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7 Things to Know When Selecting a Global Payroll Solution

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7 Things to Know about Global Payroll

7 Things to Know When Selecting a Global Payroll Solution

One thing I enjoy about meeting customers is that no matter how the meeting goes you always learn a lot. As we meet with and speak to many customers of traditional global payroll, they are telling us about some of the things they wished they had known at the time of selecting their global payroll partner. And as part of our mission to introduce choice and transparency into global payroll market we have decided to share what we have learned to help other customers who are considering a global payroll solution and may be about to select a vendor. Here are the recurring themes and observations:

 

1. When is a single contract not a single contract?

Customers are often assured during the sales process that they will have a single contract for their global payroll service. In fact, “Single contract – single SLA – single price” is one of the key selling point of many traditional global payroll vendors. This is certainly the case as they run their local payrolls based on a global service definition. Does this happen in reality?

 

The practitioner view: We spoke recently to a payroll professional from a pharmaceutical business who implemented a solution across 26 countries. They ended up with exactly one more contract than they had before. Yup, that’s correct, 27 contracts! Why? The customer’s local payroll requirements were out of the scope of the global contact, not just in one country but in every country! They were not particularly complex local requirement but let’s consider the implications:

  • Incremental negotiations with the global aggregator’s local payroll service provider for the local service
  • Negotiation from a position of weakness because the customer is locked into the global payroll aggregator’s model and cannot chose their vendor, so they are effectively a price taker
  • Incremental costs to explain above the initial business case
  • Annual price increases to review and negotiate across the 27 vendors (alas, they rarely come down!)
  • Incremental information security obligations as you have contracted directly with the local providers as well as the global vendor. You now have separate data flows as the incremental services are not part of the global providers definition
  • As these services exist outside of the providers definition they are managed outside of their monitoring tools which makes visibility and consistency of service difficult

 

Top Tip: Examine the global provider’s service definition and compare it to what you need to deliver payroll in each country. Do this with your local payroll representative and ensure that everything you need is included in your contract. If it is out of scope then be prepared to forgo the promise of a single contract.

 

2. When is a single invoice not a single invoice?

If the single contract is a not achievable then it follows that the single invoice is not achievable. Reconciling and managing invoices for different services for both your global provider and their local in-country partners will need to be done. One of your business case benefits was a simplification of vendors and invoices, simplifying your procurement processes. As outlined above, you will have to negotiate pricing and manage the invoicing process for each local out-of-scope add-on separately, so the single-price-single-invoice benefit goes away.

 

Top Tip: Develop a business case that factors in the real costs of running your payroll. This means taking the global provider’s costs and adding local additional service costs on top, as well as the internal administration and management of these relationships. Then ask yourself the question if the business case stacks up. Should you be paying hefty traditional global payroll aggregator fees on top of the local provider fees if the promise of a single contract and invoice do not materialise?

 

3. So is the Single Service Representative really that famous “one throat to choke”?

If I no longer have a single supplier, with a single contract and a single invoice then I don’t have a single person responsible for my service? Correct. In the case of the pharmaceutical firm above they had 27 entities responsible for their payroll service.

 

The practitioner view: We spoke recently to a seasoned payroll consultant who has implemented traditional global payroll solutions from the leading aggregator vendors and his comments were interesting. “I hope to be engaged by the client before the contract is signed so that I can show them my presentation of what is actually included and not included in the global service contract. It does not always happen, and they are always taken aback by what is out of scope”.

 

Top Tip: If you have many local service add-ons to the traditional global payroll service definition then be realistic about your expectation about the role of the Service Representative. Ultimately if there is not a single contract in place you will have to manage service issues across the traditional aggregator’s payroll network of direct staff as well as their in-country partner organisations.

 

4. Does the claim of keeping you compliant really stack up?

A regional leader in the entertainment business recently described to me how they implemented a solution in Asia Pac with a traditional global payroll provider. They had employees in the Philippines like many other businesses. The global provider did not provide as part of the scope of service a local statutory payroll filing service. This meant to stay compliance that the customer had to engage the local branch of a 3rd party global advisory firm to perform this filing service for them. I asked, “could you not ask the local partner to do it for you as an out-of-scope service”. I was surprised to find that this compliance service was not available as an out-of-scope service. So now the customer ended up with three providers they had to deal with instead of one: aggregator, aggregator’s local partner and another 3rd party to fill the gaps that the aggregator’s partner wasn’t prepared to deliver.

 

Top Tip: Don’t fall victim to FUD marketing – Fear Uncertainty and Doubt. The traditional global payroll aggregators are driving the compliance agenda through their marketing. However they are not providing compliance services in all countries through their own direct presence or network of in-country partners. Make sure that you compare their compliance and statutory filing services to what your current providers are giving you today and ensure you understand how you will fill the gap.

 

5. When is Global Outsourced Payroll Service not a Global Outsourced Payroll Service?

We spoke to a Global Payroll Manager who has used a couple of the traditional global payroll aggregators and his biggest frustration was the lack of service. He was forced to submit his global payroll queries to a central service centre. We all accept that Payroll is inherently local so we realise that it is impossible for that single point of contact to be expert on payroll globally. He soon realised that the service centre representatives were pushing queries out to local payroll partners and then chasing them for answers. It was taking days to resolve queries to his satisfaction, even for relatively simple questions. Who has days to spend on this type of activity? He would be a huge fan of communicating directly with the local provider and cutting out the extra layer of the aggregator’s middleman. His comment was telling: “I had sleepless nights when I did not know my colleagues would be paid”.

 

Top Tip: If you believe that payroll is a local service best managed by local experts then ensure you have direct contact with the person running your payroll. Many of the traditional global payroll aggregators resist this. Then insist on query resolution SLA’s in your contract with associated penalties.

 

6. When is my Payroll cut-off date not my payroll cut-off date?

When it is the traditional global service provider’s payroll cut-off date! Be prepared to have your payroll cut-off date drawn back into the second week of the month for your monthly paid employees. This is just one area where you will compromise and we highlight this one as a symbol of the many compromises you will be forced to make.

 

Top Tip: If you want flexibility stay with your local service provider. You lose flexibility and intimate knowledge of your service requirements with the traditional global payroll aggregators.

 

7. When does “my contract term is over” not mean my contract term is over?

As fans of clever business models we really like what the global aggregators have done. It is very cunning as they lock in unsuspecting customers well beyond the contract term. How do they achieve this?

  1. At implementation time they rip out your existing providers and replace them with different (i.e. their) providers
  2. Changing local providers in country due to poor service or incomplete payroll service scope may be impossible as the global payroll aggregator may have only one provider in that country. In any case, the global aggregator will make it very cumbersome to switch the local vendor.
  3. If you drop a country from the global footprint they know the global reporting and visibility objective falls apart
  4. Finally – and this is maybe the dirtiest little secret in the industry – the aggregators generally prevent the local providers from working with you on a direct local basis should you leave the traditional global payroll aggregator. So, if you want to get out of the global aggregator model, then get ready to rip and replace all your local solutions – again!

The net effect of these hurdles mean that the barriers are no longer just contractual but operational.

 

Top Tip: Fully understand the nature of the traditional global payroll aggregator business model. It is designed to lock you in. Read also our article “Are Global Payroll Customers Mad but Trapped”.

 

Conclusion

We believe that the traditional global payroll aggregator model as currently offered is flawed. Customers should not enter contractual agreements without fully understanding the drawbacks we have outlined above. If you end up having to contract with the local partners for out-of-scope add-ons, reconciling the invoices from many payroll vendors, not having a single service representative, not having your compliance requirements fulfilled, reducing your flexibility and payroll cut-offs and having to turn your payroll organisation upside down to be stuck in and expensive global aggregator contract designed to trap you well beyond the contract term then what are the benefits? Why would you change, why pay more and endure the disruption to walk along this boulevard of broken promises?

Ultimately payroll is inherently local and the traditional global aggregation models do not sufficiently reflect this local dimension to deliver a complete payroll service in each territory. We say keep it local but connect it globally. Global payroll does not have to be this painful. We believe that there is a better way. By adopting a modern, open platform – one that promotes choice of local service and local partner yet provides the global visibility on global operations, compliance and payroll data – customers can circumvent the pitfalls of traditional global payroll solutions.

Trevor Townsend
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