What a Global Outsourced Payroll Operation Looks Like

May 5, 2020  | Topic: Strategy

Given the multiple challenges of tax compliance, data privacy and payment processing, global payroll certainly can’t be described as easy. And with every new country or region your organization moves into, the picture becomes more complex.

That complexity increased tenfold in the early months of 2020, with payroll teams having to deal with Coronavirus sick-pay and respond to the impact of government intervention in numerous territories - all while potentially hampered by staff reductions or increased staff absenteeism.

This challenging period has undoubtedly been a mammoth undertaking for every payroll team, but especially those operating on a global scale, with government support (or lack thereof) varying widely across the world. While the immediate goal has been to ensure accurate and timely staff payments to alleviate the concerns of the workforce, the pandemic has led many organizations to question how they might resource their international payroll teams in future.

Could outsourcing global payroll, either to augment their current team or to act as a completely outsourced function, provide greater resilience moving forward?

For companies who may have previously dismissed the idea of outsourcing global payroll, this article outlines what an outsourced operation usually looks like. It will also identify some of the key considerations you should be making as you assess your options for the future.

At a glance: This post will summarize…

  • What is a global payroll outsourcing operation
  • Privacy and compliance considerations
  • Global outlook vs local expertise
  • The key benefits of global payroll outsourcing

What is a global payroll outsourcing operation?

A fully outsourced global payroll function puts the management of your company’s entire payroll (however many countries that might span) into the hands of one single payroll provider. It means using cloud technology to manage all your data in one centralized location, and effectively consolidates all your previous in-country service providers into one vendor and, importantly, one contract.

The service level of payroll outsourcing varies between vendors, with some simply providing a basic processing service, and others offering a full-service approach that includes liaison with tax authorities and ongoing compliance management on your behalf. While it can be seen by some businesses as an opportunity to reduce in-house staff, forward-thinking enterprises view it as a vehicle to simply reduce administrative burdens - freeing up existing payroll teams to bring more strategic value to the business.

Privacy and compliance considerations

Whatever support a global payroll provider is offering (and it can usually be tailored depending on the complexity of your payroll), the vendor will naturally need access to your workforce data in order to deliver gross to net calculationsit. In an outsourced operation, a mechanism must therefore be established by which timesheeting, absence and holiday information can be transferred to the payroll provider for each pay period. Often, this means the need for the payroll provider to integrate with your existing HCM provider, such as Workday, Oracle, SAP Successfactors or Ultimate Software.

Of course, to pay your people around the world, the vendor you choose to partner with will also have access to all your employees’ personal information. Attitudes to data privacy vary around the world, but certainly in the US and Europe, the costs of a personal data breach can be very high - so securing written commitments on confidentiality and data protection should be the first port of call for any business moving payroll to an external supplier.

Indeed, it’s important to remember that outsourcing doesn’t absolve your responsibility to comply with privacy legislation like the EU’s GDPR. You’ll still be liable for a breach, even if it’s a third-party vendor that lets you down.

Migrating your employee data is just part of a key handover process that will require you to document your existing payroll processes, and identify which parts of the process are to be carried out by each party. Clear goals and aims should also be identified upfront, to set expectations both internally and with the provider when it comes to your compliance strategy.

Global outlook vs local expertise

In any global payroll operation, in-depth knowledge of each country’s payroll function and legislative landscape is required to ensure compliance at a local level. In an outsourced and centralized model, this expertise typically comes from the global payroll vendor’s own team of in-country experts or partners, who monitor local labor laws and tax changes to ensure ongoing alignment.

Crucially, this expertise should extend beyond statutory and legislative requirements, and into cultural awareness of each region’s unique working practices and employee expectations. In some outsourced payroll operations, where the global provider also takes responsibility for dealing with employee enquiries (further reducing the admin burden on in-house teams), it’s essential that the payroll provider can demonstrate not just the multiple language skills required, but also tailor their service to adapt to different cultures within your global workforce.

Often, despite the many differences between regional operations, the global payroll provider is still able to provide a degree of standardization, simplifying the payroll process for all countries. This allows the business to achieve the efficiency and control of a global outlook, while still benefiting from local knowledge. Just as importantly, standardization is a vital step in enabling automation and robotics in payroll.

In summary - the key benefits of outsourced payroll

The impact of the COVID-19 pandemic has shined a light on the value of outsourced global payroll from a business continuity perspective, but the many potential benefits of outsourcing have long been evident.

Often more cost-effective than maintaining multiple teams across the globe, outsourced international payroll can free up internal staff for a more strategic role - while centralizing payroll data to enable a truly global outlook.