International payroll outsourcing: A guide for multinationals

For global companies, processing international payroll internally is complex,expensive, time-consuming and error-prone, and it can put you at risk ofnoncompliance. To alleviate the administrative complexity and expense of in-house payroll, many companies have turned to an international payrolloutsourcing solution.

What is international payroll outsourcing?

International payroll outsourcing means that a third-party company takes overpayroll processing for your company, including administrative functions, suchas tax reporting, calculating voluntary benefits and managing employeeinquiries. The third party also becomes responsible for record-keeping andmaintaining compliance.

Why consider outsourcing international payroll?

Generally speaking, the payroll process is much more complicated than mostpeople know. In fact, producing payroll correctly every pay period can be aminor miracle. But beyond the average complexity of processing payrollaccurately, compliantly and on time, navigating international payroll is fraught with unique challenges.

Working with employees in multiple countries requires ongoing HR support formanaging and resolving issues that come up in a typical pay period, let alonewhen there’s a major technical problem or change in the law. And you’ll needto support multiple time zones (possibly up to a full 24-hour period),languages, regulations and customs wherever global payroll is processed.

How can international payroll outsourcing help your company?

Because of the intricacy and importance of multinational payroll, outsourcingwith a global payroll service provider can make a great alternative to in-house payroll. Here’s how:

Spend less and save more

International payroll outsourcing saves your company money. You won’t need tohire additional staff to calculate payroll taxes or handle statutory taxfilings and payroll inquiries, because your provider is your global payrollguide. Your company also won’t need to invest in expensive software andhardware to manage the global payroll process, shifting your payroll strategyfrom a capital expense to an agile operating expense.

Additionally, outsourcing keeps you protected from the often excessive finesthat come from noncompliance.

Maintain compliance around the world

Compliance is a universal issue. Labor laws, data requirements and taxregulations are complicated, prone to change and vary by country. With anaverage of 35 data items per employee that must be reported, European andSouth American countries are typically the most complex to process payroll.

Companies are required to abide by national law, regional law and local law,and to balance those laws with their business practices and the cultural normsof the host country. It’s an overwhelming task and almost impossible if youdon’t have a global payroll guide on hand to navigate the situation and steerclear of the hazards.

When you work with a global payroll service provider, you rely on localexpertise and experience to help your company remain compliant, while youconduct business smoothly and without unnecessary stress and disruption.

Improve data security and visibility

When international payroll is processed in-house, you’re exposed to risk offraud . In fact, payroll fraud happens in 27% of all businesses and isthe No. 1 source of accounting fraud and employee theft.

When end-to-end processes are managed by an external party, any discrepancies between payroll, HR and finance departments are quickly reconciled. An outsourced global payroll solutionis especially beneficial if your company is struggling to improve internalcontrols or standardize processes across many locations.

Global visibility to workforce spend data is another value-add feature thatonly a centralized global payroll service provider can offer. All local datasuch as, tax regulations, currencies, benefits and languages are translatedand consolidated into one global view, so you gain unprecedented visibility topayroll insights and are better able to address key business questions andmake informed strategic decisions.

Reduce payroll errors and increase employee satisfaction

Employees are generally understanding when an employer has an issue withadministration. But they’re rarely patient when it comes to payroll mistakes.People everywhere expect to be paid properly and on time. Nothing hurtsemployee morale like problems with payroll. When you have a dedicated globalexpert handling payroll, you minimize issues and can deliver the payrollexperience your valuable employees deserve.

Are there any drawbacks to outsourcing payroll?

Employee payroll is one aspect of operations that works well as an outsourcedfunction. However, it isn’t all sunshine and rainbows. There are sometradeoffs to figuring out how to outsource payroll effectively, and eachcompany should weigh the risks for themselves.

For example, you may feel inconvenienced by losing some control of employeedata and having to learn and integrate new processes.

But for most companies looking to outsource payroll, any disadvantages areoffset by less risk of regulatory compliance issues and stronger operationalefficiency.

What payroll functions can be outsourced?

How to outsource payroll functions is an individual choice for each company.For some, outsourcing provides support for select aspects of paying employees,and for others, someone else takes care of the whole enchilada. Here are someexamples of payroll functions that can be outsourced:

• Running payroll and calculating withholdings
• Printing checks and making ACH deposits to employee accounts
• Filing government forms, like for employee income tax and withholdings
• Making tax, social security and other statutory payments
• Managing employee benefits

How to outsource payroll

There is no singular solution for how to outsource payroll. Your needs mightlook different in different regions—and that’s okay. You can customize asolution that adapts to your needs and budget now, as well as in the future.Here’s how to get started.

1. Understand your motivations and requirements

The first step in outsourcing payroll is nailing down the “where, what andwhy” that are driving your decision.

• Where do you need outsourced payroll services? (Which countries or regions?)
• What payroll services do you need in those countries? Will you pick and choose? Or would you like a partner to take over the full operation?
• Why are you looking to outsource these services? Drivers for figuring out how to outsource payroll often include improving efficiencies and saving money. Some businesses also need regional expertise to fill knowledge gaps or to handle financial transactions.

2. Consider your long-term strategy

As you define your requirements, don’t forget to consider how your payrollneeds may evolve as your business grows. Does the business have its eye onfurther expansion? If so, make sure your payroll partner can support theselocales.

Will you need more comprehensive coverage—such as HR support—in some countriesdown the line? If so, you should ensure your partner offers a broad range ofservices.

3. Choose a budget

It’s important to understand what investment level you’re able to affordbefore researching providers and requesting proposals. You might find yourselfwith some sticker shock—temper it with a healthy dose of reality. Consider thecost of processing payroll in-house (including adding staff with requiredexpertise) compared to the cost of outsourcing some (or all) of this role.

4. Research providers

Your search for a provider will turn up a large number of contenders. Somewill be large companies, household names in international payroll, who offerdeep (even complex) networks of products and services and vast countrycoverage. Others may offer deep local expertise in particular regions orcountries. Expand your research and narrow your list to those providers thatnot only cover the countries where you do business, now and in the future, butalso offer local expertise and a strong operating presence where you need itmost.

It's also worth researching each provider's implementation success rate.

Global payroll implementation is extremely complex and requires comprehensive expertise todeliver on time and on budget. Before you add a provider to your shortlist,make sure you:

• Understand their implementation process (in detail) to ensure consistency and thoroughness
• Request client referrals to verify implementation success

You’ll also want to verify if providers have the unique capabilities you wantand need, such as:

• Shadow payroll
• Tax filings
• Money movement services

Dive deep to make sure you fully understand each provider’s range ofcapabilities. Jump over to this post to get more details on what toconsider when outsourcing payroll.

5. Request proposals

Once you’ve gathered some solid prospects, it’s time to start taking a closerlook at each—this means a request for proposals (RFP). In this step, yousolicit a plan and pricing from each provider on the table.

A successful RFP starts with some internal project planning to determine whatresources you have and what you will need from the potential vendor. Youshould also include an outline of your unique payroll requirements. At thisstage in the process, you are not asking for a generalized list ofservices—you are assessing each provider’s ability to meet your specificneeds.

There isn’t a magic number for how many proposals you should request—but youshould narrow the field down to your best options. Consider focusing on yourtop three choices.

Creating an RFP can be a tedious process. Keep in mind, though, that thequality of your proposals is dependent on the quality of information youprovide in your RFP.

6. Decide on the details

Once you’ve evaluated the proposals and selected a vendor that will be able tomeet your criteria, it’s time to hammer out the details. Pore over thecontract. Make sure the responsibilities for both parties are crystal clearand the pricing jives with what was quoted in the proposal.

Then it’s time to sign on the dotted line, rally the troops and launch yourproject to transition to outsourced payroll.

How much does it cost to outsource payroll?

The cost to outsource payroll varies by contract. Vendor pricing and scope ofservices are two of the biggest factors that affect pricing—with mostcontracts working out to somewhere between $100 and $200 per employeeannually.

Each provider structures pricing a little differently, so let’s take a look atsome of the line items you might find.

Fees by payroll frequency

The most common fee structure is assessed based on your payroll frequency. Ifyou run payroll every week, the vendor will assess fees every week. Using thismodel, you might see a weekly fee between $1.50 and $3.00 per employee, plus asingle base fee between $25 and $40. These fees would be billed weekly peryour frequency contract.

Per employee per month (PEPM)

The ‘per employee per month’ model is a simplified version of the payrollfrequency model. Instead of charging fees with each payroll, the payrollprovider assesses fees once per month based on the average number of employeespaid in the given month. Less frequent processing typically results inmarginal cost savings for the client (aka your business).

Fixed-rate

While many companies prefer to work with fixed-rate fees because they providethe greatest amount of control for budgeting, these arrangements typicallycome with simplistic service packages and are less common with morecomprehensive vendor contracts.

Find the right partner for international payroll outsourcing

Outsourcing international payroll can present great opportunities forcompanies who realize its strategic importance and prioritize efficiency,local expertise and business intelligence. The key is finding the rightinternational payroll outsourcing partner to help you reach your strategic initiatives.