Travel light when going on an international payroll journey
Rudi De Roeck
March 9, 2023
There’s something brewing in the payroll kettle!
Solid global employment numbers of multinational companies (MNCs) are hard to find. But according to Eurostat, already 135,000 MNCs are operating in European countries alone. And 1 in 5 people are employed in a multinational enterprise. Together they employ no less than 42 million people across Europe!
No wonder that international payroll manager or specialist roles are on the rise. And that payroll professionals’ interest in a career in international payroll career is growing. One of their toughest challenges is setting up a sustainable organisation to manage and support the journey towards internationalisation.
Let’s first take a step back to see the forest for the trees
Since roles for international payroll professionals are becoming more and more prevalent, Google’s search numbers for usable information about the multi-country payroll outsourcing (MCPO) industry are increasing. But nobody ever recovered from a disease by consulting Dr. Google. Hence, you may want to reconsider your approach if that’s what you’ve been doing thus far.
While expensive reports on the subject are omnipresent, it’s not easy for payroll professionals to find unlocked information about international payroll outsourcing.
With this blog, I hope to shed some light on the myriad of MCPO-providers and on the possible collaboration models out there.
First, it is important to understand the distinctions between 2 types of MCPO-providers:
A. the ‘Aggregators’
Offer managed payroll services including direct operational payroll support (in your own language and time zone) generally through their network of in-country payroll providers (ICP’s), but sometimes also with own branches in countries with higher employee volumes;
Develop robust multi-country payroll platforms that allow for seamless integration with the ICP’s’ payroll engines in view of multi-country unified input management and consolidated output reporting;
leverage the local payroll systems from their Partner ICP’s to perform the gross-to-net calculation and to fulfil the local statutory and regulatory filings;
Either solely manage the commercial relationship with the Customer or jointly with the Partner ICP. If the latter is the case (i.e., a tripartite payroll service agreement with Customer, Aggregator and Partner ICP), then the Customer is allowed to directly sign up for ancillary services with the Partner ICP without prior approval of the Aggregator.
Appoint a single-point-of-contact for account management and dispute resolution between the parties.
B. the ‘Business Process Outsourcing (BPO) Providers’
Offer managed payroll services in a tiered service delivery model for operational support:
Customer is supposed to maximally use their automated payroll and knowledge tools to manage the end-to-end payroll cycle and to find answers on payroll matters (Tier 0);
Customer can, only if she can’t find the answer herself in the knowledge tool, contact service agents of their global or regional shared service centre (SSC) located in off-shore- or near-shore-countries, but only in a limited number of languages (Tier 1);
Only their service agents in the SSCs (i.e., not the Customer) can contact the in-country payroll experts that either are their own staff or, for countries with smaller employee volumes, staff of the Partner ICP’s (Tier 2).
Either leverage the HR solutions of SAP, SuccessFactors Employee Central and Workday to build a semi-proprietary international payroll system; or develop proprietary multi-country payroll systems ‘in-house’.
Solely manage the commercial relationship. They are the main contractors and will only subcontract with Partner ICP’s in countries where they don’t have branches/capabilities. Partner ICP’s are not allowed to agree ancillary services directly with the Customer without prior approval of the BPO.
Appoint a customer success manager and service delivery managers (not for free!) to the implementation project and the payroll operations.
Need an Ariadne thread to find your way out of the MCPO labyrinth?
International payroll already sees more opinions than science. But it won’t withhold me from putting in my 2 cents.
A. Regional MCPO's
B. Global MCPO's
I hear you thinking “That’s all nice, but how am I supposed to know which provider category best suits my international payroll needs?”.
Fair enough, and without wanting to sound presumptuous, I believe I can provide the beginning of an answer by illustrating the theory with 2 examples:
1.Global Multi-National Companies (GMNC)
You are a long-established company with presence in most of the world’s countries. Probably you’ve already done a large implementation project of an ERP at a global scale, and you prefer to acquire systems and outsourced services that help you to streamline your processes globally.
As any GMNC, you probably also have very large to very small employee populations in various countries. In that case the BPO Providers are your best choice for countries where you have more than 500 employees on the payroll. You can consider putting all your eggs in 1 basket and include all your countries in the scope of a global payroll outsourcing agreement but beware that the Total Cost of Ownership for the countries below 500 employees may become unpalatable.
Better would be to go for a multi-provider approach, one in which you optimally benefit from the strengths of each provider to still reach the desired full global payroll coverage.
Suppose that you’re a GMNC with 75,000 employees. You have 30,000 employees in 4 APAC countries, 15,000 in 4 EMEA countries, 10,000 in USA and 5,000 in Brazil. The other 10,000 employees are spread worldwide over 50 countries, i.e., on average you have 200 employees on those payrolls.
This looks like a perfect case for spreading the lock-in, timing and cost risks over multiple providers:
a Global Aggregator or BPO for the 10 large countries with a total of 60,000 employees
4 Regional Aggregators and/or BPOs (1 per region) for the 50 small/medium countries with a total of 10,000 employees.
2.International Small and Medium-Sized Enterprises
You are a fast-growing company, and quickly expanding into new markets. You’ve launched initiatives on several fronts to uplift process excellence and to install better governance. The domestic character of Payroll and HR administration is giving you headaches and you don’t have decent oversight on your workforce and labour costs. Time for centralization, unification, and optimization.
You’re headquartered in Europe and your first international steps have been in the European region where you’re now present in 10 European countries and expansion to 5 more is on the roadmap. Also launching your business in the USA is on the radar.
You want to see fast results, not spend too much capital, and get a solid return on investment.
It looks like you’ll need a partner who understands and supports your optimization goals and who is ready to implement at your pace, at a reasonable cost.
Suppose that in your 10 European countries you employ 750 people, of which 300 in the European headquarters and 450 spread over the other 9 European countries, i.e., on average 50 employees on the payroll.
This is the perfect case for a European Payroll Aggregator. Once ready to launch in USA, you can use a local HR/Payroll provider who can assist you with the legal side of setting up as an employer.
Leave no benefits from ‘going international’ on the table
While transforming towards an international target operating model for your payroll operations comes with obvious and proven benefits, it is still advisable to check the critical elements before outsourcing to a Payroll Aggregator or BPO Provider.
Make sure to probe these elements before selecting your multi-country payroll outsourcing provider:
Is the international payroll system unified and integrated for all my in-scope countries?
Are both the front-end and the back-end systems supporting straight-through, touchless payroll processing, including those of the Partner ICP’s?
Can we easily integrate their international payroll system with our HCM, T&A, … systems?
Do all their implementation project team members have sufficient payroll and IT expertise?
Who can we contact if we have questions; do we get to speak directly with (local) payroll experts?
Will we sign a single version of the contract for all the countries in-scope, with harmonized pricing for (sub-)regions, or will each country have a different contract version and pricing?
What kind of due diligence has the provider done before allowing the Partner ICP’s in his network; can we review the process and/or questionnaire?
For how long will we be “locked-in” to a contract; can we terminate the contract quickly and without penalties if needed?
The journey is yours, but you don’t need to travel it alone
If you’ve decided to organize your payroll function internationally, then you should be aware of a few things.
spend quite a bit of time designing the right target operating model and selecting the right provider who can co-execute on your international payroll strategy;
need to replace all your incumbent payroll providers and payroll systems (no matter which category of provider you choose);
have to include some of your payroll professionals in the implementation project team;
be required to foresee time and budget for proper change management.
But let this not put you down. Most providers are ready to share the workload with you and can also advise you on the right approach, as they’ve guided many organisations before.
International payroll outsourcing has long come of age and has now become a mature industry. But let’s not be shy about it, there have been quite a few failed projects in the early days. With a lot of new, well-funded players entering this market, the established providers are getting challenged and pushed out of their comfort zones. Which is always a good sign for an industry.
There are plenty of good MCPO providers to choose from today. Their offerings are rich, and the products and services have stabilized over the years. Yet there are also still quite some distinctions between the different categories of providers. Hence, candidates for international payroll outsourcing should thread with care. Shouting “Big bang!”, “One-throat-to-choke!” or “Not more than 1 MCPO for our international payroll!” is a thing of the past.
So, make haste slowly. International payroll outsourcing is a marathon, not a sprint. And for a marathon, you want to travel light.
You want to listen to some good music while traveling: Travel Light
About the author of this post
Rudi De Roeck is a Co-founder and the COO of PayBIX. PayBIX offers Managed Payroll Services for 30 European countries by leveraging their next-generation, proprietary payroll platform EPIX and a network of in-country payroll providers.
Rudi has worked in HR and Payroll for 40 years. Since 2005 he has consulted with and guided Fortune 2000 companies on their journeys towards international HR and Payroll outsourcing. He won the HRO Superstar award 3 consecutive years.