That the Global Payroll function is mission critical remains undisputed. Sitting across HR & Finance, it collates high volume employee and pay data changes together for in-country specific calculations in limited time windows, to deliver on time, accurate pay across many currencies. Get the pay wrong, the employee never forgets. File the local report late, the CFO never forgets.
Payroll is always local. Another undisputed Fact of Life. Every country tax and social security rules are defined in that country and vary per annual budget. So as a multi-national company, they need in country compliance, across many countries, but need some way to manage it centrally, to practically know what’s going on and have control – end to end.
The ‘aggregator services model’ or ‘Single Throat to Choke model’ is the main industry offering to global companies for how to manage global payroll centrally.
The proposition of this model is that global payroll can be managed centrally if you outsource payroll for several countries to a single aggregator provider.
The idea sounds logical, and in the early aggregator days – the 1990s, the model was very useful. Finding and managing multi-country vendors was tricky, managing them even more so. But times have changed. It stopped being as effective, as it was not designed to keep pace with the changing complexities & higher expectations global companies have for their multi-country global payroll delivery and management.
In this article, we are going to look at some of the reasons why this model is not enough & longer suitable for 2022 payroll delivery. We will look at three key myths associated with the aggregator services model. The reality is that any multinational company considering this model should pause and really look to define what they need in terms of a global payroll solution before making a decision that many of their peers in the market have come to regret.
Myth 1: All Countries, One Contract
One of the biggest myths of the aggregator model is the simplicity promise—essentially that a single provider says is that it will cover all your payroll countries and that everything is taken care of under a single contract.
However, that’s so often not the case. Simply put, no aggregator can service all the countries that you are either currently in or wish to be in in the future, equally well.
Firstly, the aggregator model has to source, vet and manage all in-country providers equally. Can they really show how they do this, with full audit readiness across 130 countries? The answer is very unclear.
They will have a set number of local country payroll providers within their network. These countries may not suit your current needs and you need different additional countries. And with the Talent War, you need the ability to move fast and get payroll live.
Aggregators never tell you that one or more of your countries fall outside their current vendor footprint. They always plan to ‘quickly’ sign up new ones. This often means they go to other aggregators. So now you are 3-4 steps away from the actual vendor who knows and runs your payroll.
Secondly, operationally. While every aggregator spends large budgets marketing their software platform heavily, in reality, their software is used for client data upload and GTN download. It’s a highly branded web-based data sharing tool.
The aggregator platforms do not have the ‘plumbing’ to transfer the data securely and directly to the payroll provider. So, you have a person in the aggregator manually downloading your payroll input data and then changing it manually into the payroll provider format and transferring it. The same in the reverse. So, the managed service premium price you pay is not value adding, it’s paying for this manual data movement and collation by administrative non-payroll people.
This makes sense – what else would they do? The Single Throat to Choke is a people model. Let’s put people between you and the vendors, so you don’t have to.
But you don’t have a Single Throat, you have a single contract, with many different people doing lots of manual co-ordination and rapid vendor setup.
There is zero single visibility and control available to you to know who is doing what where, when and how for your global payroll.
Thirdly, payroll complexity and individualization. Payroll needs to serve many purposes – no longer ‘just’ the paycheck.
It feeds into the global unified culture of your company, it needs to be a smooth and positive digital experience, as all the employees are digitally enabled. If they use their smart phone for their banking and yoga classes, they definitely need their payslip and pay information available easily on their phone.
With the digital life we all lead, we are used to personalization and individualization. Employees want more personal choices in their pay packet. This leads to more diversity within the Comp & Ben offering.
As a result, global payroll doesn’t just need payroll providers in each country, you need a range of benefit and wellness providers. These all need pre and post payroll data flows and reporting.
For this reason, you may end up having a single contract with the aggregator but there will be a need for more contracts and business relationships with other payroll and service providers who are in the countries that you are in. It’s a nice marketing line, but you’ll end up with multiple contracts, and you may find that your aggregator only covers a small percentage of the actual number of countries or services you need to offer a 21st Century Global Payroll. Multiple contracts were never really the problem that needed to be solved. The issue is finding a way to manage the local payroll providers in an effective way.
Myth 2: We Do the Work, So You Don’t Have To
Sounds attractive, doesn't it? Unfortunately, many global companies have discovered this isn’t actually the case long after a lengthy contract has been signed and they have passed the point of no return. We speak to people all the time who used the phrase, “I wish I had known this before we started!”
The reality is that global payroll professionals working at organizations that use the aggregator model still find themselves processing large amounts of data every month. This is because the aggregator services model requires the client to provide the pre payroll data. This data comes from your HCM and other systems – commissions, stock, T&A. The aggregator service centralizes the contract for your in-country calculations. They don’t take over your pre payroll work, so they of course don’t automate it either.
The client is required to download pre payroll data from all their systems, save locally, then transfer it into the aggregator specific formats for upload to the aggregator’s platform. This is done monthly for every payroll data type for every payroll in every country. The client is given a “workbook” with instructions on how the aggregator wishes to receive the data, so the client is then forced to collate their data into this workbook format every time. We know one client that had 7 input data sources for every payroll to transfer into the Aggregator Workbook. It took half a day for every payroll!
The reason for this is so the aggregator can receive your data in one spreadsheet and then give it to their network of local country payroll providers that make the calculations and process the payroll in the individual countries.
But is this really what you signed up for? Does this take all the work out of your hands, cut down on the administration, and reduce the complexity you are facing? Not at all.
The aggregator managed service is taking over the operational data transfer to and from the payroll provider. They have administration (not payroll) people manually coordinating this with the payroll providers. This is one less task for you, so that is useful.
However, how do you know what’s really happening? There is no automated data validation, transfer or audit trail. No operational reporting or dashboards as data is transferred, version control, data errors, anomalies, issues addressed. This operational data is not collected in their technology or shared with you as the employer.
In fact, you’re still working with payroll data and still stuck with manual data uploads and processes. So, while one vendor co-ordination task has been taken, really you have more questions. You can always delegate the work, but never the responsibility. In this case, you delegate the vendor operational management, but you still own responsibility. Without any visibility of which vendors in which countries are doing what at every point in the process, your overall work hasn’t really decreased. Your visibility and control of course have.
Myth 3: Our Vendors Are the Best
Another myth is the common line about the quality and scope of the local country vendor network. Aggregators will talk about their years of payroll experience and how they have searched the globe to carefully select only the best-in-class local country payroll providers.
Vendor quality is often an issue with many global companies that are seeking better quality local country payroll providers. The unfortunate reality of the aggregator model is that as they try to offer the full world or most of it, their quality vetting and control can dilute. Sometimes you find yourself switched over to an even worse payroll provider.
And, of course, once you sign on the dotted line, you are stuck with that provider for the length of the contract. You are restricted to the quality and number of vendors within the aggregator’s network, and you really have very few options when it comes to quality control. If there are a lot of payroll errors or customer service issues with the local vendor, you can only bring it up with the aggregator and deal with whatever response they provide through the administrative point of contact. They will make promises about speaking to the local vendor, but they will not break a contract with this vendor because they already have a sub-processor contract in place. Your administrative person doesn’t have leverage over that. It's above their paygrade.
When speaking to global payroll professionals across the industry, we find two common issues come up when they are dealing with vendors inside an aggregator network:
- They are unable to communicate directly with the vendor to quickly resolve issues and improve quality. The relationship is managed entirely by an account manager who acts as a go between. This account manager won't necessarily have payroll knowledge or expertise, and it could be days before a response to a simple query is received.
- Despite promises of account management and swift query resolution, it is sometimes the case that the global payroll professional on the client side must do all the work when communicating and resolving an issue. The client has paid for a service, but they end up doing a lot of the work themselves to ensure that payroll is processed correctly.
Neither of these outcomes is what clients sign up for when looking for a global payroll solution.
So how do you solve for the Myths?
So having a human centered single throat to choke doesn’t help you when there’s a compliance fall out, payroll is late, wrong and the employees cannot log into their employee self-service. The single throat to choke isn’t answering to the CFO or your payroll employees.
The aggregator services model worked successfully in a previous era when information was less available and online direct engagement wasn’t as established. To run your global payroll, you need direct contact with local payroll experts to make decisions fast. You need to have clear data driven metrics and reporting, not just a few glossy headcount pie charts. You need audit trackable reporting on who did what with what data. The Data Protection Law (e.g., CCPA, GDPR), SOC1&2, and your CFOs demand it.
We see the Single Managed Aggregator Model of the 1990s as totally outdated.
It was simply not designed to cope with the modern challenges of multi-country payroll delivery and management. It is a one-size-fits-all model that promises a lot but tends to under deliver in practice.
It does not improve manual processes with widespread automated data flows and powerful integrations. Instead, it relies on the client to supply data every month in a specific format.
It does not give multinational companies full control over their local country payroll provider network. It restricts them to the scope and quality of vendors inside the aggregator model.
More and more global organizations are looking for something different and better when it comes to processing and managing their multi-country payroll. They want an innovative platform that takes the work out of their hands and solves payroll challenges that are specific to their business. They do not want to get boxed into a lengthy contract in a one-size-fits-all model that is no longer fit for their purpose when it comes to market needs around payroll. They want digital innovation, flexibility, and the ability to choose, control, and manage their own network of local country providers. They want to manage their global payroll on their terms, not somebody else’s.
The only way to do this is to treat Global Payroll like a first citizen, as HR and Finance are. There are so many vendors across countries for HR and Finance and they don’t try and cobble it together through one contract. Instead, they map out their processes and chose purpose-built automation technology as their HCM and ERP systems. These become the technology to implement best practice, standardize across countries and deliver centralized control and visibility. We see the time has come for Global Payroll.
With the best practice process and technology in place, the Global Payroll team will be empowered to choose any vendors they want. This may be the aggregator in specific countries, the Big 4 Accounting firm in others or the in-country specialist payroll bureau in another. You may need all their different services for your different needs. Having the standardized way to manage not only these vendors, but your full payroll process from pre payroll data to post payroll finance, benefit and tax reporting, will really give you the Single Process to Choke and have full visibility and control.