The Pros and Cons of Your 4 Global Payroll Options
In the past, being a global company was synonymous with being a large, multinational corporation. Companies that operated across national boundaries were typically large, enterprise organizations with the resources and consultants available to help them navigate global red tape.
However, in the past decade, companies are more willing than ever to hire talent wherever they can find it. Additionally, the advent of new communication and productivity technologies has allowed remote teams to be as productive as in-person ones.
Today's global companies do not look like their larger, more monolithic predecessors. Many global organizations today have as few as 4-5 employees and are open to operating in any country as long as the talent is available for hire.
As the types of companies that are going global evolve, so too is the marketplace for global payroll solutions. With a changing marketplace and limited resources, it can be hard for a smaller company to figure out the best solution to their global payroll needs.
Below is a discussion of the pros/cons associated with each solution-type:
This has historically been the most common approach to global payroll and is still the most likely approach, given that it is the path of least resistance.
With this approach, a company would allow each country to select their own local, in-country payroll provider. Payroll is then managed independently by each country
Pros: In-country teams can use whichever local service they prefer.
Cons: There isn't a way to easily combine data across different countries for reporting and analytics. In order to use an in-country payroll provider, a company first needs to set-up a legal entity in each country, which can be time-consuming. Each country needs a person dedicated to payroll management, since one person cannot oversee all countries.
Payroll aggregators enable companies to partner with local, in-country payroll providers across any region and country. They also provide a technology platform that ties all of the disparate regions together in one dashboard. This can allow a single payroll manager to oversee all regions and report holistically on the organization.
Pros: A global payroll aggregator fully vets their in-country partners, so you know you're working with a strong in-country provider. Payroll aggregators can provide a technology layer that allows you to view and manage all regions holistically. Payroll aggregators provide global consulting services to help companies understand where and how to expand.
Cons: Payroll aggregators require that you have already established a legal entity within the country, which can add administrative overhead to set-up. Most payroll aggregators require you to use their preferred partners, so you have less choice in which vendor you use.
International PEO's have come to market to help companies avoid the costs and red tape associated with setting up legal entities in new countries. These vendors have gone out and set up legal entities in almost every country in the world.
With an International PEO, a global company can hire a new employee immediately anywhere in the world without having to set-up a new entity. The PEO manages compliance and local payroll processing and then provide a single dashboard to view all global employees.
Pros: International PEO's allow companies to expand quickly and hire employees anywhere in the world. Most international PEO's provide a technology layer that allows for holistic reporting. International PEO's provide global consulting services to help companies understand where and how to expand.
Cons: Companies that intend to have large operations in a single country will benefit in the long run from establishing their own legal entity. This is typically the most costly of the four options.
Global Payroll Providers
Even the biggest names in payroll - ADP, Ceridian, Ultimate - can only process payroll natively in a handful of countries. The nuances are too complex for any single vendor to understand across more than a few countries.
Instead, the big name payroll companies have started to expand by acquiring payroll companies in various regions and incorporating them into a fully-owned solution.
Unlike the independent, in-country model, this approach allows for centralization under one vendor. And, unlike the payroll aggregator model, this approach allows for lower costs since owning the payroll company allows them to avoid paying mark-ups.
Pros: This is often the lowest cost approach. Companies with large US operations can partner with market leaders, such as ADP, Ceridian and Ultimate. Global payroll can be centralized into one platform.
Cons: Even the largest payroll companies do not own enough in-country payroll providers to provide global coverage, meaning some regions may not be covered. While global payroll companies own various in-country payroll providers, they aren't always able to get the solutions integrated together, so the operations can still be somewhat independent.