Payroll providers help companies process payroll in a timely and accurate manner, while ensuring compliance with payroll laws, statutory reporting obligations, and more. This makes them a popular payroll outsourcing option for businesses that don’t have the resources or knowledge to handle payroll themselves—especially in the context of multi-country payroll where country-specific regulations need to be observed.
But what do payroll providers do? Why should businesses entrust their payroll management to a payroll service provider? And what different types of providers can organizations choose from?
A payroll service provider, or payroll provider for short, is a company or organization that offers payroll processing services to other businesses that don’t have the knowledge or expertise to run payroll in-house. Other terms that are commonly used in this context are payroll service, payroll vendor, and payroll company.
Especially when setting up payroll in multiple countries, outsourcing payroll to a professional payroll company can be a great way to free up resources, which allows businesses to focus on hitting their growth and expansion targets.
So much so that 26 percent of businesses in a survey by the Global Payroll Management Institute said that they were relying on international payroll providers as their prime resource for any matter related to global payroll processing.
The range of payroll services varies from one payroll provider to the next. While some of them only assist their clients with their payroll, others offer the full package and manage the whole payroll process end to end. The services of a payroll provider can include:
Payroll processing, i. e. calculating wages, payroll taxes, and deductions
Tax withholding, including additional deductions like wage garnishments
Payment of payroll taxes (income tax, social security contributions, and more)
Administration of sick leave and paid time off along with time and attendance management
Payroll record keeping
Compilation of payroll reports
Registration of new employees with local authorities
Employee payments (either via direct deposit or via alternative salary payment methods)
When running a global payroll, however, funds management services can be tricky. Some countries have specific laws that prevent external service providers from issuing payments to employees in the name of their clients.
Outsourcing payroll to an external service provider can be beneficial for organizations in several different ways, since it:
Compensates for a lack of internal knowledge and experience
Reduces compliance risks significantly
Streamlines payroll processes
Frees up internal resources
Gives access to expert knowledge
Ensures the timeliness and accuracy of the payroll
Guarantees accurate payroll reporting
Payroll services can be divided into different categories according to their operating model and the range of services they offer. Some common service models are:
Payroll managed services: Payroll managed services handle payroll processing on behalf of the client business and provide ongoing support.
Payroll Business Process Outsourcing (BPO): Payroll is a common BPO service. Similar to payroll managed services, payroll BPO handles certain aspects of the payroll process, depending on the agreed service level.
Full-service payroll provider: A full-service payroll provider offers extensive services around payroll, from calculating wages and salaries to managing payroll taxes to filing statutory reports.
Employer of Record (EOR) and Professional Employer Organization (PEO): EORs and PEOs are global employment solutions that also handle payroll on behalf of their clients.
Payroll software: Payroll software is in itself not a payroll service as such, but some software providers also offer additional support and assistance for processing payroll.
The Lano Academy is for informational purposes only and should not be construed as legal advice. Lano Software GmbH disclaims any liability for any actions you take or refrain from taking based on the content contained in this article.
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