01 October 2024
Russell Webb, business development manager, managed service payroll at Phase 3 Consulting, outlines the various payroll models available to international organisations and how to decide what’s best for your business
Throughout my experience in working with international and domestic payroll, I’ve come across two pivotal questions that remain unanswered. The first concerns the ongoing debate about the placement of payroll management within an organisational structure, with human resources (HR) and finance holding differing opinions about the reporting lines. The second question revolves around whether international organisations should opt for a global, local or a hybrid payroll model. While the former question has been extensively discussed, I would like to share my personal perspective on the latter.
Cost, quality and risk
When I started working in payroll, I held the common view of those not involved in payroll; isn’t it just pushing a button? Well, I soon found out saying that to a payroll veteran might land you in a spot of bother and that there’s quite a lot more to it.
The first person to explain to me why payroll providers are so business critical set me straight. If you’re a global organisation with a footprint in multiple countries, you’d need a separate payroll office in every country you have a presence in, which would prove extremely expensive. Potentially you could regionalise these and have the office in Sweden pay your Danish or Finnish-based team, but even these countries have specific rules about payments across borders which make things more complex. Or you could outsource that responsibility to a payroll provider for a fraction of the price, which has a local presence in the form of a vetted partner or a local office.
So, this made sense to me for international companies, but most of these aren’t enterprises and have one geographical country they operate from. The answer here I’ve found is usually down to cost, quality and risk. It’s expensive to hire a payroll person, let alone a team, then equip them and provide payroll software that allows them to do their job. Then they need back-up in case of the unexpected, and this can also prove costly. Often, having a payroll provider perform some or all the process can ease the financial burden.
Global payroll
Companies with large geographic footprints must make a choice with how they handle payroll, and these choices will often flow down from the home country with the largest footprint, at least I’ve found that’s usually the case when working with American companies. The burning question, is what is the most efficient and best choice for these companies? Is it to have one global payroll system that treats employees from Paraguay to the same experience as their Singaporean colleagues from onboarding to payslip? Is it to have a regional model where the Nordics support each other for example, or is it to have in-country teams that know the language, the nuances and give your employees in that country the ‘local’ experience? Or is it to find somewhere in between?
When outsourced global payroll models started to appear many years ago, the premise was simple; payroll processing was performed in-country by local providers that understood the legislation, knew the nuances, spoke the language, processed the payroll, made the payments to employees or provided a bank file, then forwarded their outputs to the central payroll provider team to share with the central client team. It was a simple process model and it was effective. Finance reporting and payroll data was shared at the highest level, but in effect it was a local payroll model strung together by loose reporting channels. Multiple global payroll providers used this method and some still do, albeit with a more technological solution in place.
As technology advanced and innovation and automation became the industry standard in most industries, companies started to take deeper looks at their HR and payroll setups and wanted to have this unified global employee experience for their employees; globalisation means that employees in Canada are just as important as the team in Hungary, right?
But how can a single payroll system handle the gulf in differences between Swedish maternity regulations and Austria’s thirteenth- and fourteenth-month payrolls? Or the challenges with Spanish social security against the constantly changing minimum wages of South American countries? The simple answer is, with immense difficulty. CloudPay recently suggested in an article that advances in payroll technology may have peaked until legislation starts to standardise and simplify.
But some companies are managing to offer truly global solutions with positive results. Systems are now in operation and readily available that can be configured to each of the 195 countries’ unique traits, operated by the client or on a managed basis by the provider. Global systems like this can be costly to set up and run on a managed basis and service can be slow as tickets bounce around offshore teams, meaning a potential for slower answers to the end users; your people. But, on the positive side, you get a unified global payroll experience with employees receiving the same look and feel and the same user experience for payroll especially when combined with a global HR setup.
Hybrid and local payroll
A surefire way to get the best local support, especially for challenging countries such as France, is to have a local payroll provider manage the payroll for that country. The local language is guaranteed, which can be a challenge in some countries, and the local legislation and nuances are known extensively by the provider.
An available option is to work in a hybrid model, where the global solution you choose takes the bigger countries you have, the less challenging payrolls or even the smaller ones, and use a local provider in the countries you know need extra support. With the development in integrations and middleware, it’s never been easier to connect these systems and your HR platform for a unified feel with a local footprint.
The downfalls here might be that the connectivity isn’t as seamless as the unified model and the local providers aren’t going to have the encouragement to cooperate with the global provider, so you’ve got up weigh those options.
The answer
Perhaps the easiest answer is that there isn’t a right and wrong answer here. It depends on factors such as the makeup of your company, its geographical footprint, the volumes in which countries you operate in and the complexity of your company payroll.
Ultimately, the most important factor is the employee experience and if that’s your French team getting the local language support and quick answers to their payroll queries, then you should consider a hybrid or local model, depending on your other countries.
If you have a small number of countries widely dispersed, for example United Kingdom, Ireland, Namibia and Caymen Islands, having local providers might give you the best service and value without having an expensive and technologically advanced system setup for truly global payroll.
But if you have many offices across the globe and you want a global payroll offering, having a global provider will probably be the best option; just make sure it works, and the French team is happy.
This article featured in the October 2024 issue of Professional.