Among the more common business functions to be outsourced, payroll outsourcing allows companies to leverage the services of specialists to ring in benefits like cost optimisation and business efficiency. Given the importance of payroll in everyday business operations—and also from a compliance point of view—any outsourcing decision that is taken needs to be preceded by sound deliberations on aspects like features and outsourcing model.
Even when they are clear about their requirements, companies often face a dilemma when it comes to selecting the right model for their business. Because different models are suitable for different business structures, adopting the wrong model can have disastrous consequences for the client including creeping inefficiencies and penalties from non-compliance.
Below we decode the different types of payroll models offered by service providers. If you are finding it challenging to decide on the right payroll structure for your business, here’s how to go about selecting one.
Broadly speaking, there are three main types of global outsourcing models—each suitable for a particular type of business. We will analyse them one by one to help you select the best paradigm for your business.
1. Local Payroll Vendors
In this system, the client enters into multiple contracts with individual payroll vendors at its different locations to manage the payroll system. Let us take the case of a multinational company with offices in the UAE, France and the US. A separate payroll service provider will be contracted in each of these locations to cater to its requirements.
This type of arrangement is quite popular with companies employing a small workforce. Since the entire process is localised, all necessary tax and regulatory requirements are taken care of individually at the location. Sometimes, the payroll partner may also offer bespoke services, enabling clients to benefit from custom-made solutions for specific locations.
Large companies will find it hard to adopt this model as it could potentially mean entering into dozens of individual contracts spread across locations. Other problems may include huge data volumes across many input points, entries, security, and standardisation—given that each location will have its own systems and processes.
2. Payroll Aggregators
Under this model, the client enters into a contract with one vendor, who in turn will partner with—or delegate job role and responsibility to—local suppliers.
This arrangement is popular with large corporations who usually offload contracts to a single large vendor. The system allows the client to maintain a single point of contact while ensuring that the job gets done seamlessly according to local regulations. It also allows the client to monitor its data on a single platform as it is the responsibility of the vendor to collate the data from different sub-vendors and upload them on the designated platform.
One of the concerns of using the model is ensuring compliance, data management and security. Since different sub-vendors may use different data management systems, merging it into a single platform could be a challenging undertaking. Another concern may be access to only basic data due to the issue of converting large data volumes into a standardised model.
3. Global Unified Payroll Platform
This model, favoured by corporations and vendors across the world, involves a centralised payroll platform where all vendors can upload data seamlessly. The client may design their own unified payroll platform or ask a vendor to create it while directing local sub-vendors to upload all data on the system.
The model offers many benefits like enabling the centralised collation of data from across locations. It offers uniformity through the creation of a single platform for all data management undertakings. The company may enter into a single contract with one vendor and still get access to all data in the format of its choosing. Other advantages include better automation, compliance, data security and planning.
On the other hand, not all sub-vendors may have the capacity to offer the required services making it incumbent on clients to select vendors who can work within their compliance framework. Since everything is standardised, many non-payroll services that vendors otherwise provide may also be unavailable.
With companies now increasingly standardising and automating payroll services, it becomes important for them to adopt a payroll model that helps in seamless integration of other HR services in the long run. The choice of the right payroll model can enable companies to reap the full benefits of outsourcing and benefit all stakeholders, including the employees.
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