Global Payroll Models: In The Beginning

Technology has a way of injecting a peculiar sense of selective amnesia into culture. For the overwhelming majority of human history, people couldn’t communicate across vast distances. The telephone itself is less than 150 years old. Yet today it’s difficult to imagine not having a phone in your pocket capable of calling anywhere in the world—along with instant news, music, information and even entertainment on demand.

Businesses are built on the ability to adopt and adapt new technology to suit a variety of purposes, from saving money and speeding up services to improving customers’ quality of life. And for any business, whether providing goods, services or information, arguably their most important ‘customer’ base is also their most essential resource: their employees.

Payment for work performed remains one of the most natural and compelling motivations around. Like personal communication, compensation has always happened, either in the form of trade, provisions or currency, but payroll as a business function became formalized and widespread only in recent times.

The evolution of payroll follows the fascinating development of modern technology and its permanent transformation of how and where work is done. Beginning with the confluence of automation and modern globalization, and continuing today with the growing application of big data, the payroll function sits at the heart of our dynamic global economy.

Recent developments in global payroll platforms are helping businesses the world over set and achieve significant goals around growth, productivity and employee satisfaction. Yet as technology gets set to expand the potential of payroll, it’s important to understand where we came from in order to guide where we are going.

From Automation

The mid-1900s brought automation technology to the masses, changing lives both at work and in the home by providing faster, more efficient means of accomplishing day-to-day tasks. In factories and offices worldwide, automation led to the compartmentalization of work, allowing specific workflows to be executed independent from one another.

This development set the scene for outsourcing to become more prevalent in business. While certain industries always relied on a degree of outsourced work, such as publishers using a printing house to physically make books, the prevailing wisdom in most sectors had been to do all the work in-house in order to maintain control over both process and outcome.

When it came to finance-related functions in particular, organizations kept information close. Payroll sat squarely in the group of activities to keep in-house, even as a rising trend toward international expansion helped shift the corporate mindset more in favor of outsourcing basic functions. Early payroll providers offered small or growing organizations a way to expand operations without needing additional in-house staff to manage new payrolls, and while it would be decades before outsourcing an entire payroll function was seen as acceptable—never mind smart—the opportunity was there.

Going Global

As automation revolutionized a host of industries around the world, modern globalization led companies to consider new markets and new ways to grow their business. A host of factors, including political change and instability, and increasing consumerism, led to a global push toward diversification as a means of growing quickly but safely and protecting companies.

The desire to diversify and expand corporate footprints naturally led business leaders to look overseas for new opportunities and ways to benefit from economies of scale. However, traditional growth models resulted in excessive headcount that limited both profits and a company’s agility in new markets.

New areas of risk were also emerging, as electronic data became more widespread and labor regulations became formalized in new markets. In the 1970s, expanding organizations faced significant challenges when it came to growing their workforces, whether by hiring local workers or relocating established employees. From tax regulations to holiday observances to handshakes, doing business internationally meant navigating a sea of varying and sometimes conflicting requirements.

Nowhere was this more true than in payroll, where local custom and expectation had to be translated into dollars and cents. Yet the list of essential talent to hire in a new locality was unlikely to include a local payroll expert, so enterprising organizations began seeking an alternative solution.

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Introducing the Aggregator

The early solution for enabling ‘global payroll’ was a complex platform that persists today: the aggregator model. A payroll provider based in one major market, such as the United States, either acquired or partnered with local payroll providers in other countries or regions to process all payrolls for a company under a single contract.

This model took the weight of understanding and complying with specific regional and national wage and tax regulations off the global companies. The aggregate payroll provider monitored any changing requirements, in addition to processing payroll and sometimes even delivering payments to employees, enabling the company to focus on their business with the confidence of knowing their workers were being paid appropriately.

Aided by developing technology and the rising use of computers, the aggregator payroll model proved to be an invaluable resource for global companies. Yet, as with almost any industry operating in the late 1900s, no one in payroll could have guessed what the Digital Age would bring.

The Dawn of Data

In 1984, just 8.2% of all US households owned a personal computer. By 2000, that figure rose to more than half. The developed world was becoming increasingly comfortable with both the idea and presence of digital information, including their own, without yet realizing the impact it would have on their lives.

While the idea of network-based computing first came about in the 1960s, it wasn’t until the use of computers reached a critical mass that its potential could be explored. This point was reached in the 1990s, when computers became ubiquitous in schools and increasingly in homes, as well as offices around the world.

Suddenly the World Wide Web meant anyone with a computer and a phone line could access endless information in a relative instant. Within a few years, companies learned to harness the power of network computing to conduct business better and faster. People became accustomed to electronic banking, to email, to online shopping, and the amount of digital data created, transferred, and stored on a daily basis began to explode.

A Way Forward

As quickly as computers and electronic data became the new normal, the now digitized world faced its first crisis: the looming millennium new year, also known as Y2K. Amid inflated fears of lost data and world collapse rose the now omnipresent concern of data security. What would happen in the case of an electronic apocalypse? Or, more appropriately, how can businesses protect their data from loss, corruption, or theft?

The answer laid within the very technology people momentarily saw as the problem. Network computing, automation, and data security were becoming inextricably linked, and advancements in one area would progress the whole, invariably bringing users along on the journey.

For global payroll, this progression was approaching a better way of doing business. Soon, the functional aggregator model would be challenged by a global payroll platform that could deliver a better experience and better results for the users.

Click here for Part 2 of the Evolution of Global Payroll Models.