HR Insights
Deep Dive
February 29, 2024

The hidden cost of your fragmented approach to global payroll

When your people management systems aren’t talking to one another, it’s easy to lose sight of the actual cost of your workforce. Growing organizations aren’t always accurately tracking labour spend, managing their global risk profile, and efficiently processing payroll.

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Global expansion can introduce new operating complexities in every area of a business. One such challenge is multi-country payroll, which can be overwhelming. Having different payroll solutions in each region where you operate can quickly create a lack of visibility and control. Your organization won't necessarily be ready to support your expanding operations or grow on a planned schedule.

Payroll professionals have multiple competing priorities, including keeping costs down, maintaining a low risk profile, and ensuring operations run efficiently. Leaders and investors are putting pressure on organizations to be impactful with every new initiative, more efficient in daily tasks, and generate more value to gain a competitive edge while reducing risk.

In this guide, you'll learn about the opportunities that come from leveraging a single multi-country payroll solution versus siloed in-country providers, and why a global solution is essential for the borderless world of work.

Chapter 1: Reviewing the global payroll landscape

What is global payroll?

Global payroll is the process of paying your organization’s workforce across all your operating jurisdictions. This process can include tracking hours worked, calculating taxes to withhold, and distributing payments. Payroll administration must also account for bonuses, overtime, sick leave, and vacation pay, and support compliance with regional employment laws.

Accurately and reliably compensating your people is one of the most important parts of the employee-employer relationship. As your organization grows and your workforce becomes increasingly borderless, managing payroll compliance with labour laws around the world can become very complex.

Consider Spirit AeroSystems, one of the world’s largest designers and manufacturers for commercial and defense aircraft. They employ a workforce of around 18,000 employees, globally manage 380 wage types and 50 pay types, and work with nine labour unions.

Multi-national payroll is often a challenge for large enterprises to manage, but mid-size organizations can feel the strain in other ways. Trident Seafoods is a family-owned business based in Seattle, with processing locations in China, Japan, and Europe. Much of their operations are based out of the Bering Sea near Alaska, and the mobility of their workforce along coastal communities means Trident must properly track employee hours and tax them according to local requirements.

For organizations with employees in multiple locations, a global payroll system is essential for paying their people accurately and on time, every time.

Most common options for global payroll

There isn’t always a one-size-fits-all solution for every business. Organizations should consider what is the right solution for them. Here are some common global payroll scenarios for business leaders to consider:

In-house global payroll: In-house teams process all of your payroll for your global talent. Organizations would set up a legal entity in each country to handle compliance on their own, which may include tax and government reporting. This model can be difficult for organizations to scale alongside the growth of their businesses.

Individual in-country vendors: This aggregate model uses third-party payroll providers in each country your organization operates in. Although highly localized, this decentralized approach to global payroll requires organizations to manage multiple vendors in different countries and consolidate siloed reporting from a fragmented set of systems on their own.

Single global payroll solution: With a single provider, payroll processing may involve in-country vendors, but is managed through one system with a single user experience. This centralized model has standardized reporting for a consistent view of data and costs and can more easily scale into new markets alongside your businesses.

Global payroll challenges

Running payroll in multiple countries is complicated and can lead to fines if employers do not comply with local laws. Some common obstacles include:

International banking

Global payroll administration requires organizations to account for multiple currencies, foreign bank accounts, different time zones for local support centers, and ever-changing employment requirements for each region where they operate. This is a common challenge experienced by organizations relying on individual country vendors.

Specialized staff in the region

Most organizations don't have the staff, time, or resources to process payroll locally in every region where they operate. As employers look to remain agile and competitive by embracing remote work and mobility programs, processing payroll efficiently at the local level only becomes more complicated. Organizations with a borderless workforce with rapid scale or seasonal hiring cycles may struggle to keep up with their payroll obligations.

Tax requirements and employment laws

Every country has their own unique tax requirements and employment laws. Payroll errors can be very common as organizations expand into new countries since most payroll administrators are trained for and specialize in their own region. Falling out of compliance with applicable requirements can lead to costly fines, legal claims, and damage to your brand reputation.

Siloed reporting

When organizations use individual in-country providers for each region, each vendor offers their own separate reporting on  labour costs. Payroll data can become siloed across regions, difficult to merge into meaningful dashboards and holistic reports, and fraught with errors.

Payroll administration is just one of the many challenges of global business. This is why many multinational organizations leverage global payroll technology to help simplify paying their teams around the world.

Chapter 2: Reducing your risk exposure

When asked about their biggest payroll pain points in Dayforce's Future of Payroll Survey from September 2022, the top answers were compliance challenges (43%) and managing the complexities of multi-jurisdictional payroll (34%).

Global organizations are subject to complex compliance requirements, especially as they grow into new regions. Without the right payroll administration processes in place, running multi-country payroll can be expensive and time-consuming and may open organizations up to legal risks.

43% of respondents said compliance challenges was one of their biggest payroll pain points. - Future of Payroll Survey

Most payroll professionals have specialized expertise in the payroll, tax, and employment requirements for their region, but they may not have the required experience for all the different countries in which their organization operates. And they may not have the time or resources to stay on top of the compliance requirements for every region.

The right payroll technology can help organizations manage compliance more easily. For example, a solution with a flexible rules engine can make it easier to account for different requirements across your multi-regional workforce. It takes time to understand and apply compliance complexities related to payroll, taxes, and garnishments for each of the region, and a global payroll solution can help support payroll teams operating in multiple jurisdictions.

Common payroll errors

Even seemingly minor payroll errors can expose your organization to unnecessary and avoidable risk. An EY HR Risk and Cost Processing report from December 2022 indicates that one in six companies surveyed had litigation issues related to payroll errors in the past year.1

Litigation issues can lead to a number of consequences that resonate throughout your organization, such as employee terminations, lower employee morale and increased turnover, decreased brand reputation, and increased operational costs.

Some of the most common errors may result from incorrect time and attendance data. When time and pay data exist in siloed systems, reporting can be incompatible and make your organization’s operation and labour costs unclear. These errors can be frustrating and commonplace, especially in enterprise organizations with large workforces. EY also found that the average cost per incident can cost a business $291 on average through direct and indirect labour costs.

One in six companies surveyed indicated they had litigation issues related to payroll errors in the past year. – EY Report, December 2022

According to the EY report, some of the most common examples of payroll and time errors include the following list:

  • Missing or incorrect time punches
  • Incorrect charge code/allocation to the wrong department
  • Vacation/paid time off/sick time mistakes
  • Errors with scheduled earnings and deductions
  • Shift availability not updated
  • Incorrect earning rate for time worked (i.e., overtime or holiday)
  • Incorrect expense reports
  • Tax allocation changes
  • Direct deposit / routing not updated
  • Benefits errors

Having time and attendance in the same system as payroll can lead to more efficient payroll processes, more accurate data, and faster reporting. Most importantly, the right technology can help you manage your compliance requirements through a single user experience to help reduce the risk associated with payroll activities across your global workforce.

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Risk without central governance

The Ever Given ship stuck in the Suez Canal triggered global headlines and drew attention to the potential negative impact of operating without a central governance model. Read about the operational risks of legacy global payroll solutions for multinational organizations.

Chapter 3: Improving efficiency across the board

Organizations are focused on doing more with less and being efficient in every aspect of their business. In a fast-paced, digital world, more organizations are focused on reducing the time spent on manual work and devoting more resources towards strategic work that can give their businesses a competitive edge. In fact, 27% of Future of Payroll Survey respondents say inefficient processes are one of their biggest payroll pain points. This can make it challenging to accurately calculate the true costs of your global workforce.

What's more, the Future of Payroll Survey revealed that 85% of surveyed organizations have problems with their payroll technologies. When your systems fail your people, they don't have the tools or foundation to get work done. Processing and committing payroll are time-consuming and challenging processes, especially as your organization hires talent in new regions.

So how can the right foundation help your HR and payroll teams increase efficiency?

Using technology to improve your process efficiency

Here's how a single global payroll solution can help improve payroll process efficiency across your organization:

Reduce manual administrative burden 

Payroll technology can help streamline some processes by automating certain elements of payroll tasks. This can help teams have fewer administrative tasks and allow them to commit payroll with reduced rework.  

Reduce reliance on support

With the right tech to support your administrators, you can empower your team with the capability to make system changes on their own, including configuring earnings, deductions, and taxes. Managing their payroll process from end to end also helps reduce their reliance on support teams and their time spent troubleshooting.

Flexibility to work on pay runs

When you can empower your payroll teams to work on pay runs asynchronously prior to payroll closing, they can continuously work through pay cycle tasks on their own schedules without creating backlogs or bottlenecks.

Make payroll entries for future pay periods

Your payroll teams can be more productive when they are being proactive instead of reactive. The right payroll technology can help give your team the ability to make payroll entries in future pay cycles while still working in the current period.

Make pay changes with or without support

Having a quality support team can be essential. You can improve process efficiency further by giving your team the ability to manage updates and reconciliations on their own as an alternative to relying on a support team. And when support is needed, working with a single vendor, under a single contract, with a support team that is familiar with your account can offer greater peace of mind that your concerns will be heard and resolved in a timely manner.

Real-time payroll calculation

Don't linger in the past. The next level of payroll technology can show net pay results in real time, giving insight into the impact of changes every time your team edits payroll.

Streamlining for IT

As your organization grows, it will require a centralized infrastructure of functions, technology, and people to drive efficiency. The need for real-time integration and reconciliation will become more critical and complex as the company continues to expand.

Using multiple systems for the same function reduces efficiency. According to EY’s survey respondents, their organizations use an average of five payroll providers, each with its own interface, different reporting, and different levels of compliance management controls.

When your organization is managing multiple in-country providers, maintaining integrations for various support centers and vendors can become costly, both in terms of budget strain and resource expenditure. As each disparate system is added, the burden grows exponentially for internal IT teams, and increases the cost of outsourcing. 

Your employee records also hold sensitive personal information. What would a data breach cost your organization? Instead of implementing localized security plans, organizations should invest in a single system that protects your workforce data in one place. The right technology should leverage a single, role-based security rules engine across the entirety of your workforce data to help maintain a consistent approach to data security and promote diligence at every level. A global payroll system that facilitates real-time data integrations and reconciliations, while maintaining a single source of truth for the organization, only becomes more critical as your organization continues to expand.

Technology that helps, rather than hinders, your data integrity can make a meaningful difference and impact the amount of time and IT resources devoted to maintaining your workforce systems. Cohesive, streamlined HCM technology helps facilitate scalable processes for time and payroll activities as your workforce grows.

Outsourcing for efficiency

Organizations may choose to outsource global payroll if they don't have a legal entity set up in regions where they are building out new teams. Setting up new legal entities can be time-consuming and difficult to maintain in the long run. Additionally, payroll practitioners are often certified at a regional or national level and can feel unequipped to take on new regulatory environments.

Senior leaders still need payroll expertise in all the regions they operate in to help support their payroll teams. However, adding payroll personnel headcount in each new region can be a time-consuming endeavor – especially for organizations looking at their hiring plans for their complete workforce. If your business is expanding at a rate requiring unplanned headcount, a managed payroll solution can help take this demand off your plate.

Partnering with a global payroll partner allows you to centralize your payroll under one vendor contract to help coordinate payroll operations around the globe on your behalf.

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The value of a single solution

It's common for organizations to manage payroll in each of their operating regions separately in the beginning. But this fragmented approach can quickly lead to multiple systems and widely varied services in each country. Read about the single global payroll system approach.

Hear from real leaders

A truly global payroll delivery method can bring significant benefits to an organization. To better understand the strategies payroll leaders face, we hosted a panel discussion at our Ceridian World Tour event. Read about some of the key takeaways of managing multi-regional payroll operations.

Chapter 4: Gaining deeper insights into your global workforce

It’s essential to leverage data insights to gain a competitive edge in today’s fast-paced environment.  The increasing imperative to do more with less has many organizations and their investors focused on financials and the impact of each business cost.

Labour is one of the largest controlled expenses for most organizations. For growing multi-regional enterprises, it can be challenging to calculate the actual cost of the workforce. Not only is real-time calculation difficult, but relative labour costs can be hard to analyze at an international scale when comparing data from all of an organization’s operating regions.

Even with all the pay data available, the volume of information can be impractical for leaders and managers to sift through and understand. If data integrity and reporting across regions is already a pain point, your teams may struggle to make the most of AI-assisted predictive technologies that rely on quality data inputs.

The value of payroll reporting insights

The right technology can help empower your teams with a single user experience and the ability to quickly pinpoint high-value activities and weak spots within your payroll reporting. This can positively impact your finance team, workforce planning, and talent management by helping you:

  • Control cash flow to accurately monitor spending and forecast profits
  • Accurately manage taxes to help reduce risk exposure
  • Monitor employee turnover trends based on compensation
  • Competitively compensate your workforce to improve turnover rates
  • Improve operational efficiency by tracking headcount costs (e.g., recruitment and replacement costs)

Barriers to reporting insights

Even with the demand for data-driven insights, there are still obstacles for payroll teams to compile reporting. Some barriers include:

Manual extraction of data across systems

When organizations have multiple individual in-country providers, all payroll reporting needs to be exported to help accurately compare spend in different regions. Not every system provides efficient ways for leaders to export and access this data. Your payroll solutions shouldn't be adding to your team’s plate. Your practitioners should be spending less time reconciling data and more time analyzing the results. 

Generating insights

Using a network of regional payroll systems can involve different currencies and reporting formats. This may add unnecessary steps to reporting and analysis when payroll administrators are tasked with first getting the data into a single, cohesive format and then working with it to draw meaningful conclusions and insights.

With a single system, data can be standardized and provide your people with a single user experience. Better yet, when your time and attendance and payroll data all exist in a unified system architecture, there may be no data movement required for reporting, and the impact of calculations can be seen in real time.

Using insights proactively instead of reactively

It takes time and resources to interpret different reporting sources and manually derive insights. Leaders need to make informed investments that drive workforce performance and productivity. The right solution can help provide the data consistency, accuracy, and visibility required to manage cash flow and make impactful decisions about labour spend on a global level. 

Using insights to build a competitive compensation strategy

Pay is one of the most important elements of the employee-employer relationship. Having accurate payroll reporting is essential for mapping out an organization’s compensation plans across operating regions. Managing cash flow and accurate compensation has a major impact on your organization’s financial planning.

When payroll data all lives in a cohesive environment, executives can leverage their own data for business insights that can help them control costs, streamline administrative effort, and mitigate flight risk with a smarter compensation strategy.

Making smarter talent management decisions

Financial decisions should never be based on gut instincts. Your compensation strategy is essential for keeping your workforce operations rolling and requires retaining people to get the job done. Leaders can make better decisions with instant access to information like performance history, market rates, peer comparison, and salary ranges. This helps ensure they are fairly and competitively compensating their people and nurturing a resilient and engaged workforce.

Retaining talent

Organizations should explore compensation practices that help them remain competitive in attracting and retaining talent. This requires the ability to report on pay bands across the workforce. Comprehensive compensation plans should include multiple budget types across operating regions.

Tracking internal compensation equity is also important for helping to ensure that employees across demographic groups are paid fairly. Finance teams play an important role in improving pay equity and transparency through fair compensation and payroll reporting. Your global payroll provider should help empower you to do right by your employees, bringing forward the data that you need to make smart and equitable compensation decisions.

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Competing on a global level

Organizations need a single foundation for their HCM strategy to help drive productivity and performance in the new world of work. Read more about global human capital management strategies.

Chapter 5: Key takeaways to share with your peers

Payroll and finance teams understand the complexity involved with paying a global workforce. But there may be other leaders that aren't aware of these challenges. Here are some studies on the state of the global payroll landscape to reference and share with your peers:

  • 42% of respondents are using two to five payroll service providers today, according to Global Payroll Management Institute’s 2023 Getting the World Paid Survey.2
  • 69% of surveyed organizations have issues with their payroll data, according to Dayforce's Future of Payroll Survey.
  • Almost half of respondents (48%) that leverage next-gen payroll technologies say they use it for automating manual processes, which allows for a significant increase in payroll compliance and efficiency, reports Deloitte’s 2018 Global Payroll Benchmarking Survey.3

International payroll management can help growing enterprises pay their people efficiently and track labour spend from a global lens. When your payroll systems are all speaking a common language, your processes will quickly become more impactful.

 

[1] "Cost and risks due to payroll errors: Results of the 2022 HR Processing Risk and Cost Survey,” EY, December 2022. 
[2] “2023 ‘Getting the World Paid’ Survey,” Global Payroll Management Institute, 2023. 
[3] Brian Proctor, Susan Leal, & Tina Juliana, “Global payroll benchmarking survey report,” Deliotte, 2018. 


This blog was updated on Feb. 29, 2024. It was originally published on Aug. 30, 2023.

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