Payroll, Time & Attendance

3 Key Global Payroll Models Explained

by Immedis
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Industry experts predict that this year the global Payroll, HR and Services market value is approximately $21bn. This is estimated to double to $42bn by 2026. Such phenomenal growth means that we will see massive transformation and the face of global payroll will evolve at a rapid pace over the next decade.

What does this expansion mean for HR and Payroll professionals?

Several things, but primarily it signifies an opportunity. When surveyed, payroll professionals describe their current systems as a mix of in-house and outsourced operations, with in-country provision the main preference for those relying on outsourcing.

Source: Do Service Providers Still Provide a Service? Immedis and GPA

We know too that, typically, organizations use different payroll providers for their operations. While there are many reasons for this – including efficiency, complexity, and cost – the main reason is down to historical practices and a ‘we’ve always done it this way’ mindset.

However, we also know that many HR professionals are unhappy with this status quo. In a report by EY, 22% said that redesigning the HR operating/service delivery model is a HR priority this year.

Source: 2019 EY Global Payroll Survey

What is driving the demand for a new approach to global payroll?

Multiple factors are contributing to this push for change:

  • Low levels of standardization. According to the EY report, only 11% have access to fully standardized global reporting
  • Disparity across payroll technology in place and subsequent processing
  • Difficulties in meeting all legislation and compliance requirements
  • Absence of oversight, especially regarding country to country comparison and insights
  • Lack of integration with HR and Finance systems
  • Heavy reliance on manual effort resulting in inefficiencies and high risk of errors

Current global payroll models

As organizations seek to solve the global payroll conundrum, they can choose from a number of models. It’s most definitely not a one size fits all and selecting the right model needs to be evaluated in conjunction with specific organizational needs and challenges. If we dive a little deeper into these models, it becomes clear as to why certain models are a better fit for particular organizations over others.

Local payroll vendors

In this practice, the company has multiple contracts with individual local providers, typically one for every country requiring payroll. This design works best for companies who manage payroll in a single additional country or where there is a low headcount/footprint.

What are the benefits?

  • Access to the in-country knowledge and expertize of local legislative requirements
  • Local providers can provide several non-payroll specific add-on services such as HR or accountancy support

What are the drawbacks?

  • Multiple contracts to oversee
  • The management of fragmented data is problematic
  • Each employee’s information must be entered into the vendor systems which can result in errors
  • Reports, security standards, and processes will vary from country to country

Payroll aggregators

In using an aggregator model, the company has a single contract with the primary vendor who partners – or acquires – local payroll suppliers.

What are the benefits?

  • Only one vendor contract to manage
  • Access to country or regional payroll information via reporting tools or dashboards

What are the drawbacks?

  • Difficult to ensure compliance and data protection as data from disparate systems is merged
  • Provides only basic reporting and analytics capabilities

Global unified payroll platform

With this model, all payrolls processed are consolidated on a single unified payroll platform. Even when the payroll provider partners with in-country partners to process the payroll, all processing and information capture is completed in that same system.

What are the benefits of this model?

  • Only one vendor contract to manage
  • Utilization of a single system
  • All global payroll reporting and analytics are consolidated and centralized
  • A single system provides greater certainty around compliance, data security and business continuity planning
  • Process efficiency can be improved via automation

What are the drawbacks?

  • Not all payroll platforms offer the same capabilities and functionality. Vendors technology and level of service differ greatly so it’s vital that organizations carry out their research to determine the best fit
  • Some of the non-payroll services that local providers offer may be unavailable

Looking to the future

As organizations look to the future and consider their options, it is worth noting that the top challenge of current service delivery models is a lack of automation. Apart from compliance and organizational consistency, the top three payroll operational challenges are:

  • Late submissions
  • Management reporting
  • Finding the right payroll talent

Source: 2019 EY Global Payroll Survey

What are your top concerns and which of these models are you using? Knowing this will give you a starting point and allow you to evaluate if you are in fact using the right model to meet the needs of your business.

This post first appeared on Immedis’s website here. Immedis are an exhibitor on the HRTech247 Payroll, Time & Attendance floor. You can visit their HRTech247 exhibition stand here.