The global payroll footprint becomes larger and more complex with international business expansion. This may include primary countries (those with high employee headcount, high complexity, and headquarters or hubs), secondary countries (those with a medium headcount, medium complexity, and few countries), and long-tail countries (those with a low headcount and many countries). These dynamic “footprints” demonstrate why there is a growing need for service delivery models (SDM) in global payroll.

The main ingredients for determining the right SDM that fits a company’s business needs are process, people, technology, and degrees of outsourcing. Finding the right balance, and fitting current and projected business needs, can be complex and is often driven by the environment. This environment is determined by the global payroll function. Often, the complex international business environment contains multiple stakeholders, processes, and disconnected technologies.

The global payroll industry views a hybrid approach as a one-size-fits-all for SDMs. What follows is our analysis of how an SDM applies to payroll processes, people, and technology.

Application of Processes With an SDM

The big picture of the global payroll process is complex. It includes relationships with stakeholders, governance, technology, service delivery, and data analysis. For the successful design of an SDM, the payroll function must have a clear understanding of the scope and the end-to-end payroll processes.

When determining SDMs—in-house operations, vendors selected, or varying degrees of outsourcing—the payroll function must take a good look at where optimizations and standardizations can be achieved, depending on the model. The payroll process is cyclic and can be divided into pre-payroll, run payroll, and post payroll.

The cyclic payroll process is typically best for the following:

• Automation of recurring tasks
• Straight through process (STP) and data input and output validations
• Process and document standardization with minimal local process deficiencies
• Harmonization of calendar timelines and cycle frequencies

SDMs should align with the business landscape in which they operate, and the functional area to whom they report, such as HR, finance, or shared services. This ensures a compliant and frictionless process, which, depending on the chosen model, can pose different challenges.

Application of People With an SDM

Global payroll reports to HR, finance, or shared services. This reporting line impacts how global payroll personnel are organized and drives decisions around the SDM. For instance, if operations are centralized in shared services—global or regional—these dynamics are clearly different and less standardized, compared with people located and reporting in-country.

The management of processes and vendors can be easier standardized and harmonized, using centralized service operations, which is supported and fueled by technology. In contrast, if people management and payroll delivery are in-country, it is more difficult to reach a high level of standardization. Moreover, these people may be autonomous and still reporting into country HR—typical for the long-tail countries—while global payroll managements are organized centrally.

Additionally, different SDMs call for different workforce skill sets. For instance, for an in-house model, the workforce must be proficient in payroll processing and staying abreast of local laws and regulations. In an outsourced scenario, the workforce needs to hold sufficient knowledge for a particular country. However, the main responsibility for processing remains within a selected vendor.

By designing the division of responsibilities of the global payroll processes and acknowledging the degrees of outsourcing, organizations can create an SDM that fits.

Application of Technology Architecture With an SDM

The cornerstone for many payroll professionals is that payroll is as good as the data it gets and then processes. A solid technology structure among all systems helps create a frictionless data flow, automation, and saves time. However, the level of technology and automation depends on the individual SDM. In the pre-payroll processes, we see a strong focus on understanding the data elements and how they travel from HR systems of record. While automation and integrations might make a great business case for larger payrolls, a more practical approach might better suit long-tail countries.

Integrations carry a significant cost—IT experts, maintenance, technology—and should be assessed within the broader environment and payroll portfolio. In the run payroll process, the payroll platform determines the scalability in a multi-country scope and user experience for both employees and global payroll. In the post-payroll process, we often look for integrations to finance, benefit and pension providers, and governmental reporting. The ambition and capability for standardizations, automation, and harmonization, together with the organizations of people—central, regional, or local—determines the choice for multi-country solutions versus single country solutions. Providing workforce analytics to support business decisions is becoming significantly more important as global payroll grows to become a strategic partner in business.

Degrees of Outsourcing

As the global payroll industry evolves, payroll operation organization becomes more varied as the different offerings and possibilities allow for fit-for-purpose models. In general, the following multi-country offerings are available:

• Payroll administration software—IT applications that calculate gross to net pay, does all reporting, and is either on premise or in the cloud. This is often referred to as in-house.
• Business process outsourcing (BPO)—This includes outsourcing of processes with access to vendor payroll platforms, ranging from managed services, ancillary services, to full process outsourcing all without subcontracting. This can be single country and multi-country sourcing.
• Payroll aggregation services—This is a form of BPO where the vendor subcontracts and possibly operates select payrolls where there is economy of scale themselves. This is often based on the managed service model with some country specific ancillary services.
• Payroll aggregation platforms—This is a form of sourcing that offers the middleware solutions for data, processes, and vendor management. This can work, in principle, with the above-mentioned offerings to find a balance while still managing global payroll centrally.

Service Delivery Models

In SDMs, the context shared around processes, people, technology, and degrees of outsourcing come together. A balance can be found in the hybrid approach to allocate similar countries to an SDM. 

Global Payroll SDMs

Closing Thoughts, Considerations

As companies increase to expand internationally, one-size-fits-all becomes a hybrid approach. SDMs should be designed, and subsequently recognized, by senior leaders to ensure their global payroll can support global growth. A sound understanding of the current and future footprint, and the principles that strengthen people, processes, technology, and degrees of outsourcing, is essential. As part of your global payroll strategy, we encourage you to design SDMs for your current business landscape with a focus on future growth.