Global workforce

Streamlining Global Payroll Management: Why Global Payroll Outsourcing can be your Ultimate Choice?

10
Min
Streamlining Global Payroll Management: Why Global Payroll Outsourcing can be your Ultimate Choice?
Written by
Mayank Bhutoria,
Co-Founder
July 3, 2024

Key Takeaways

  • Managing payroll for your international employees can be hurdled by compliance, taxation, currency conversions, and payment processing. Outsourcing your global payroll can solve these challenges while improving efficiency and accuracy.
  • Choose the right payroll partner by assessing their capabilities and based on your unique requirements.
  • There are three major payroll outsourcing options - Employer of Records, Professional Employer Organization, and Contractor Accountant.

Remote work is here to stay. And so is global hiring. But when reaping the benefits of a distributed workforce, you and your payroll team simply cannot evade the hassles of paying your distributed teams.

Global payroll management involves challenges such as compliance with diverse employment and tax laws governing various countries, building a dedicated HR team for each region, and limited scalability. 

Your payroll team will be tasked with numerous challenges - International tax laws, currency conversions, and ever-changing regulations. All these can make international workforce management complex. One missed calculation in a foreign country could lead to compliance penalties and legal backlash.

But Global Payroll outsourcing can be your solution to handle these complexities and manage your international team efficiently. The global payroll outsourcing market size reached US$ 9.3 Billion in 2023 and due to increasing demand for remote workers, and easier online collaboration, the market is entrenched to grow at a CAGR of 5.3%This blog explores global payroll outsourcing - its benefits, challenges, factors to consider, and outsourcing options available for global companies.

What is Global Payroll Outsourcing?

Hiring a specialist company to manage payroll for your international employees, ensuring that your employees are paid time, accurately and compliantly in different countries is global payroll outsourcing

Here’s what they handle for you:

  • Payroll calculations: Salary, bonus, deductions, and currency conversion
  • Tax withholding and remittances: Withhold correct taxes and remit to the appropriate government bodies on time.
  • Payment processing: Distribute salaries to the employees’ bank accounts in their local currency, adhering to preferred payment methods in each country.
  • Benefits administration: Manage deductions and contributions for insurance, pension, and other benefits.
  • Reporting and compliance: Generate summaries and reports, compliant with local labor laws and tax regulations. 

In short, they are your one-stop solution for all your global payroll requirements, taking care of all the complexities.

Benefits of Outsourcing Global Payroll

Here are some of the compelling benefits for international companies to outsource their global payroll management.

1. Compliance expertise

Companies foraying into a foreign country should understand, stay up-to-date, and comply with the complex, ever-changing laws of the target country. 

These regulations decide influence:

  • How employees must be paid
  • How frequently they must be paid
  • What are the deductions and contributions
  • What are the rules for employee classification

According to the 2023 Global Payroll Complexity Index Report, the level of compliance-related complexities in Europe has increased by 29%. For instance, France’s complexities are due to the huge number of manual reports to the Government. Whereas, Germany’s complexity is mainly due to the high number of mandatory deductions and varying pay frequencies. Non-compliance can lead to fines, legal repercussions, reputational damage, operational disruptions, and employee dissatisfaction.

Outsourcing your global payroll ensures that you adhere to regulations in each country you operate in. This saves you huge amounts of time, resources, and legal hassles.

2. Minimizing the risk of errors

No payroll process is perfect. Although you certainly can aspire to achieve a completely clean and flawless payroll process, research by EY Quest shows that the payroll accuracy rate is only 80.15%. 

Payroll errors not only cost the company massively but also erode employee trust and engagement. Just two payroll errors can prompt almost 50% of the employees to begin seeking a new job, according to a survey by Market Splash. And if the paycheck were delayed by a week, 70% of the employees would feel difficulty meeting their financial obligations. Such is the impact of payroll errors. 

Managing the global payroll in-house can be prone to errors due to manual data entry, missing out on evolving regulations, and any missed calculations. It can heavily impact employee morale and hurt the employer's brand financially and legally. It can also damage your reputation, making it difficult to attract top talent in the future.

Global payroll providers have the expertise and sophisticated systems to handle complex calculations and manage the nuances of different local payroll systems.

3. Cost and time savings

In-house global payroll management requires the company to hire and train an expert team for each country it operates in. It also requires investing in sophisticated technologies and payroll management software. 

Global companies can leverage the expertise and technology of global payroll providers to reduce their overhead costs, saving valuable time and resources.

4. Improves scalability

As you expand to more countries, managing payroll internally becomes difficult. Hiring and training payroll teams for each region will increase your costs substantially. By outsourcing payroll, the specialist can accommodate your fluctuating employee size, handle the complexities of onboarding new employees, and adapt to local regulations and changing business needs. 

5. Improve data security 

Securing sensitive payroll data is a non-negotiable necessity for any company. For example, if your company handles employee data in the EU region, you must comply with the General Data Protection Regulation (GDPR). 

Global payroll providers stay updated on data privacy regulations worldwide. Reputable providers have an established Data Processing Agreement (DPA), streamlining how employee data is stored, processed, and secured. 

Leverage the expertise and resources of the payroll provider to stay compliant, minimizing the risk of data breaches and theft. 

6. Achieve efficiency in payroll processing

Limited technological resources, knowledge gaps, and scalability challenges can be hurdles for your payroll team in the long run. 

One of the major benefits of outsourcing global payroll is the cutting-edge technology that helps automate routine tasks - tax calculations, deductions, data entry, and payment processing. The analytical abilities of these tools can be used to predict talent requirements for the future, aiding in budgeting and managing compliance.

The provider also has dedicated teams with expertise in the regulatory scene of different countries. They handle the compliance and administrative complexities while you focus on what matters the most.

Make Informed Decisions: Factors to consider when outsourcing global payroll

Choosing the right partner is crucial for ensuring efficiency, compliance, and a positive employee experience. Here are some key factors to consider:

1. Compliance with local and international laws

Complex tax laws, varying reporting requirements, and frequent regulatory changes across multiple jurisdictions can overwhelm even the most diligent in-house payroll teams.

Typically, companies that do successfully manage payroll compliance have dedicated teams, robust control systems, regular audits, and ongoing staff training. A Globalscape study has found that non-compliance cost is 2.71 times the cost of compliance, underscoring the dangers of not adhering to compliance. Without specialised knowledge and experts, companies can risk costly errors and penalties. 

To minimise these risks, employers should consider outsourcing to payroll providers.

How do Global payroll providers offer support?

  • Providing expertise in multiple jurisdictions
  • Implementing automated compliance checks
  • Ensuring timely system updates
  • Managing cross-country reporting requirements
  • Minimising non-compliance risks

2. Scalability and flexibility

As your business grows, your payroll should also evolve to accommodate your changes. Paying employees in multiple currencies, diverse regulations, and reporting requirements are time-consuming and resource-intensive challenges. 

You need to have dedicated in-house expert teams and robust systems in place to handle them effectively. You can handle all these challenges by partnering with payroll specialists. Choose a global payroll provider who is flexible enough to adapt to your evolving needs, such as integration with new HR systems that you implement over time. 

How to assess the global payroll provider for flexibility and scalability?

  • Evaluate the provider’s infrastructure and capacity.
  • Assess their ability to add new employees from new countries as your business expands.
  • Look for providers with a proven track record of supporting companies growing or downsizing their international workforces.

Gloroots has a proven track record of helping global companies, like Sketchnote, handle global payroll efficiently. They have reduced their administrative time by 87%, and made 15 multi-currency payments in one go, all while maintaining 100% compliance with the diverse regulations of different countries.

3. Integration capabilities

Integrating with your existing HR and Accounting systems is essential for a streamlined operation. Effective integrations reduce manual work, minimize errors, and improve efficiency. 

When choosing your payroll partner, look for compatibility with ERP systems, HRIS, and other essential tools, like time tracking. A seamless integration accelerates payroll processing calculations, reducing the payroll cycle from days to hours. 

4. Security and data protection

Global payroll management involves storing and processing huge amounts of sensitive employee information across borders. Safeguarding details like salaries, social security numbers, and bank details is even more critical in a global setting. 

For example, accidentally misclassifying an employee in a foreign country will lead to incorrect tax withholdings and penalties. Or one data breach exposing sensitive employee information due to security mishaps will burden your company with hefty fines. 

Managing these challenges in-house can be overwhelming. This is where a global payroll provider steps in. Reputable providers are experts at data security and maintaining data protection compliance. 

5. Customer support and service levels

When paying distributed teams, you need a customer support team that is available round the clock, factoring in the time zones of all your employees. 24/7 support ensures that all payroll issues are resolved quickly, irrespective of time zones. So when considering outsourcing, try to understand if you can set up an in-house payroll team that works in different shifts. If this costs you more than outsourcing, then opt for the latter. 

Evaluating the Service Level Agreements

Your global payroll provider must offer robust Service Level Agreements (SLAs) that ensure that it meets your expectations for responsiveness and problem resolution. Consider their:

  • Uptime guarantees
  • Inquiry response time 
  • Procedure for handling concerns

6. Reviews and case studies

Reviews and testimonials from existing clients can offer insights into the provider’s effectiveness, reliability, and customer service. Platforms like G2 and Trustpilot offer trustworthy customer feedback on such specialized service providers. 

Case studies offer examples about how the provider has successfully managed payroll, citing specific, tangible results. This helps gauge their reputation and capability.

What are Your Payroll Outsourcing Options?

The right payroll outsourcing choice for your organization depends on your requirements and budget. Here are some of the options:

1. Employer of record

The EOR acts as the legal employer for your international employees, handling all payroll responsibilities, taxes, and employee benefits administration in each country you operate.

Benefits of EOR

  • Reduced complexity: The EOR takes care of payrolling end-to-end, minimizing the administrative burden on your HR team.
  • Assured compliance: With expertise in local regulations, EOR providers ensure that your company adheres to all employment and tax laws.
  • Faster expansion: EORs can help you expand operations in different countries quickly without the need to establish a separate entity in each country.

Gloroots is an EOR provider, offering global payroll and benefits administration. They ensure that your international employees are paid accurately on time, every time with their expertise in ensuring seamless compliance across borders and multi-currency transaction capabilities.

Limitations of EOR

  • Less control: Since EOR is the legal employer, you have only limited control over your employees.

2. Professional employer organization (PEO)

A PEO acts as a co-employer for your international workforce, handling some of the legal responsibilities alongside your organization. They provide a range of HR services, like payroll and benefits administration, compliance management, and risk management. 

Benefits of PEO

  • Quick market entry and scalability: They manage HR and compliance issues, allowing you to expand quickly into foreign markets, scaling up or down based on your needs. 
  • Cost-effective: Overhead costs associated with setting up and managing an in-house HR team in each country are reduced considerably.
  • Compliance and risk management: Ensures compliance with local laws and regulations, reducing risks.

Limitations of PEO

  • Since PEOs are co-employers, you might have to set up your legal entity in some countries, which can add to the cost and complexity.

3. Contractor accountant

An accountant specializing in working with independent contractors can handle payroll processing and tax compliance for your international freelance workforce. This option is most suitable for small businesses, as this involves the least cost among all other options. 

Benefits of Contractor Accountant

  • Specialized expertise: They understand the nuances of contractor classification and taxation, ensuring compliance. 
  • Cost-effective: This is cost-effective for managing small teams of international freelancers or contractors.

Limitations of Contractor Accountant

  • Limited scope: Their services might not be suitable for a full-time global workforce or complex payroll needs.
  • Management complexities: You have to manage contractor relationships, like performance reviews.
  • Compliance issues: You are responsible for proper employee classification and tax withholding for your contractors.

Pros and Cons of Outsourcing Global Payroll

Outsourcing global payroll management can be a strategic advantage in terms of reduced cost, time, and compliance issues. Here are some key advantages and disadvantages:

Pros

  • Compliance with local laws: Global payroll providers are experts in local employment and tax regulations. They stay updated on the evolving regulations, ensuring that your payroll is compliant.
  • Cost savings: They eliminate the need for an in-house HR team, reducing operational costs and overheads. 
  • Efficiency and accuracy: The payroll providers have established processes and advanced payroll systems, eliminating human error and improving processing speed.
  • Focus on core business tasks: They take up the administrative and legal burden, freeing up your internal resources to focus on critical tasks.
  • Improved data security: Reputable providers have a robust security system in place to avoid data breaches. They also ensure compliance with the local data protection regulations.
  • Better employee experience: With timely and accurate payments, payroll providers improve employee engagement and satisfaction. 

Cons

  • Loss of control: Quality of service is more likely dependent on the capabilities of the provider, signifying the need to choose the right partner.
  • Data security risks: If the provider faces a breach or does not protect employee data adequately, your company could be facing legal backlash.

How Can Gloroots Help?

Gloroots is a specialist in global hiring and payrolling, assisting your company with seamless onboarding and managing global payroll. We offer:

  • One click payroll: Timely payments, irrespective of location and contract type
  • Quick onboarding: Expand your team effortlessly with our 6-step onboarding process
  • Transparent pricing: Fixed fees, with clear tax insights
  • Tailored benefits: Customize payroll and benefits, with 100% compliance

Ready to streamline your global payroll and free up your team for more strategic tasks? Gloroots can help with compliance and administrative processes, tailored to your unique needs.

Get in touch with us today!

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