 3: Unified Payroll Solution
The newest model for global payroll aims to address that risk by processing all payrolls in all countries on a single, unified platform. Taking a holistic approach to payroll, the unified cloud solution model is based on managing every element involved in payroll processing within the same, centralized, connected system.
A unified cloud solution uses a single processing engine and centralized database for all payrolls, regardless of location or size. Country specific payroll information inputs and calculations differ according to local requirements, but practitioners manage, process, and report on all data and deliverables in one application. Even if the provider partners with local experts to run a payroll, that processing still takes place on the same platform under the unified model.
The fact that all tools, data, and outcomes are available on one platform offers significant benefits for payroll customers. To begin with, data standardization is the norm. Similarly, workflows are familiar and streamlined across locations. Customers gain deep visibility into their payroll and retain full access and control over their data, solving a key problem with previous models that rely on multiple third-party systems. Additionally, important platform tools and automation capabilities, such as Robotic Data Validation, are available for all countries.
Perhaps the most important benefits come in two key areas: compliance and analytics. A unified platform offers greater traceability and auditability, and data that is centralized in the cloud is infinitely easier to maintain and protect in accordance with various legislative requirements.
When it comes to analysis, having comprehensive payroll data on a single platform lets companies look at a broader set of KPIs and measure like for like across their payroll footprint. With other models, data insights are limited to the analytics offered by each individual system, which often are not directly compatible. Plus, many aggregators don’t provide analytics for headcounts below 100, leaving customers to draw conclusions from outcome reports.
Choose a Payroll Model for Your Business
Although all three models of global payroll are in use at the moment, each marks a foundational step forward in terms of processing and delivery capabilities for the payroll industry in general. Related business services like human resources and finance have been moving toward cloud-based, unified solutions for years, benefitting from the enhanced data security, systems integrations, and analytics that these systems make possible.
Determining the right model (and provider) for your company requires a thorough assessment of your current payroll process and a comprehensive evaluation of short- and long-term goals for the function as well as the broader organization. As both payroll technology and regulatory directives continue to evolve, so will the options for processing global payroll. Making the right choice today will ensure your organization is ready to continue moving forward.