Running and managing a global payroll is incredibly difficult. Therefore, it’s little surprising that global payroll solutions are in high demand among businesses with a global workforce, since they promise to streamline payroll processes and consolidate data across geographies.
The problem is that there are various different types of global payroll providers and solutions that focus on solving different global payroll challenges. Before choosing a solution, businesses hence need to invest some time to research and compare the different approaches and service delivery models.
What are the different types of global payroll solutions international organizations can choose from? And how do they differ from each other?
The objective of a global payroll solution is to simplify multi-country payroll management through a unified solution. They are designed to solve the following problems businesses face when running payroll in more than one country:
Lack of standardization
Little to no data transparency
High risk of non-compliance with in-country payroll laws and regulations
Low process efficiency due to manual data consolidation and difficulties with regard to operational oversight
In the 2022 Market Guide to Multicountry Payroll Solutions, Gartner establishes five main approaches towards building a global payroll solution:
Payroll administration software
Payroll managed services
Payroll Business Process Outsourcing (BPO)
Employer of Record (EOR)
The use of payroll administration software is what Gartner considers as in-house payroll, since the software is used by an internal payroll department to calculate gross to net, issue payments to employees, and maybe even simplify reporting.
Payroll managed services and payroll BPO both fall under the umbrella of global payroll outsourcing, where a vendor is hired to carry out most of the payroll-related tasks. The main difference between them being the scope of services offered around payroll. Payroll aggregators, on the other hand, are payroll service providers that work with multiple different in-country payroll vendors to extend the geographic reach of their payroll services.
Last but not least, payroll for employees based in different jurisdictions can also be processed under an Employer of Record (EOR) arrangement. In this case, the employee is hired through the EOR partner who then processes payroll on the hiring organization’s behalf.
In addition, Gartner sees the emergence of a new type of solution that takes on the form of a payroll integration and compliance platform that is aimed at integrating the business’s existing framework of local payroll vendors and payroll softwares into a centralized system. The key drivers for this type of solution are payroll automation and payroll consolidation.
The categorization proposed by Gartner is by far not the only way to classify global payroll solutions. Other terms one frequently comes across when researching solutions for multi-country payroll management are global payroll services, global payroll platform, global payroll providers, and global payroll software—to name but a few.
But at the core, international payroll solutions can be divided into two main approaches, which are either software-based or service-based.
Global payroll software, also known as multi-country payroll software or international payroll software, helps businesses stay in control of their global payroll processes by providing a centralized payroll system that combines the business’s different in-country systems.
Only way to achieve payroll consolidation, which solves global payroll challenges like multi-vendor management and low data visibility
Payroll automation reduces errors and increases process efficiency by replacing manual tasks such as data collection
Payroll is and always will be local, which means that local expertise is needed in the form of in-country payroll partners
There’s no payroll engine that can process payroll for multiple countries, i. e. multi-country payroll software is always just an additional software layer that unifies different local systems
Global payroll providers are different to independent in-country providers (ICPs) with regard to the number of countries they cover. While ICPs generally operate in one country only, global payroll providers cover a varying range of countries and usually offer their services under the fully managed payroll model.
Their service model can either be based on an owned-entity approach or be partner-dependent:
Owned-entity global payroll provider: One single payroll provider that offers payroll services in multiple countries, leaving the customer with one service contract and one partner for queries and one single platform for reporting and data consolidation. This model usually leads to lower service costs compared to payroll aggregators, since the provider doesn’t have to charge mark-ups. On the other hand, the global coverage is usually less extensive compared to aggregators.
Partner-dependent global payroll provider ( = payroll aggregator): A payroll provider who partners with various in-country providers to offer customers a larger country coverage, which means that payroll for each country is usually processed individually by a different provider, but under one unified service contract issued by the aggregator. While this model usually guarantees good country coverage, it can also be challenging to oversee global operations if the provider doesn’t have a unified platform with the necessary reporting and management capabilities.
Since both approaches have their pros and cons, companies typically opt for a combined approach to find a solution that works well both on the in-country level as well as on the global level.
“There is no single best-practice approach to deploying multicountry payroll, as the number of countries in which an organization operates will vary considerably, as will the number of workers per country. In many cases, an organization will use a combination of two or more of these to deliver multicountry payroll”, the analysts state in the Gartner report.
Factors that influence the choice of a global payroll solution include:
Employee population per country
Existing workforce management systems
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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