Global payroll outsourcing: from baseline to go/no-go

Global payroll means paying employees across countries that each have their own tax, social security and reporting rules. Outsourcing international payroll is largely about data and timing: you collect each employee’s year-to-date figures, agree a payroll calendar that works in every country and run a parallel pay cycle before you decide to go live.

Where do you start when outsourcing payroll?

At the start of a project like this, the information you need is rarely in one place. Even if you have paid salaries for years, the overall picture may be fragmented.

First, establish the basics:

• which entities operate in which country,
• how the payroll process works today,
• what your current provider actually does, and
• which local practices apply in each country.

You may also find that countries have been handled differently. Sometimes there is a good reason, such as local legislation. Sometimes it is simply a habit that stuck.

What data do you need to outsource international payroll?

Once the project gets going, it moves quickly from theory to practice, and that usually means data. A lot of data.

If your HR, payroll and other core systems don’t talk to each other, the data ends up in Excel files. This is especially laborious when payroll changes hands mid tax year. The new provider needs each employee’s year-to-date pay, tax withheld and employer contributions so that taxes and contributions can be calculated correctly for the rest of the year. The figures must be broken down by pay element (for example base salary, overtime, bonuses, holiday pay and benefits in kind), taxes and employer contributions must be kept separate, and the totals must reconcile.

Tax years are not calendar years everywhere. In the Nordics and the Netherlands it is easy to forget that, but the UK tax year starts on 6 April, India’s on 1 April and Australia’s on 1 July. Plan the switch date country by country, not just around your home market’s calendar. Avoid switching at year end and during annual filings, when the split of duties between the old and the new provider must be crystal clear. Also take local public holidays and holiday seasons into account, because they move payroll schedules.

Payroll data is personal data. Outsourcing may mean it is transferred to the provider and its subcontractors, including outside the EU/EEA. A transfer needs a legal basis under the GDPR, such as the European Commission’s standard contractual clauses, and your contracts must cover how personal data is processed. Go through this with your data protection officer and IT before you sign. Also agree how files will be transferred securely. Don’t send payroll files as email attachments.

This is where the real workload usually becomes clear. Many people assume at the start that the project is mostly about configuration and onboarding, but a large part of the work is collecting and checking data. That is not a bad thing. It may show, perhaps for the first time, how your payroll really works in each country.

Running the project in practice

The workload is heavy and is usually carried alongside other work, so the project needs a clear owner. Without one, things drift and schedules slip.

The project manager makes sure the required data arrives on time, questions reach the right people and the project keeps moving.

Involve the right people from the start. Finance knows what reporting the accounting needs. Agree how payroll data flows into the ledger: chart of accounts, account coding and the reporting timetable. If this is left to the last minute, the first monthly posting may be late or need a lot of manual work. IT can assess data protection and system integration questions. These too are best settled at the start rather than mid-project.

At the same time, define the scope. Including all countries at once may be tempting, but it can backfire. Every country has its own quirks, and the project quickly grows unmanageable. A better approach is often to start with a few countries, see how the model works in practice and expand afterwards. That also keeps everyone involved engaged and the workload manageable.

What should you ask a global payroll provider?

During tendering, find out what the offer really includes. Good questions are:

• Which countries does the provider run with its own payroll staff, and where does it use local subcontractors?
• Who is liable if an error leads to a penalty or late-payment interest?
• What does the service cover?
• In which language and time zone does support operate?
• What does the price include? Extra charges may apply for additional pay runs, corrections, change requests and reports.

Offers are easier to compare when you calculate the total cost rather than the price per payslip. That gives a realistic picture of global payroll costs. Don’t overlook the contract appendices: the division of responsibility, service level agreement (SLA) times and extra charges are often found there.

How does global payroll work day to day?

With global payroll providers, the chain often has several layers: a global provider and its local partners. That is not a problem in itself, but it affects how smoothly things run.

Communication passes through several intermediaries, which shows up as delays. Working practices also differ from what you are used to at home. All the Nordic countries have digital reporting systems, but even they differ in timing, and further afield the picture varies more. Not everything is raised proactively either. You need to know what to ask.

This matters most for local obligations and global payroll compliance. Registrations, filings and practices don’t take care of themselves unless they are agreed explicitly. Here is how payroll is reported in a few countries:

Deadlines vary by employer size and situation, so confirm the exact dates with your provider and the authorities. Beyond Europe, it gets more complex still. In the US, for example, you need to consider state and local taxes and state-level registrations, such as for unemployment insurance. In the UK, an employer must also register with HMRC for PAYE before the first payday.

So assume nothing. It is better to ask too much than too little. Ask the provider for a written description of who handles each country’s registrations and filings.

Also consider how the money moves. With some providers, paying salaries requires the company to transfer the funds in advance, so the timing and currency of the transfer must be planned around payday. Finland and the Netherlands use the euro, while Sweden, Norway and Denmark pay in their own currencies, so the exchange rate and transfer time become part of the plan. Bank accounts and payment times also vary by country, and even a small delay can mean that pay does not reach the account on time.

When choosing a partner, state your needs clearly. Are you looking for a partner that takes on as much responsibility for global payroll management as possible? Or do you already have expertise to build on, with the partner helping to make sure things are done right? Another question to settle early is whether you want one global provider for all countries or a regional partner that works with local partners elsewhere.

After data collection: parallel run, payroll calendar and the go/no-go decision

When a country’s go-live is getting close, it is time for the parallel run. One pay cycle is run with both the old and the new provider, and the results are compared employee by employee. Differences typically come from incorrectly defined benefits in kind, rounding rules or incomplete source data. The goal is to be sure the numbers match before the switch.

Alongside the parallel run, you also agree the payroll calendars, which set the deadlines for each pay run. Large global payroll platforms such as Remote, ADP and Deel typically allow plenty of time in their process for themselves and little for the customer. The whole process often gets only about two weeks. Payroll input may be due earlier than you are used to, and you may get just one day to check and approve pay. Discuss this with the provider and try to get a calendar that fits your company. If corrections are needed, one day is rarely enough, so aim for at least two days for review and approval.

Reflect all relevant public holidays in the calendar too. Say your payroll contact is in Finland, the people who pay the salaries (finance, treasury) are in Sweden, your employees are in the Netherlands and the global payroll provider is in the UK. In that case you probably need to consider the public holidays of all four countries to some degree.

Local pay peaks need a place in the calendar as well, and holiday pay works very differently across the Nordics, Baltics and . These differences change the size of a pay run and should show up in your data.

Then comes the go/no-go decision: are you ready to move to the new payroll? Don’t take it lightly. A perfect situation is rare, but if major open issues remain, they will surface quickly in the first pay run, and employees will be the first to see them.

How should you communicate the change to employees?

Changing payroll provider is a surprisingly big change for the organisation. Processes and systems lie behind it, but for employees it comes down to one thing: does my pay arrive on time and in the right amount?

So invest in communication. You can hardly do too much. A change like this easily creates uncertainty, especially if earlier changes have gone badly.

Clear, repeated communication helps a great deal. A good message says what changes and when, and who to contact if something doesn’t add up. Employees care most about their payslips, so tell them clearly where they will find their payslip from now on. Also be ready for mistakes and correct them quickly.

What happens after the switch?

After the switch comes a stabilisation period. Monitor the first pay runs more closely than usual and reserve time for corrections. Agree in advance who answers employees’ questions and how errors are reported to the provider.

 

Sources

• Lön och ersättning | Skatteverket
• Annual Holidays Act | Finlex
• RTI overview and legislation – GOV.UK
• Feriepenger – Skatteetaten
• Skat.dk
• Deadlines and payment – The Norwegian Tax Administration
• Deklaratsiooni TSD esitamine | Maksu- ja Tolliamet
• Emta.ee