Global Payroll Outsourcing – When Is It Right for You?

Global Payroll Outsourcing - When is it Right for You

First, let’s clarify: global payroll outsourcing, to us, is defined as hiring an expert service provider that functions as your consolidated global process manager for paying employees in multiple countries. Consolidation and/or aggregation of global payroll is when one provider handles all elements of all – or most – of the countries a business is operating in. Global payroll outsourcing is not providing service in just one country, even if that country is not your company’s domestic place of business.

In the industry, this type of global payroll outsourcing provider is typically referred to as an “aggregator” or “consolidator.”   This means they are delivering true multi-country payroll outsourcing, with the ability to generate payroll consistently and compliantly in almost any country where business is done.  A consolidated global payroll outsourcer will coordinate all the elements you need to run payroll, including:

• Data management
• New hires and terminations
• Gross-to-net calculations
• Audits
• Filings
• Compliance management
• Pay slip delivery
• GL reports

If your company does business only in one or two different countries, you can probably handle working directly with in-country providers (ICP) for payroll and be successful.  But as your number of countries increases, the complexity increases as well, almost exponentially. It’s almost impossible for one person to retain all the knowledge of local rules and regulations for each country in order to stay in compliance. This is why many companies turn to a consolidated global payroll provider.

So with that being said, “When is global payroll outsourcing right for you?”

• Doing business in 3 or more countries

Again, most businesses can handle running their headquarters country payroll plus one or maybe two more countries without losing too much efficiency. Whether they are running payroll internally or utilizing a partner, the tendency we have seen is that two is ok, three is too many. In the world of project management, there is an idea called context switching that refers to the productivity lost from multi-tasking. The general idea is that you lose 40% of productivity for each task you take on contemporaneously. Now it’s not exactly the same as managing global payroll, but the concept still holds true. That’s why, in a 3 or more country scenario, consolidating all the disparate sources of information under a single provider allows you to stay focused on only two big pictures: domestic (headquarters) and global (all other countries).

• Working in difficult countries

There are certain countries that are just intrinsically harder to navigate when it comes to running non-domestic payroll.  This can be due to lack of developed infrastructure, shifting political environments, excessive regulation or culture barriers. In global payroll, as in most other parts of life, we can promise you that these will fit the 80/20 rule. There will be the 20% of countries you do business in that cause 80% of your problems. Some complex countries conducive to global payroll outsourcing are:

• Eastern European Countries like Estonia and Russia
• Many less-developed African countries like Senegal and Cameroon
• Even developed Western European Countries such as France or Belgium
• The US, for non-US headquartered businesses, can be exceedingly difficult to manage

If you happen to have any of these countries on your radar, please feel free to contact us to learn more about the challenges.

• When you are integrating your HRIS / HCM system

The most common strategy for companies doing payroll in a few other countries is to use in-country providers.  The size and capabilities of these companies vary, but most are not well-versed in the fine art of data integration.  The likelihood that their operations work similarly to your domestic payroll is slim to nil. Their data is most certainly architected very differently from yours.  So when it comes time to integrate with your Human Resources Information System (HRIS) or Human Capital Management System (HCM), you literally may not be able to get the data you need.

Implementing a single HR system across the globe is high on many HR leaders’ list of priorities.  The success of the initiative will not work without the integration of global payroll data.  That is where global payroll outsourcing comes in.  Some global consolidators (Celergo included) of outsourced payroll services are well versed in integrating many countries’ data into their system, providing a single, uniform feed of data to and from your HR system.  This capability alone might cause many multi-nationals to retain a consolidated global payroll provider.

• When you don’t have funding capability

This one is pretty straightforward; do you have the capability and/or bandwidth to get funds in and out of the country you have employees in?  If no, then consolidation and outsourced treasury management are the shortest paths to success.  The best consolidated global payroll providers have the ability to manage your funding, including executing foreign currency exchange (FX) trades and disbursing net pays to your employees, as well as paying the appropriate taxing authorities and third parties.

• When you don’t KNOW if you are compliant

If you are not 100% sure of compliance with local regulations across your global footprint, you are missing a vital link in the payroll chain. It’s not just the hard costs of a compliance failure that plague employers; there are often opportunity costs and downstream consequences.  Compliance lapses are punishable offenses in some countries.  They can hurt the company’s reputation and force you to cease operations temporarily.  At their most harmless, they become time-consuming to resolve and add absolutely no value to your business.

Global payroll outsourcing can help with compliance when the provider is willing to take on both the compliance burdens and risks.  A compliance guarantee (a Celergo only offering) can go a long way to protect valuable time, but this is unique in the global payroll marketplace.  Not all providers are capable and/or experienced in running a global compliance regime.  In any case, make sure your provider is able to close the compliance loop for you by retaining and providing visibility to your actual compliance documents (filings, tax receipts, etc.).

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If global payroll outsourcing is on the mind and you have questions, please contact us. We are here to help clients grow their business – and to build long-term relationships.  So let’s talk!

 

**This article is for informational purposes only. It is not intended to constitute legal advice.

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