Is your payroll model holding back your people strategy?

Globalization and workforce mobility have been on the rise for years. With the COVID-19 pandemic, a decentralized “new normal” of employees who can work anywhere, anytime, has emerged. Organizations with a global workforce have long been confronted with a myriad of legal, payroll and other tax implications, and now have to deal with the additional complexities that come with an agile and dispersed workforce.

One of the perennial challenges is achieving compliance and standardization across jurisdictions. This is set against the backdrop of legislation around the world becoming more fragmented and complex, and governments are now pursuing more robust means of payroll tax collection with the help of digital technology advancement. Arguably, the risks are amplified when increased workforce mobility meets stricter payroll requirements.

A lack of integration between human resource (HR) and finance systems also often results in a heavy reliance on manual efforts that cause inefficiencies, errors and the absence of oversight, especially for country-to-country comparisons and insights. 

Technology can help to tackle these pitfalls. Beyond creating efficiencies for low-value, mundane tasks, advanced data analytics, enabled by robust, data-driven processes and tools, can offer organizations cost analyses that lead to greater effectiveness in managing risks and optimizing global human capital. Yet, investments in technology often prove costly, not forgetting the need for the right talent and staff continuity to harness the full benefits.

These multifaceted challenges are compelling organizations to rethink their payroll function and operating strategy and model. How can the payroll function go beyond compliance to add value to the business and deliver a superior employee experience?

How global payroll models work

For many large organizations, managing payroll in-house is hardly viable given the volume and complexity of the tasks. Many opt for a co-sourcing or outsourcing model for working with external service providers. Yet, what works for one organization may not serve another, and with business needs evolving, current models may not be scalable to meet future demands.

Organizations that seek to work with external payroll vendors typically choose from one of three options: appoint local payroll vendors in each country, appoint a payroll aggregator, or appoint a global payroll solution provider.

Appoint local payroll vendors in each country

Organizations that use local payroll vendors maintain multiple contracts, typically one for every country with payroll requirements. These organizations face the uphill task of managing multi currency payments, while navigating the diverse local tax and employment laws in multiple countries. The fragmented payroll view does not provide comprehensive and real-time data analytics to forecast payroll costs accurately. While this model may still be appropriate for smaller businesses, it is increasingly a concern as organizations and governments want more consolidated people and payroll data for decision-making and tax administration respectively.

Appoint a payroll aggregator

Organizations that adopt this model maintain a single contract with an aggregator or “global” payroll vendor, which ultimately subcontracts to local payroll vendors individually in all or some jurisdictions. The aggregator obtains the payroll data from the organization and distributes it to its network of vendors in the different countries. The local payroll vendors calculate the payroll locally and send the calculated data back to the aggregator, which manages the payroll processing on behalf of the organization. While the organization is relieved of the hassle of managing multiple vendors, the aggregator is also unable to provide the desired real-time reporting.

The lack of responsiveness, quality and consistency are usual drawbacks when multiple sub-contractors are used and affects business continuity, especially during highly unusual circumstances like the COVID-19 pandemic, when aggregators are working with local payroll vendors that may not be equipped to adjust to remote working.

Appoint a global payroll solution provider

Many leading multinationals and fast-growing companies greatly value their people and the employee experience, and accordingly, invest in enhancing people-related functions with a view to being future-fit for a growing organization.

These organizations find it beneficial to appoint a single vendor offering a global payroll solution that can be scaled efficiently and cost-effectively as business and workforce needs evolve. 

These organizations find it beneficial to appoint a single vendor offering a global payroll solution such as the EY Payroll Control Center and Data Integration solution that can be scaled efficiently and cost-effectively as business and workforce needs evolve. The vendor facilitates the implementation of a streamlined process for onboarding employees in all countries in scope, assists clients with compliance and proactively advises on regulatory changes.

All payrolls processed, together with global reporting and analytics, are consolidated on a single unified technology platform that may be integrated with HR and finance systems. Such a platform provides greater visibility of real-time data worldwide and certainty over compliance and consistency in data security, while enabling better business continuity planning.

Appointing a global payroll solution provider is a big decision for many organizations, especially when it can affect thousands of employees across the globe. In the 2019 EY Global Payroll Survey Report, about two-thirds of the respondents agreed that a truly global payroll delivery model would bring significant benefits to their organization.

Selecting the right solution provider with the breadth and depth of capabilities that can work in tandem with the organization now and into the future is key. For organizations with growth ambitions, this should be a proactive decision to enable the business strategy.

The views in this article are those of the author and do not necessarily reflect the views of the global EY organization or its member firms.