Key drivers behind decisions to outsource global payroll
No matter whether HR or Finance departments are responsible for global payroll, the provision of local national payroll is challenging and complex for businesses with multinational locations, especially for organisations expanding into new territories.
Businesses commonly ask whether accuracy and effectiveness will come at a high cost and how they can be confident that the payroll taxes are correct – thus, compliant. The inconsistencies of disparate local processes and reporting formats also creates various challenges, such as different pay dates and potentially numerous contractual obligations, with no single international system of record.
As such, to ease the challenges and simplify the processes, an increasing number of multinational organisations look to outsource their global payroll.
Should you outsource your global payroll?
Unsurprisingly, the most common drivers are the need for compliance to be assured and reduced costs/increased cost-effectiveness and in trying to achieve this, other key drivers include:
- Standardised and consistent processes
- A single global payroll calendar
- A single contract and contact and single consolidated billing and reporting
- Alignment/integration of global payroll with ERP systems
Compliance is critical; businesses are under increasing scrutiny and non-compliance can lead to large penalties in the form of fines, which can possibly be even more than the cost of providing the payroll in the first place. Hence, it is critical that statutory filings and taxes are completed accurately and paid on time. Accordingly, outsourcing for compliance alone can be cost-effective.
With increasing attention on employee satisfaction and providing a good employee experience, the incorrect deduction of taxes could also lead to disgruntled employees.
Many multinational businesses don’t have the local resources needed to manage and ensure compliance – and won’t/can’t have the approved in-house software in each jurisdiction. As such, expert local providers will need to be sourced and engaged, with the approved software and capability to submit filings to tax authorities online. In-house corporate resources will also not have the knowledge or understanding of local payroll laws in the different global locations.
Sourcing, vetting, approving and engaging expert local sources is critical and time consuming, but a relatively small part of the whole – and to ensure compliance, engaging the right local providers is critical. As such, when considering outsourcing, global payroll providers should be selected that both guarantee compliance in all countries and take responsibility for their network of local providers; ensuring they have the expertise and local legislative knowledge, able to support payroll.
This helps reduce complexities, ensures compliance in existing countries and a smooth set-up when starting operations in a new country.
Outsourcing can also be very important when considering project timelines – HR might be the last to know of an impending project and might need to be up and running in a new country within weeks. It is critical that any delays are minimised, and set-up is quick and straightforward – outsourcing to an established global payroll provider can be very cost effective, whilst also ensuring compliance.
Standardisation and consistency, including standardisation of the payroll calendar, will bring about efficiency, which in turn can reduce costs.
If an organisation has growth plans to expand into multiple countries, it needs to consider whether their existing local payroll model can be used internationally – whether it will facilitate such efficiency. Can the process be standardised for consistency if businesses work independently with various local payroll providers, in different time zones, when it is almost certain that each individual local provider will have different systems and reporting types and practices?
Organisations strive to streamline processes to increase reliability and when an outsource provider has expert in-country providers, such standardisation and consistency will improve accuracy and minimise the risk of errors – which, again, is able to lead to cost reductions; staff waste less time in the need to learn, adapt and carry out payroll for different countries. If an organisation needs to enter numerous contracts, with different points of contact for each country (which can lead to miscommunication because of language and culture) and then need to manipulate multiple report types, this hardly fits the profile of streamlining processes, minimising risk of errors etc.
In addition to this, centralised and integrated systems hosted on the cloud can be essentially used at the very least as a data repository – full systems integration brings about cost reductions, standardisation, consistency and greater control and visibility.
It is important that a global provider can integrate both with client systems (HR, Finance, Expense Management etc) or even build the necessary links between client systems. Typically, client systems only hold the base salary information – they don’t hold other important elements, such as full compensation data for each country. The global payroll provider needs to provide clients with a fully automated solution and be experienced in aligning and integrating with client systems. The provider should be knowledgeable about the client systems they will integrate with – and have the proven capability to do so, in order to integrate all international countries into one system of record, producing consistency, standardisation, unified global reporting, along with feeding back financial information to the general ledger. Integration will bring about savings in cost and time, whilst ensuring that the data is ‘clean.’
The systems also allow for the automation of repetitive administration tasks, saving further time and allowing HR to concentrate on tasks that have a bigger impact on the business, such as enhancing employee experience.
There are also benefits to be had from a shared system by working together with the partner on reports and analysing data to make smarter business decisions.
As always with business process outsourcing, it is essential to carry out thorough discussions with the outsource provider in question and ensure they can align with you to achieve your business objectives. In the instance of outsourcing global payroll there are the key considerations of ensuring it will improve processes for making payroll more compliant, reliable, accurate and timely. With the dedicated resources to deliver, outsourcing global payroll can have an instant positive impact for an organisation’s international endeavours – making life easier for HR and Finance.
For more information and consultancy on whether outsourcing your global payroll is right for you get in contact with Global EMS today on – firstname.lastname@example.org