It takes two to tango in (Global) Payroll: but who are the two?

In last week's article I shared the outcomes of the preferred global payroll vendor strategy. The results speak for themselves: 

• 17%: Global: one provider
• 18%: Regional: one per region
• 13%: Local: best local providers
• 52%: Hybrid: mix of the above

So, don’t just believe me; believe your peers! Over 50% indicated that in their global payroll environment they operate a mix of local, regional, and a “global provider”. The other options combined roughly make up the other 50%. Hybrid truly is the only one-size-fits-all approach when designing your Global Payroll Service Delivery Model. 

If you operate a hybrid global payroll vendor strategy, you will end up with a mix of providers. Those can be roughly divided into two provider profiles (to tango with): Single-country providers (SCP) and multi-country providers (MCP). 

From those providers, you then have different provider solutions and service levels.

A single-country payroll provider

A single-country provider (SCP) is a provider that offers their services for -as you would expect- a specific country, and is often characterised as a Best of Breed (BoB) option. They are specialised in all payroll and employment tax-related matters in that country. These SCPs can be a technology-only provider who develop and maintain a locally compliant payroll engine (e.g. NMBRS in The Netherlands, SAGE in the UK, greytHR in India, DATEV in Germany). Often they do not provide any payroll (processing) services and are restricted to technical support. 

On the other hand, there are full-service providers who licence a local payroll engine to deliver their services with a team of specialised and certified payroll professionals. Funnily enough, these service providers are often subcontractors of multi-country providers (MCP). But we will get to that when I discuss the MCP perspective. 

To understand what customers perceive as the most important criteria when they select a SCP, I ran a poll on LinkedIn:

• 43%: Service Levels
• 44%: Technology Platform
• 10%: Cost
• 3%: Contact Person

This is crystal clear: customers looking for a SCP prioritise the best combination of service levels and a technology platform to deliver those services and interact with the provider. Let’s unpack what that means for a service provider and a customer.

Service Levels

The services delivered by the provider should meet the highest standards in terms of ACT: accurate, compliant, and timely. This is often underpinned by Service Level Agreements (SLAs) to agree on the following key items:

• Uptime of the technology used to deliver the service
• Processing times from submission to approval
• First time right percentages (i.e. when a trial run is approved)
• Timeliness of delivering results and outputs (i.e. filings, bank files)
• Response time when the customer has service requests
• Change request procedures

As a SCP, you will likely operate a range of SLAs meeting customer and subcontractor demands. SCPs have customers that agree on services directly or indirectly through a MCP that subcontracts the SCP to deliver on their country coverage promise. Think about this from the perspective of the SCP. This means they will operate a range of SLAs and need to work a whole range of technology platforms provided by the MCPs. All of which have different logins and data requirements.

Technology Platform

We can split the technology platform into two main categories: the local payroll engine and a bureau management platform with which you engage with the customer. These are linked to different capabilities:

• Local payroll engine: Licensed to deliver a compliant local payroll. Often, this is not a platform that is meant to be customer-facing (aside from some ESS and MSS capabilities).
• Bureau management platform: Licensed to connect the local payroll engine and manage the internal and external workflow, data flows, and processes.

Based on my personal experience, the gap for SCPs sits in the capabilities of the bureau management platform. As mentioned above, the local payroll engine often lacks the capabilities to manage both the internal and external operations. 

When looking at the interoperability of the local payroll engine with all the imposed platforms of the MCPs, there are also gaps. This will generate a one-to-many connection while you would ideally have a one-to-one-to-many (engine to bureau platform to customers/MCP).

This is exactly where Payzaar comes in. Did you know that our platform serves both multinational businesses and single and multi-country providers? This makes the position of our global payroll management platform truly unique. Since we have customer feedback from both sides of the tango dance (the customers and the providers), we innovate our way through serving everyone. Don’t just believe me, but believe those that use our platform: 3 of the top 10 accountancy firms and many local payroll providers. Check out this case study with Paycheck Plus.

Customers searching for services in a particular country look to providers to offer integrations with their HCMs (e.g. Workday, SAP SuccessFactors, hiBob, Bamboo), digitised workflows to submit data and interact (no email), and integrations in terms of payroll journals to their Finance ERPs (e.g. Workday, SAP, Oracle NetSuite). These requirements simply cannot be met by the local payroll engines, so a platform like ours is needed to attract and retain (inter)national customers. 

Contact me to chat about your requirements!

Cost

I am not surprised that cost wasn’t such a big focus for customers choosing a SCP. Often, based on my experience, the SCP (if contracted directly), offers a great mix of service levels and compelling fees. These fees are often include: one-time setup, per employee per month (PEPM), and ad-hoc advisory fees. While cost might not rank as highly in the poll, it’s always a consideration in terms of budget and provider comparison. So, you need to make sure you have very efficient operations (i.e. payroll FTE to clients/employees processed ratio) to drive down costs and still make good margins with competitive fees.

Contact Person

Thinking back to my days as a Global Payroll Manager, having a very good contact person often made the difference between being satisfied or dissatisfied with the provider. Having a very knowledgeable, responsive, and kind contact person made the services excellent and when there were issues, you knew they would be resolved.

I understand that this aspect doesn’t make a customer choose a provider, but I know that this will make the customer stay!

A multi-country payroll provider

So far I have discussed the SCP perspective: let’s now bring in the multi-country scope. First, to understand what customers perceive as the most important criteria when they select an MCP, I also ran a poll on LinkedIn:

• 36%: Service Levels
• 36%: Technology Platform
• 8%: Cost
• 20%: Country Coverage

If we compare this to the SCP, the clear that both Service Levels and Technology Platform are most important for customers selecting an MCP. And with multiple countries in the mix, I traded the “Contact Person” option for a “Country Coverage” option. This seemed to be a good move, as 20% found country coverage the most important selection criteria. 

There are different types of MCPs, as included in the chart above:

• Regional & Cluster Providers: These are providers that connect partners and/or own offices to service a specific cluster of countries or even a whole region. Clear cluster examples are the NORDICS (Sweden, Norway, Finland, Denmark, Iceland) and DACH (Germany, Austria and Switzerland). Clear regional examples are LATAM (Latin America) and APAC (Asia Pacific).
• Global Provider: These are providers that have a diverse service offering, but often more rigid. They have a whole network of BoB (to licence payroll engines) providers, local service providers, cluster providers and own local service providers, perhaps even a homegrown local payroll engine. While you get one logo, the actual service offering is often just a mix of the other options listed here.
• Aggregators: These are usually part of a global provider or focus on aggregation and consolidation only. Often they have a closed platform in which they “connect” their country coverage (through their own services and via partners). The customer interacts through the platform with the subcontractors of their aggregator. They cannot use it for other purposes. Often has restricted services (managed services) with a middle group coordinating it, either allowing direct local contact or not.
• Accountancy Networks: These can actually be a SCP too; you would just need one country, and they can be a cluster, local, and global provider, depending on the country coverage you would need from them. Often includes very rich services, from managed services all the way to (often much needed) additional advisory services (e.g. HR, Legal, Employment Tax, Company Secretarial).

Now, let’s see what those selection criteria mean for an MCP, and what a customer would expect the MCP to deliver. 

Service Levels

Whereas with a SCP you have access to ALL the service levels you need, therefore fitting all customer demands, it is inherently restricted to one country. The customer of course, always has the choice to find a SCP for their entire scope. Based on my experience, you would do this up to around 20 countries (whether that is your entire scope or a sub-scope) and beyond that, customers usually seek some sort of consolidation. That is where an MCP comes in with their country coverage. But what about the service levels?

This is where it becomes very tricky. Which is underpinned by the poll results prioritizing service levels so highly. With the different vendor options and inherent multi-country scope, I often see the MCPs struggling to offer the best service levels while also fitting them into their overall operational model. How can you cover all the countries while diversifying the service levels across that scope, and coordinate the end-to-end services? Tough one, right? 

Let me summarise this with a personal piece of advice to both providers and customers:

• Providers: You can operate a restricted set of service levels (usually managed [payroll] services with some additional scope) and then manage and coordinate that specific scope for the customer. You allow the customer to get the either through you with change requests or additional services directly from your partner (and this is usually scary!) Let’s face it: aggregators don’t do well in this dynamic. I have found that accountancy networks and specialised expansion providers are particularly strong here in offering both coordinated payroll services, and direct contact with local teams within the network for specific (advisory) services.  We have partnered with many of those providers, so if you are in need of one just let me know.
• Customers: Perform a detailed discovery of your landscape in scope for a potential MCP down to the actual, full services the local countries have in the as-is. Look beyond the payroll processing, to all the services that payroll, HR, Finance, and Tax procure from that vendor. You’ll find out lots of unknowns. When reviewing an MCP take all of those services into account and focus on that operationally.

One piece of advice, speaking from experience: focus on the strength of your network and expose the weaknesses. You are as strong as your weakest provider, as those often (with an under-par platform) make customers move away. Be flexible and open in choosing your BoBs and perhaps give options to customers. Difficult to operationalise, I know; but worth it!

Of course for customers, with our open global payroll management platform you do not have to choose just an MCP or SCP. You can choose both, and mix and match the best service levels, while still digitising, automating, and standardising your workflows, processes, and data flows. You can have flexibility to choose your providers and standardisation.

Technology Platform

This naturally brings us onto the technology platform side of the MCP business. If you are an MCP and you have extensive large country coverage, your own offices and partners will either use a BoB for the local payroll engine or are a BoB. So this is where both come together! But with a lot of local payroll engines, you will not truly offer connected, coordinated, and digitised multi-country services. You might think it is stating the obvious, but believe me it isn’t.

While many aggregators have their own (or licensed) aggregation platform, many, many providers out there still manage the service and data through email or at best a file share type of portal. If you are reading this; please connect with me, as our platforms are uniquely designed for self-service to add the much-needed and customer-demanded open management platform. You will become more efficient in operations (in less cost of sales) while attracting new (upmarket) customers.

So, what do you need to offer an attractive platform on top of your service levels?

• Automated inbound data flows from all your client data sources (not just a Workday Certification) with local specifics that are all validated and transformed. By transformed, I mean that from the submitted data by the customer, you get all the local imports that your BoBs need. End-to-end digital transformation.
• Strong process and data controls such as automated variance controls, input versus output reconciliation, and documented reviews and approvals. Not just for your customer, but also for your local (BoB) specialists and coordination teams.
• Easy onboarding of local payroll engines with an agnostic, easy-to-deploy data integration. Expand your network and country coverage of BoBs with the speed of light, and little to no change on their end.
• Self-service configuration of the entire platform so you can manage the customer and network of BoBs with a single login and without change requests. You own the relationship, we power you through our platform.
• Offer unique self-service global and local reporting GL files, financial reconciliations, and HR-related reports. Your customer has unlimited access to customisable reports, and you can configure this for them as a service. In return, you also have all the data at your fingertips to manage your internal processes. One single platform, multiple use cases.
• Be 100% audit ready to secure ownership of your processed and internal and external audit requirements, while also ensuring the customer adheres to their internal policies and procedures at the same time.

It really is a no-brainer and the reason why many providers have chosen our platform to deliver their services. We ourselves don’t compete with their services; we are a true SaaS provider for the whole (global) payroll industry.

Cost

So there you have it: cost itself isn’t the true driver for making a strategic provider decision, but rest assured: cost always plays a role (just as with SCPs). You will likely see differences if you compare a country's PEPM from an SCP and an MCP: MCP will be higher. And that is often for a good reason, as you also get coordinated services, and (if you are lucky) a central platform.

One angle of cost in the MCP space that is often overlooked is the cost of making portfolio changes. What if you exit a country and you no longer have service requirements? What if you decrease headcount significantly? What if, what if? I would always encourage customers to plan for the worst-case scenarios and allow for flexibility in cost, and related contract terms. As a provider, you will need to find a balance between the internal and external push and pull.

Country Coverage

You will recognise this: go to any MCP website and the country coverage is overwhelming. Google informs me that there are (currently) 195 countries. So, if you see a provider stating to serve 165+ countries that means they cover roughly 85% of the world. That is super impressive! And I am not going to sit here and state that isn’t true, but I would always encourage a bit of caution. I totally understand why MCPs state this and most likely, in theory, this coverage is true, as there are contracts with BoBs in all those countries.

However, I would encourage you to review this down to the local level: local BoB partners (either subcontractors or own office), the available service levels, actual live customers and their profiles (e.g. industry, employee size), and lastly the contact person profiles and attrition rates. This will paint a good, transparent picture of how the actual coverage works, and for the providers reading: I advise to be as transparent as possible. 

So, what does it take to tango in (global) payroll?

First of all, thanks for joining me this far into the blog! The main question remains: who needs who to tango in (global) payroll? The answer is simple yet elegant:.

The Service Levels need the Technology Platform to dance. While service is great and pivotal to the success of any (global) payroll, providers and customers need a platform to manage operations, data, processes, and self-service configuration and reports.

The Technology Platform needs the Service Levels to dance. Of course, having a (open) global payroll platform like ours is great; you still need local and/or multi-country services to deliver payroll results.

The Provider (SCP & MCP) needs the Customer to dance. Great to start a business, but you need customers to deliver services to. And those customers need to get the best possible customer service and experience you can offer to outcompete the competition.

‍The Customers need the Providers (SCP & MCP) to dance. When you manage a payroll for a business, you will need to find the best set of payroll providers (either or all of those mentioned in this blog). And per the proven benchmark, you will end up with a very carefully selected hybrid approach. Once you then have multiple platforms to work with, you will need our platform to manage your entire business.

…and to make this a true party, everyone needs our open global payroll management to dance all night long across all time zones. So there you have it: all roads do lead to Payzaar. For providers and for international businesses.

What’s next?

I hope this detailed blog explains the state of play in global payroll, from a customer (international business) and provider (single-country and multi-country) perspective. It might be pretentious of me to state that all roads lead to an open global payroll management platform like Payzaar. I might be better off stating that all roads can or should lead there. 

In my experience as a Global Payroll Manager and heading up customer success at Payzaar, I can attest to this statement. It's not a myth, it’s reality.