Global Payroll Basics

Although a fundamental business need, understanding the global payroll function and its implications remain minimal. Many business leaders rarely consider Payroll beyond its requirement of paying employees, failing to realize this core function's strategic value, which often represents the largest cost center of a business and claims on average as much as 60% of annual revenue spend.

Essentially, global payroll is the management of an organization’s entire payroll function for all locations via one system. From the early days of exploring foreign markets to today’s globalized economy, companies headquartered in one location have had to compensate employees working in another. And while the legalities and logistics of multiple payroll locations may be straightforward in some cases, the majority pose complex challenges to the payroll function and the organization at large, including conflicting regulations, data restrictions, benefits discrepancies, and much more.

If you look at the history of payroll models and their evolution over time and especially since the digital revolution, it’s clear how we arrived at the current state. Mirroring adjacent functions like human resources, the most advanced payroll solutions today use a single technology platform and centralized cloud data to deliver more accurate processing capabilities in real time.

What does that mean? To explain, let’s first take a look at the common yet outdated “aggregator” method, in which one global service provider contracts multiple local payroll providers to process a customer’s payroll in various locations, then aggregates that data into a customer-facing application. On the surface, the payroll data may look the same. However, the processing has been done differently, depending on the local rules and disparate systems used, and a series of data transfers have occurred to get that final data into the aggregator’s system so the customer can access it.

Centralized global payroll is the next logical step in the digital evolution of enterprise service technology. In the early 2000s, sales and marketing took up the cloud to optimize and expand their capabilities, followed by human resources, then finance. Over the past decade, both the pace and platforms for performing the majority of tasks for all of these functions have fundamentally changed, from manual to automated, from desktop to cloud, from siloed to shared.

Yet outdated global payroll models persist, encouraging established enterprises and ambitious startups alike to funnel sophisticated, standardized HR and finance data into a fragmented selection of local payroll providers. The perception has been that HR and finance warrant the investment and deliver the insights, while payroll produces payslips.

In today’s fast-paced, digitized working world, it’s easy for service providers to talk around the issues most important to their customers. For an excellent example of this, try to find a services provider in almost any industry that doesn’t promise “analytics”. In truth, most of these providers deliver reporting metrics under the heading of analytics, while few actually empower their customers with real-time insights into processes and outcomes.

When it comes to payroll, words like centralized and standardized are often used but don’t mean the same thing for every provider. Truly centralized data means information that is maintained as a single data set, also referred to as a Single Source of Truth (SSoT). This relies on cloud technology and use of one processing platform across all locations. Data standardization is a knock-on effect, in that because the data is collected, processed, and stored within the same system, it exists natively in the same format.

At the most basic level, centralized global payroll enables improved accuracy and timeliness of payroll processing. By eliminating outdated file versions and manual data transfer, unified solutions reduce the opportunitiy for errors to be made in the first place, while freeing up time for teams to address persistent issues and identify opportunities for improvement. By enabling comprehensive payroll data to be accessible as needed and in real time, such solutions eliminate wait times and facilitate faster processing. However, at this point in payroll’s evolution, these benefits should be considered table stakes.

The real gamble in maintaining legacy payroll models is the risk of losing the valuable strategic insights made possible by today’s technology. The more fragmented a payroll system is—with multiple payrolls being processed by multiple providers—the less clear and useful the system is. If an organization’s only goal is to issue payslips, legacy payroll systems may meet that need. But for companies looking for more from their solution and investment, modern global payroll solutions are the way forward.

It’s difficult to imagine a multinational organization that wouldn’t benefit from a unified, strategic solution for global payroll. However, plenty of factors must be considered before undertaking a payroll transformation. Change management is a hot topic for a reason: change worries people, particularly when it comes to an essential function like payroll that business leaders are understandably reluctant to disrupt.