Key considerations before outsourcing payroll

May 16, 2023 | 5 Mins David Daly

Business expansion at multinational companies around the world seems to happen at pace, often regardless of what is happening in the economy. Companies have big ambitions and are keen to carve out new market share and revenue opportunities in various countries and territories across the world.

This requires hiring activity and a likely mix of various different worker types across a globally dispersed workforce. Understandably, this can introduce new levels of complexity to an already challenging global payroll delivery and management operation.

In response to this, some companies choose to outsource payroll services and operations to a third-party payroll provider in an effort to reduce the in-house administrative burden and streamline operations. In this article, we are going to look at some key considerations to take into account before making such a big decision about outsourcing payroll services.

Where is help most needed?

It can be a good starting point to ask this question and then open it up to the wider payroll team as well as key stakeholders such as human resources managers and finance colleagues. It can help to really get a handle on where help is most needed and which parts of the payroll delivery and management process you are struggling the most with. Answers to this key question can lead you down the road to the best solution for your specific business and it may not necessarily be the third-party outsource option. Some questions include:

    • is it the volume of work/administrative burden?
    • the manual heavy workloads and time-consuming Excel spreadsheets?
    • the cross-border compliance complexity?
    • Sourcing and vetting reliable local country payroll providers?
    • lots of data held in lots of different systems?
    • a different process for each country?
    • lack of reporting for operational oversight?

You may need a service provider to help you with specific parts of payroll, but the service provider may not end up actually adding a whole lot of value when it comes to your core issues and problems. So, it is best to not rush in and make a hasty decision-you might find that what you need instead is a technology or payroll software solution to manage everything and remain in control of your payroll. Don’t forget to include your future business needs in the discussion too, payroll evolves and changes in line with company initiatives, so it is not only about solving problems in the here and now.

What is your budget for outsourcing payroll?

An obvious one of course but very important nonetheless as the level of budget available to you can have a direct impact on the quality of outsource provider that you get to work with should you go down that road. Outsourcing payroll can save your business money, but it’s important to carefully evaluate the pricing associated with outsourcing. Be sure to consider all costs, including setup fees, monthly or annual fees, and any additional charges for extra services.

Keep an eye out for hidden costs or additional costs- you may find that you need a greater degree of reporting at a future date and your provider might charge additional fees to generate extra reports- also consider that they may not have the ability to meet your expectations when it comes to this level of reporting, most third-party providers are focused on basic payroll and payment.

A key attraction with outsourcing payroll to a third-party payroll company is the ability to realize cost savings for the overall business. However, ‌many payroll outsourcing companies are far from cheap and tend to cost the business a lot of money in the long run. So, it is always a good idea to shop around and get as many quotes as possible and also become very clear on the length of contract you are committing to.

Is their technology fit for purpose?

The whole point of outsourcing payroll services to a third-party provider is to relieve the burden on your payroll or human resources department and have a much more efficient and streamlined payroll operation system within the company. It is inevitable that a certain level of technology capability will be required to make this a reality for payroll functions.

So, make sure you do a deep dive when it comes to all the questions around the technology stack or platform that your provider is offering with their payroll system. Things can sound very good on a sales call or a company brochure, but it is best to dig into the details and ask some very pointed questions about things like: automation capability to replace manual processes, detailed reporting, data security and integration functionality with the wider ecosystem inside your business (HR software and finance applications). Make sure that the payroll provider you choose can integrate with your existing systems and software. This will help to streamline the process and minimize the risk of errors or delays.

If the technology on offer is not modern, flexible and innovative-then it may not be able to cope with the volume of work you wish to offload or meet any complex future requirements you have regarding paying a globally dispersed workforce that contains a mix of worker types. Your outsourced payroll provider needs to be able to meet your direct needs and not just offer a one-size-fits-all service ‌processing payroll- the payroll industry is filled with cautionary tales where HR and payroll departments did not do enough research and due diligence, so ended up outsourcing their payroll to a third-party provider who turned out to fall well short of expectations when it came to performance and service levels.

Choose a reputable provider with a proven track record of providing quality payroll services. Look for a provider that offers the level of service you require. Consider factors such as response times, support hours, and the level of support provided to ensure that you choose a provider that can meet your needs. Do your research, read reviews, and ask for references to ensure that the provider you choose has a solid reputation.

Can they secure your payroll processing data?

The media is filled with stories about sensitive data breaches and lapses in security protocols around information protection. This has got to be top of your priority list when speaking to potential third-party outsource options- it is essential that they have the internal protocols and robust technology infrastructure to ensure all of your payroll data and employee information is safe across all of your payroll countries. It’s crucial for peace of mind to choose a provider that takes data security and data protection seriously.

A recent survey revealed that 61% of respondents said their payroll operation had been impacted by a cybersecurity breach at least once in the last 24 months. Everybody knows that global payroll data entails highly personal and sensitive information that needs to be safeguarded in line with the strictest industry security frameworks and guidelines. Invite your IT security personnel onto any calls with a potential provider so that you can get detailed answers to very specific questions about data security and information protection. Ensure that the provider has robust security measures in place, such as encryption and secure storage, and that they comply with all relevant data protection laws and regulations.

 

Outsourcing payroll can be a correct business decision, but it requires some key considerations to ensure that you choose the right provider, and that the outsourcing arrangement meets your specific payroll needs, both now and in the future.

 

For more information about our Global Payroll Control Platform contact us today.

Subscribe to our Blog

Join over 1,000 payroll professionals who receive global payroll updates & tips every month.

Download Full Client Story

Insert your details below to download the Business case
Insert your details below to download this RFP template

UK

Gloucester Street (WC1N),
London, United Kingdom

USA

3964 Rivermark Plz
Santa Clara, CA 95054-4155
1910 Pacific Ave Suite 2000
Dallas, TX 75201

1910 Pacific Ave Suite 2000
Dallas, TX 75201

Spain

Calle Luis Martinez, Num 21,
39005, Santander, Cantabria, España

Bulgaria

Orchid Gardens Varna,
Osmi Primorski Polk Blvd. 115
9000 Varna, Bulgaria

Ireland

Prospect Ave, Westport Co Mayo F28 KW30 Ireland
38-39 Fitzwilliam Square West,
Dublin D02 NX53, Ireland