8 vital factors for evaluating payroll outsourcing companies

May 10, 2021

payroll outsourcing companies

Just the thought of managing regulatory compliance under multiple governments can have some HR pros quakin’ in their boots. Keeping up with the varying laws and regulations governing payroll and operations is difficult, to say the least.

Outsourcing payroll to an experienced global provider is gaining a lot of popularity with multinational companies, as well as companies looking to expand globally.

Here’s why—along with eight must-know variables for multinationals evaluating payroll outsourcing companies.

Why global companies outsource payroll

You have probably heard “cost savings” pushed as a generic reason to outsource global payroll. It's true—it can save you money. But there are many more benefits to outsourcing that make it an attractive option, such as:

  • Less risk
  • Information security
  • Compliance
  • Best-of-breed technology
  • Less in-house training 

There is no room for error in the payroll department, so unless your company already has the necessary global talent in place to manage the complexity of paying employees in different countries, and in different currencies and time zones, outsourcing is almost a requirement for risk mitigation. 

And, while we are talking about risk, the recent influx of remote workers has tested the limits of data security and technology for many companies. These trends will continue with projections favoring one-third of the workforce to remain remote after the pandemic and up to two-thirds to transition to remote by 2027.

Which companies handled the transition to remote work in 2020 the best? The ones that already outsourced major functions like payroll. They had the data security and technology capabilities in place to support a remote workforce while everyone else was scrambling to catch up.

But people don't always turn to payroll outsourcing companies just to avoid risk. Offloading payroll also gives you the opportunity to focus on tasks you might enjoy more or consider more strategic—like attracting new talent, planning workforce expansion or heading up learning and development initiatives. 

How does payroll outsourcing work?

Outsourcing your payroll function means working with a third party to get your employees around the world paid. A centralized global payroll provider takes care of the day-to-day tasks, but they still rely on your company to provide the data they need—like timekeeping and tax withholding elections. 

What to look for when evaluating payroll outsourcing companies

With big benefits come big responsibilities. The pressure’s on for you to get outsourced payroll right the first go-around. 

When it comes to working with a third party, the success or failure of the partnership is all about finding the right fit. Some payroll companies may have a long track record of proven success in the countries that you need, but if they can't offer integration with your current technology, walk away. Fast. 

What things should you look at when choosing a multi-country payroll provider?

1. Scope of service

Before you sign on the dotted line, make sure you fully digest the provider's service description. Does it cover everything that you need right now? Will it cover potential growth in the future? Will you need service add-ons, and how much will those additional services cost?

One of the perks of outsourcing your payroll to a global payroll provider is to control costs. If you end up with a bunch of different contracts and different invoices, you might be letting your cost savings seep down the drain.

2. Countries served

More is not better if the countries your payroll serves are not your countries. Start by comparing your plans for growth to what the providers are offering. Narrow the list of options down to providers that are already successfully handling payroll in the countries where you do business—and where you'd like to do business down the road.

3. Standardization in payroll processes and data

You'll also want to make sure your outsourcing company can standardize payroll processes in all the countries in your global footprint. 

Global payroll is already complex. You'll thank yourself later for looking for payroll outsourcing companies that offer simple, straightforward processes that are standardized across the board. Think of it like a blueprint that is copied over and over. Instead of re-inventing the process for each country or each company, the provider should already have a process that works and can be adapted to fit different needs.

Without standardization, you’re losing out on controlling costs and increasing the risk of errors in your payroll system and confusion about which data sets represent the company’s “source of truth.”  If your provider reinvents the process for each of your 30 countries, you are paying for a lot more development than production. It is more efficient to work with a template procedure and plug in variables for each country as you set them up.

4. Local expertise for airtight compliance

Lots of people consider payroll outsourcing companies to fill knowledge or experience gaps when it comes to complying with local regulations (rightfully so—global compliance can be a bear). Spend some time confirming that your provider has the expertise you need.

It is a lot of work to invest in maintaining legislative awareness in dozens—if not hundreds—of different countries. These costs will be built into the services they provide. When making apples-to-apples comparisons between different providers, make sure that you understand how each company works. Big differences in price tag might mean big differences in the level of service and local expertise that go into your payroll solution.

5. HRIS or HCM integration

Make sure you have a clear understanding of how well your existing software will integrate with your payroll provider’s technology. How much will you have to invest in technology infrastructure to make a partnership work?

For example, if your company already has a Human Capital Management system (HCM) or Human Resources Information System (HRIS), it’s imperative that a payroll outsourcing partner not only can work within your system, but also become an extension of it.

You'll want to evaluate payroll outsourcing companies against their ability to integrate with whatever HR technology you have in place.

6. Reporting and information security

Centralizing global payroll can provide a (very valuable) single source of workforce spend data to drive informed decision-making. Make sure the payroll outsourcing company you choose supports global pay data reporting—so you (and your executives) don't have to wade through numerous sources or reporting formats to find what you need. 

But when it comes to storing and accessing the sensitive data that payroll handles, you can't be too careful. 

From employees’ social security numbers and bank account information to salaries and home addresses, you've got some mission-critical stuff to secure. In 2018, GDPR regulations added standardization to security protocols by regulating how this information is stored. A good provider should be compliant with GDPR and able to eliminate the risks inherent to data security in your payroll system.

7. Flexibility for growth

No business wants to be stagnant. Your company is growing today, sparking an interest in outsourcing your payroll. And you’ll hopefully continue to grow into new opportunities. 

How will your payroll provider grow with you?

Some companies offer human resource solutions in addition to payroll and allow you to scale up or down as your needs change. Choose a provider with room to grow and you’ll avoid the headache of starting over with a new provider every time your business expands into new territories.

8. Defined performance metrics

Just as with any in-house project, you need to understand the goals and metrics you'll use to measure success for your payroll outsourcing. Key stakeholders in your company should agree on these metrics, along with your payroll partner. Ask for a communication plan so you know if and how often you will receive performance reports—and what kind of changes to expect if goals are not met.

Multi-country payroll is complex with dozens of opportunities to go in the wrong direction, making your company vulnerable to reputation-damaging risks. 

While evaluating and onboarding payroll outsourcing companies means some work upfront, don’t think of it as just another complication. With the right partner, it's an investment in the HR function—and the business’ strategic direction. 

Ready to learn more? Speak with a global payroll expert to learn how outsourcing payroll can benefit your multinational business.

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