When managing a global workforce spread across various jurisdictions, it can be a challenge to ensure that you fulfil your enterprise’s key obligation. Namely, your employees are paid properly and on time and that all appropriate deductions are made.
This is made all the more challenging when your employees are in different locations. You need to ensure that you are on top of local employment legislation and tax law. In addition, also potentially managing various pay cycles, bonuses, commissions and more. It means that choosing the right payroll model is essential for global companies.
An effective global payroll model can help alleviate the stresses associated with managing a diverse workforce. This needs to consider all the information that comes in from a multitude of sources at different times and potentially in different languages. All of this is challenging for even the most agile of in-house payroll and accounting teams.
Essentially, a global payroll system offered by companies such as Papaya, enables an enterprise company to carry out all of its payroll and tax obligations in different countries simultaneously, greatly simplifying the process of managing an international workforce.
Two models for global payroll
There are two models that are currently in widespread use for implementing a global payroll system.
The first of these is generally known as a wholly-owned model. When an enterprise company sets up an office in a new country, its in-house payroll team manages the wages and deductions of local employees (this team may be situated where the company is operating or in its ‘home’ country). Ultimately, in this model, the payroll team are employees of the company and answerable directly to a head office.
Another model that is widely used is the aggregated model. This model is considered to provide global companies with greater flexibility, more wide-ranging expertise, and quicker and simpler access to relevant and up-to-date data when it is needed.
The aggregated model involves an enterprise company using a global payroll provider, who in turn works in partnership with local service providers, generally referred to as in-country partners or ICPs.
These local companies, usually accountancy or law firms, will be carefully selected for their expertise and experience. The global payroll provider will connect you with an ICP that can provide the full range of payroll services you need.
Providers will have an extensive network of ICPs that enterprises can partner with. So this also provides companies with greater choice and flexibility as to how their payroll services are delivered.
Which global payroll model will work best for your enterprise?
There are several issues that all international companies face with regard to managing the complexity of global payroll. For example, keeping up with local compliance and tax laws is a continual challenge. At the same time, this needs to be balanced against ensuring costs are managed so that payroll does not add unnecessarily to overheads.
The wholly-owned global payroll model
At first glance, the wholly-owned payroll model may appear to be the simplest solution. The enterprise itself is solely responsible for delivering its payroll needs without the need for the services of a third party. However, this approach can have drawbacks in terms of flexibility, responsiveness, and the breadth of information decision-makers receive.
For instance, it can be the case that in the wholly-owned model, local payroll employees are quite limited in their experience. While they might have a good understanding of local laws re: deductions, etc., they are not as knowledgeable when it comes to working in the global enterprise space. Therefore, it can mean that outside consultants have to be engaged at times, adding to overheads.
On the other hand, wholly-owned does not automatically mean ‘in country.’ While a payroll team may be in-house, if they are not based in the same country as the employees they are looking after, their ability to be responsive to change and in touch with local legislation is going to be limited.
In addition, if the wholly-owned payroll model is in place in a variety of locations around the world, with teams working to a greater or lesser extent independently of each other, it is going to be more difficult for decision makers to have real time, comparable information about true labour costs across the whole company.
The aggregated global payroll model
In contrast, the aggregate model generally offers more benefits for global companies with regard to managing the complexities of compliance. It can also help keep payroll costs under control.
In the aggregate model, ICPs are chosen specifically because they are across all relevant local employment and taxation laws. You can therefore have confidence that your processes are compliant. Employees are being paid correctly and receiving all of their entitlements in a timely manner.
Furthermore, throughout a partnership, ICPs are held accountable for the quality of service they provide. The global payroll provider incentivises them to ensure they maintain the required standards. If an ICP is not performing or meeting expectations, it can be replaced, and this competition helps to ensure optimum performance.
The aggregate model also gives you access to your global payroll provider’s experts and specialists. All of whom will have wide-ranging expertise both of the country in which you’re operating and its specific labour and tax laws and a broad understanding of how global companies operate. This knowledge and experience can also extend to providing advice on hiring and other workforce issues.
In addition, global payroll providers utilise business intelligence (BI) software that provides a wide range of information in real-time relating specifically to employment costs. It enables employers to see, for instance, the true costs for each employee in a country or specific region and across the entire company. Head office can thereby make comparisons and get a clearer picture of total operating costs and overheads.
…and the winner is?
Overall, the aggregator model has been found to be the most efficient and cost-effective global payroll solution. Using a payroll provider’s platform and technology enables you to access standardised employee data and put automated workflows in place, while the local knowledge and experience of an ICP means you are always up to date with legislation and law changes in every country in which you operate.
These factors combine to produce the perfect payroll solution for any global enterprise operating internationally and in multiple locations at the same time.
Papaya Global offers an automated SaaS platform that enables a full global workforce management solution. From onboarding to cross-border payments in more than 160 countries. With Papaya’s platform, you can hire and manage employees or contractors internationally, while ensuring accuracy and compliance. Using the platform BI system, you can track and visualize your company’s payroll spending and make decisions in real-time.
