Last week I shared the results from my recent poll on documenting a global payroll strategy. With this, I also reintroduced my best practice of how to approach global payroll management. Given the positive response, I will start using this best practice to further structure the next blog articles.

I was chatting with a CHRO last week about life, work and more specifically about their Global Payroll Strategy. When she did a little roadshow across countries she also engaged with the local payroll teams, as they reported into HR. She had a one way conversation with them, despite efforts to change and engage, and the one parting comment from the team was: please do not outsource me. This was the parting, and only comment that was made. It came from the heart. So where does this come from? Let’s find out.

What Service Levels are out there?

As part of your Service Delivery Models (SDMs) you also choose the service level that applies to each group of countries within the SDM. In general, your choice is two-fold per group within the SDM:

1. Do you keep the payrolls of the SDM in-house or will you outsource?
2. Then, what is the appropriate vendor strategy for the chosen service level?

Let’s unfold these big questions and detail the pros, cons and options out there.

In-house

I have processed in-house payrolls myself and I have managed teams that processed in-house payrolls for numerous countries. I do personally believe that if you ask payroll professionals, (I might even do that in a future poll!) they will prefer in-house payrolls. Why is that, you ask? If you retain the talent and process in-house you will:

• Likely have a deeper understanding of your company’s culture, ways of working and overall business dynamics. This intimate knowledge can make a huge difference.
• Your payroll calendar will be much more optimised due to the simple fact that there are less actors in the process. You own (manage or licence) the payroll engine and set your own payroll calendar, and calculate when you need to calculate payroll.
• When there are issues or in general changes to policies, you will likely be able to respond more quickly to those changes.
• The Total Cost of Ownership will likely be more favourable compared to outsourcing. This is especially relevant if you process payrolls (partly) in regional hubs or Shared Service Centers rather than in-country. But more about this later. 

Where there are pros, there will naturally be cons too. Let’s explore those:

• There might be more IT costs involved to maintain a platform, if you have not licensed the software including maintenance. Your IT costs might not outweigh the outsourcing costs in the end, and could increase the risk of non-compliance if not kept 100% up to date.
• When you have multiple, perhaps larger countries that are entirely managed in-house, you will have more difficulty standardising your processes. Over time, local practice will inherently grow and get stuck into the ways of working and the DNA of the local payroll team.
• If there is staff attrition you will need to have very strong succession planning in place to avoid the knowledge leakage. With the current demand for payroll professionals you will need to retain your talent, and be marketable to attract new talent.

If we think of service levels and vendor strategies for in-house payrolls, there are two service levels referred to as “processing service” or “technology service”

• Licence a Best of Breed single-country payroll engine and configure and maintain the engine yourself, or outsource this. You will look for local, domestic providers.
• Licence Best of Breed multi-country payroll engines and outsource the maintenance and configuration piece, but process and calculate payroll yourself. You will look for global, regional providers.

Outsourced

On the other end of the spectrum, sits outsourcing. There are some companies which, due to historical events or general risk averseness, outsource all their payrolls - regardless of size, complexity or volumes. This is just how they approach what they appear to be commodity processes. Still, you would then likely have a mix of outsourcing levels:

• Managed Services: you licence the (single or multi) payroll engine and the provider calculates the inputs you have submitted to them. Once you approve payroll, you will receive (access to) the payroll outputs such payslips, reports, GL-files and filings.
• Business Process Outsourcing (BPO Payroll): you get all the benefits of Managed Service, but on top the provider accepts non-structured data inputs, provides additional compliance support and employees may ask questions directly to the provider. You however still do data entry (manual, uploads, integrations) yourself and approve the payroll results.
• Business Process Outsourcing (BPO Payroll+): you get all the services from BPO Payroll, but the provider also performs data entry on your behalf, therefore also reviewing and approving the payroll. Complete outsourcing.
• HR, Legal, Tax & Advisory Services: this can actually be added to any in-house and outsourcing service level. This can range from creating employment contracts, to doing health checks, to reviewing new benefit policies for taxability purposes. This is a service often procured extra on top of Managed Services BPO services.
• Global Payroll Management Platform. This is what Payzaar offers, to allow for the flexibility to choose any in-house and outsourced level while still standardising, digitising and harmonising your global payroll landscape. Often procured in addition to any of the above services, or together with outsourced arrangements with select providers.

In terms of the vendor landscape, you have a range of options:

• Best of Breed. You can choose the best payroll providers in each country to specifically mix and match your outsourcing services. This also allows for organic growth in terms of expansion to maximise flexibility, while also including a Global Payroll Management Platform (á la Payzaar) to standardise by design.
• Regional, Cluster Providers. Essentially, this is a group of providers that offer countries to a certain region (i.e. EMEA, APAC, LATAM, North America) or cluster (i.e. BENELUX, DACH). They all operate a local payroll engine, but offer coordination services.
• Accountancy Networks. Offer a range of services, and very well known for offering from Managed Service to BPO to HR, Legal, Tax & Advisory Services. By connecting their network through the likes of Payzaar, they offer these services across the globe.
• Global Aggregators. These providers offer strict service levels under one name, but distinct different disjointed service lines. This is often restricted to Managed Service for outsourcing, and Processing Service for managing payroll in-house.

Hybrid is the only one-size-fits-all approach

Unless you are of the opinion of always outsourcing payroll, you will most likely end up with a hybrid approach. There is no one-size-fits-all other than hybrid. Believe me, I have been saying this since 2010 and in each conversation since then, this holds true. 

This is where the last strategic vendor option comes into play; Payzaar. Do you know that our global payroll management platform can also be set up to accommodate in-house payroll? So, next to outsourced payrolls you get to standardise, digitise and automate your processes regardless of your service delivery model. One way of working, one way of standardising while being flexible to your service levels.

How does this impact your organisational structure?

I owe it to you to come back to the local payroll teams I quoted earlier, asking to ‘please not be outsourced’. You will have distinctly different organisational structures and talent needs if you choose to outsource or to keep it in-house. So here are some considerations:

• Do you need to keep payroll staff in-country or will you cluster them?
• If you want to cluster them, where do you cluster them and why?
• How do you create career ladders and secure corporate knowledge and experience?
• Do you aspire to a certain Total Cost of Ownership and Payroll FTE to Employees paid ratio?
• Do you consider retraining staff if your service levels change?

If you currently manage a payroll in-house and then decide to outsource, this will have a people impact. The needs for specific talent, skills and experience are just different. The team that almost begged not to be outsourced, or offshored, did so from the heart. They are so intimate with the local payroll nuances that they simply cannot envision that this level of complexity can be done outside their own country and organisation. Who’s right here? It’s hard to tell from the outside, so my plea is to always engage in a conversation. 

First embrace, before you enforce. Be very respectful to the level of impact of this change. While there can be very good business reasons to outsource a payroll that is currently in-house, think of it like this: Taking away a payroll from an in-house payroll professional is like taking away the paint brush from a painter. But the painter, over time, can become a teacher. Make sure you explain this.

So, what now?

Be careful in assessing the impact on your payroll teams in terms of your service delivery models. Choose the service levels and vendor strategy with that organisational impact in mind, as these really go hand in hand. In my next article, followed by a poll around this very topic, I will continue to speak to the talent and skills required to be a true payroll professional. Stay tuned.

I am a Global Payroll Professional, and a passionate one too! After managing global payrolls across the world for about 20 years, I found there must be a better way of doing this. I joined Payzaar - the global payroll management platform everyone needs and can easily implement.

Oh yes, we are just fun to work with too - Let's chat about the Payzaar Experience!