With so many payroll model options available, how do you choose the best for your business? One size does not fit all, so it is essential to understand the differences.
Every business needs to pay their employees, and all employees expect to be paid on time and accurately. Simple, right? Wrong.
Payroll is an essential part of running a business, but the multifarious tasks associated with ensuring accuracy are sometimes neglected. Whether your company is global, local, big or small, you need to get it right, every single pay period, or risk dissatisfying employees and possibly exposing your business to penalties for non-compliance.
There are variables and options when it comes to deciding how to process your payroll. TMF Group manages payroll for companies around the world. Based on many years of expertise dealing with hundreds of payroll scenarios, we developed a list of the 7 things you should consider when searching for the right model for your business. One size does not fit all.
Businesses have four options when it comes to payroll models. Payroll can be executed in-house, in-country, through a payroll aggregator service or a customized model using local experts around the globe. There are advantages and disadvantages to using each of these models and your ultimate decision depends on the type of support your business is looking for.
#1 Consider your business’ payroll needs
It can be detrimental to a business to use the wrong payroll provider. When looking for the best option for your business’ payroll, you should consider these questions:
- How many employees do we have?
- How many countries do we operate in?
- How complex are the regulations of the countries where we operate?
- Do we plan to expand abroad?
- Do I have enough in-house payroll experts to process payroll?
- Which payroll platforms (middleware) can integrate with my business’ Human Capital Management (HCM)?
- How much flexibility do I need from a payroll provider?
- Do I need consolidated reports?
- Do we have budget to outsource?
The answers will help you determine the type of payroll model that will best fit your business needs.
#2 To stay in-house or not…
Small businesses operating in only one or two jurisdictions may benefit from using an in-house payroll system. There is an advantage to having someone on staff in the office who understands your business and can resolve issues on the spot. However, if you’re looking to expand in future, the in-house model is not ideal for businesses operating in multiple locations due to the lack of visibility and control and the risk of non-compliance. In this case appointing a payroll provider might be the better option.
#3 Compliance is key
When partnering with a payroll provider, you are putting your trust in their ability to remain compliant with local regulations. While responsibility for tax compliance and other filings may shift to your provider, the penalties for non-compliance stay with you. The Global Business Complexity Index ranks how hard it is to do business and stay compliant across jurisdictions. It’s worth checking providers’ credentials to ensure they are reliable and certified to protect employee data. Ask for case studies and references to learn more about how your payroll provider operates.
Payroll providers use a technology tool known as middleware to deliver their services. Be sure your company’s HCM system is compatible and can integrate seamlessly. Finding a payroll provider that uses a flexible system that works with your HCM can save your business money in the long run.
Technology can vary greatly; take the time to research the answers to these questions:
- How does the platform work and how will using it benefit my business?
- Does the platform use a ticketing system?
- Can employees use the platform to access their payslips?
- Does the platform provide analytics?
- Can your team access payroll details for all employees in every country being managed?
#5 In-country provider
The in-country model can be a good choice for businesses to outsource payroll if they have no plans to expand their operations abroad. In this model, the provider is headquartered in the country where the employees work and have knowledge about the local payroll rules, but don’t have offices elsewhere or provide multi-language solutions.
Disadvantages include the need to hire a mix of providers; in-country providers rarely adhere to Service Level Agreements (SLA) in place; and the limitation of the model if the business expands internationally.
#6 Aggregator model
If you’re looking for a single process globally, using an aggregator provider may seem like the perfect fit. However, aggregators usually contract with third party In-Country Providers (ICP) to execute payroll for global companies, which can result in inconsistent service levels and lack of control and potential risk for non-compliance penalties.
It’s important to ask questions about how aggregators ensure compliance; how the process is tracked across suppliers; and how they communicate with the subcontractors. Aggregators could cost you more in the long run if they are not able to bill you in-country.
#7 Global providers with local knowledge
Using a global provider with local knowledge ensures payroll is processed and delivered in-country by local experts located in the jurisdiction where employees work. Many are able to integrate seamlessly with your HCM, allowing visibility and control over global operations, with local ticket raising capability for local employees. Critically sensitive employee data does not cross borders. This model is built on accuracy, consistency and risk minimisation.