Expanding your business internationally also means expanding the talent pool you can tap into. However, hiring foreign talent also comes with its challenges. Not only are there tons of local employment laws and regulations to comply with, but running payroll in several countries also adds additional complexity to the already challenging task of managing a globally distributed team. Outsourcing payroll to local payroll providers is a popular solution among businesses to navigate payroll compliance in new markets and implement global payroll.
Yet choosing the right payroll service provider for your company is not as straightforward as it may seem. HR and legal teams often don’t know which criteria a good payroll vendor should meet and there are many open questions when it comes to payroll services in general. What do payroll services include? What different types of payroll services are there? What to look for in a payroll service provider?
In this article, we will answer all the questions you might have about payroll service and give you some helpful tips on how to choose the right payroll service provider for your organization.
What are payroll service providers?
A payroll service provider – or payroll provider for short – is a company or organization that offers payroll processing services to other businesses who don’t have the knowledge and expertise to run payroll in-house. 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 their growth and business expansion plans. In fact, 26 percent of respondents 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.
What do payroll providers do?
Although this might seem like a pretty obvious question, the answer to it is not as clear-cut as you might expect. Yes, of course, a payroll provider will handle payroll for you. But what do payroll services include?
When we talk about contracting a payroll partner, this mean that the payroll specialist (typically) will:
Calculate gross pay and deductions for all your employees
Withhold income tax and deduct other contributions such as social security
Calculate and pay payroll tax and social security contributions on the employer’s behalf
File and pay payroll taxes
Manage sick leave and paid time off
Keep payroll records
Provide detailed reports
Report and register new employees with authorities (optional)
Offer a software solution which integrates with your existing systems (optional)
Sometimes, you also come across the term “full-service payroll provider” which means that this provider will not only do all the calculations and admin for you but will also take care of depositing wages and salaries to your employees’ bank accounts. In the field of global payroll, however, this additional service can turn out to be quite tricky.
That is because, depending on the country, local laws might prohibit external service providers to issue payments to your employees. In this case, foreign employers need to make the transactions from their own bank account, which might mean having to open a local account in the hiring destination – as, for example, in the US. In other countries such as Germany or France, however, employees can be paid directly from foreign bank accounts.
Global payroll sorted: What types of payroll providers are there?
Other than in the range of services they offer, international payroll providers also differ in the way they are organized and set up. Generally, there are three different payroll provider models for managing global payroll:
Wholly-owned global payroll provider: one single payroll provider which 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
Local payroll provider (sometimes also called in-country payroll partner): providers who offer their expertise in payroll processing in one single country to foreign companies looking to launch new markets
Payroll aggregator: payroll provider who partners with various in-country providers to offer customers a larger country coverage; payroll is usually processed in each country by a different provider under one unified service contract issued by the aggregator
Depending on the type of service provider, global payroll can be processed centralized, locally or in so-called regional hubs which group processes according to time zone and cultural requirements.
Setting up global payroll: How to choose a payroll provider?
Now that you know what different types of global payroll providers there are, it’s time to focus on a much more interesting question: How do I choose a payroll provider? To help you make the right decision, we have assembled a list of key criteria and practical questions you can ask possible payroll partners when shopping around for the best fit for your company. We will start off with some general advice on how to select a payroll vendor and then go into the specifics you should consider when looking for a global payroll solution.
Selecting a payroll service: General tipps
Just as with any other service you contract to support your company, a payroll partner should meet the following requirements:
Good customer service: Find out what other clients say about customer service and the speed customer inquiries are processed. Also, check whether you will be assigned a personal representative in the firm who you can contact directly when needed.
Proven expertise and good reputation: Ask for certificates, qualifications etc. to get proof of the provider’s knowledge and expertise. Also, check reviews and the provider’s track record.
Good value for your money: Of course, the price isn’t everything. But you want to make sure you don’t pay more than you should.
Easy to use and understand: Both the pricing and the system itself should be transparent. Reporting metrics should be clear and the system interface should be easy to use.
You can narrow down your selection of payroll companies by checking the following criteria:
Targets for payroll processing: What performance will your payroll partner guarantee? How long will it take to rectify payroll processing mistakes?
Automation level: Many payroll-related tasks can nowadays be done via automated processes. Make sure your future payroll provider uses a maximum of automation so you don’t have to pay them to do simple admin and bookkeeping tasks.
Compliance updates: How often do they update their system to maintain their compliance with local tax laws and regulations?
Service features: Which payroll features and services do they offer and do they cover all your payroll needs? To answer this question, you should make sure to compile a list of feature requests to have ready for potential candidates. Do they have additional services which you can add in the future as your payroll needs evolve?
As your company expands into more and more foreign markets, the payroll process becomes more and more complex and the data sets grow bigger and bigger. In order to keep track of payroll costs, it is vital for businesses to have good reporting systems which alert them of any significant changes. You should therefore inquire upfront what the reporting looks like.
As mentioned before, there are different models of global payroll providers, those who own payroll companies in every country they cover and those who depend on in-country payroll partners. When going for an aggregator, ask whether you will have a personal contact in the organization or whether you will have to reach out to the in-country partners to solve any issues that might come up with payroll.
Adaptability to business growth
You might still be in the early stages of your company’s global expansion, with only a small remote team keeping the wheels turning in your new market, but that is likely to change. When you hit your growth targets, it’s very important to have a payroll provider on hand who is flexible to adapt to your growing team and who can still handle payroll for you in an efficient and compliant way. Ask your possible payroll service what will happen if your business grows.
Payroll data is always very sensitive and needs to be processed with maximum protection, no matter whether payroll is processed in one single country or in multiple locations. However, in the context of global payroll, data security becomes even more complex as data is collected in different jurisdictions – which all have different employee data protection requirements – and then transferred to one or several platforms for analysis and storage. Therefore, one key question to your new payroll service provider should be: How do you secure data protection and security?
Integration with other tools
Businesses that run operations in several countries often rely on software solutions which allow them to simplify the administration of their global team. As a consequence, the global payroll solution you choose should be compatible with other tools and come with interfaces for possible integrations. One urgent question you should ask every payroll vendor is: Can your system be integrated with other HR and management tools and platforms?
When running global payroll, you will probably want a standardized system which works the same way for every single market. Yet selecting a global payroll provider who offers a system which is easy to use for your HR and management teams is not enough. Before making your decision, you should also think about your employees. Will they have an account where they can consult their payslips etc.?
How we choose our payroll partners at Lano
At Lano, we are working with a network of payroll providers covering almost 130 countries to help you implement global payroll for your company in a quick and easy way. All our payroll partners have been carefully selected, so you can be sure to get the very best payroll experience. When adding new providers to our network, we make sure that they
Have high standards with regard to data security and protection
Are experienced in what they do and have a strong track record
Can adapt to fast-paced company development as shown by our start-up clients
Are experts in terms of payroll compliance
Have systems which integrate seamlessly with our platform
No need to spend ages researching and comparing payroll service providers for your new hiring destinations. Reach out to us today and let us help you choose the right payroll partner for your business. What’s more, with our smart platform, you can integrate your existing providers as well and get payroll data for your entire global team visualized on one single screen – including your international contractors and freelancers.
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