You know what I am getting at here, and payroll professionals know all too well. We speak of services beyond payroll processing services that you need to run a compliant payroll and support HR compliance, but they aren’t part of the service scope. It's crucial to be vigilant and aware of these potential hidden costs.

I ran a poll to better understand unwanted, somewhat annoying, hidden out-of-scope services ($$$$$) by asking the following question: “What is the most annoying hidden payroll outsourcing cost?” The results are as follows (voters had to pick one):

1. HR, Legal and/or Tax Advice (36%)
2. Custom Reports (29%)
3. Normal payroll services (25%)
4. Custom GL files (10%)

Let’s unpack this together!

What is in scope, and what is out of scope?

Oh yes, this brings back a lot of memories. How do you define payroll, and what services do you need? That seemingly simple question takes a lot of time to answer, as it requires defining the start and finish of the end-to-end payroll process. I have done many of these exercises, and without consensus with other departments (mainly our friends from HR and Finance), you end up in a loop. 

So, for argument's sake, let’s assume the payroll is outsourced to any vendor profiles. As part of that outsourced payroll, you likely pay a PEPM (Per Employee Per Month) for the “core payroll process”. You submit data, and the provider reviews and processes the data in line with company and regulatory requirements, and you receive outputs for review. This will likely include payslips, other reports, a standard GL file, and statutory filings. This is ‘a core payroll outsourcing service’, but is it really if you need so much more? Let’s find out.

HR, Legal and/or Tax Advice or “normal payroll services”?

HR, Legal and/or Tax Advice was the most annoying hidden payroll outsourcing cost, which is essential to manage a compliant payroll. I do believe that we need also to unpack this advice part. I think it’s normal that any real separate advice, like classifying certain niche pay elements (e.g. an uncommon benefit, equity) should be out of scope. But what about normal advice, as part of the review of submitted data and documents?

For example, if an employment contract is submitted to onboard someone in payroll and the contract states the employee gets a mobile phone and company car, you would expect the provider to highlight this as a possible taxable event. This is where there is a fine line between actual advice and what should be considered as normal services.

We haven’t discussed whether a payroll provider can provide actual HR, legal, and/or tax advice, as that is usually another profession. So, I would always advise mapping out what you need and then engaging with your provider to determine what is ‘advice’ and what are ‘normal payroll services’ or better said; what is in and out of scope.

Custom Reports

This is very annoying if you do not own your data, which is the underpinning argument here; you need a custom report because you a) need it for your analysis or b) an internal or external stakeholder has requested this. But you have no access to the local payroll engine (nor do you want to), and even if you have a central platform, the data is incomplete or not reportable (you’d better contact me if this is your issue). This is frustrating, I get it and have lived it.

Custom GL files

Just as people wrongly assume payroll is ‘just a push of a button’, they also assume that accounting is ‘just reporting some numbers’. In my career, I have never come across a Finance ERP to record payroll GLs to be standard, let alone have the reporting requirements across all countries. All the companies I have worked for as a Global Payroll Manager or a Consultant had different requirements. SAP Finance, Oracle Netsuite, Workday Financials, or any other Finance ERP is implemented differently.

This means the GL layout and the data requirements (often needing data other than what’s available in the GL) are unique. Local payroll engines, as beautiful as they are, vary greatly in their capabilities to create custom GL reports. If you then operate a multi-country payroll it becomes very difficult to overcome this.

With this fact in mind, should custom GLs be part of a payroll provider's standard service? YES! However, if your (provider’s) payroll engine cannot accommodate them, you can always deploy our Accounting Connect module separately to overcome these challenges. Whether you are the payroll provider or the customer, the multinational.

So, what’s next?

Be very diligent in assessing your as-is state as part of discovery. Do not just stop at the core payroll process (i.e. pre-payroll, run-payroll, post-payroll) but evaluate all services you need to operate a compliant payroll. Yes, this may include what you perceive as HR services or Finance capabilities. But all too often, those are part of the service scope of your (current or new) payroll provider. To look end to end, you need to know your start and finish. 

Oh, and providers: I know there are many of you out there who DO provide very rich services. Kudos; keep it up. To those who don’t, please level up.