3 risks of outsourcing payroll for international employers

October 28, 2021

The benefits of outsourcing payroll and HR functions often outweigh the risks—especially when you diligently vet your options. In fact, the number of global companies outsourcing these functions has more than tripled in the last couple of years. Between 2018 and 2019, companies that outsourced one or more services grew from 8% to 26%, with an additional 12% fully outsourcing all functions. 

The global pandemic may have delayed growth (numbers have remained consistent through 2021), but the global payroll outsourcing market is forecasted to grow by another 6% this year. 

Still, outsourcing is not without its risks. Inexperience and unprofessional service can cost you big time. But even when a provider looks good on the surface, there are still risks including: 

  1. Reactive service approach 

  1. Rigid service structures 

  1. Poor fit for your needs 

Let’s dive into each of the risks, so that you can make an informed decision. 

1. Reactive service instead of proactive guidance 

As global growth takes your business into new territories, you need an expert on your side who can provide guidance on payroll and compliance that sets you up to succeed—and  so that you don’t find yourself buried in fees and fines. 

Too many providers use a business model that is designed to be reactive. Even if the staff has the expertise, they tend to default to the client as the expert and only make changes as requested in response to a problem. For example, if your company adds workers in a new country, your payroll provider should automatically work to ensure all of the correct taxes are withheld. Reactive partners may assume your company has it all figured out, which could leave you facing an audit. 

Don’t let your company be a sitting duck when it comes to compliance fines. Choose a payroll provider that is willing to get involved and can offer proactive guidance to serve as a buffer while your team is getting settled. 

2. Inflexible service structure and a hands-off approach to issues 

 Many global payroll providers have built their business models based on clearly defined functions and restrictive boundaries in their client relationships.  

While this helps the provider keep things lean and turn a profit, it isn’t always in the best interest of the client. In our experience, these clearly drawn boundaries lead to a lot of finger-pointing when something goes wrong. These providers will often be eager to pull out the service agreement and show you how they’re not at fault for the problem—rather than offering productive solutions. 

Instead of getting caught in this trap, look for a collaborative partner who is willing to share the responsibility for key decisions. Your partner should be transparent and open to receiving feedback, as well as responsive in offering practical solutions. 

3. Poor service when you don’t fit their model 

Speaking of rigid service provider solutions, fit and function are more important than you might think.  

Some service providers can be attractive at first glance because they offer a simplified view of an otherwise complex service. You want to like them because you appreciate the simplicity. But more often than not, the predefined service silos become too restrictive, and your company ends up bending to their demands at the cost of your own productivity. 

Sure, you’ll get great service from a reputable team of payroll providers who really know what they’re doing when you are asking the right questions. But when something quirky comes up—as it often does—you’ll probably get left in the lurch.  

For example, let’s say you want offer some of your German employees bonuses for excellent performance. Your payroll provider should alert you to Germany’s equal-protection laws that may affect your ability to offer discretionary bonuses. 

Choose a partner who embraces the concept that their success is tied to yours. They should be flexible and willing to adapt to changes as your needs dictate—so that you can continue to grow together in a mutually beneficial partnership. When you choose a simplified service provider over a true partner, you are giving up that flexibility and allowing the provider to define your needs.  

And if you’re not the one in the driver’s seat, you’re limiting your potential for growth. 

The takeaway on choosing the right global payroll provider 

While you can nitpick every detail about a provider, the most important features to assess come down to how well the provider fits your needs. Some companies need to have a single, highly standardized service, and structured service providers fit that need well.  

But for the average multinational company growing into new territories, there are too many unknowns to gamble on a provider that might not be focused on your best interests. Outsourcing your payroll with a company that is willing to grow, change, adapt and, most importantly, collaborate with you is a recipe for success. 

While there are risks of outsourcing payroll, there are also plenty of benefits. If you’re on the fence, don’t miss this webinar: Globalizing payroll – why now? 

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