12 questions to ask when hiring a global payroll provider

12 July 2023
Despite trade wars, geopolitical tensions, regionalisation and other headwinds to globalisation, companies continue to expand across borders to take advantage of new markets, broaden their talent pools and seek other benefits.

For any multinational to succeed, it must among other things develop and continuously manage a compliant, efficient, reliable and cost-effective international payroll processing system. Developing and maintaining cross-border payroll is extremely challenging and carries considerable risk in today’s global economy. An organisation typically must overcome challenges related to time zones, language and cultural differences, and country- and even state-specific regulations that affect payroll delivery.

Not surprisingly, many multinationals outsource their payroll management to a global payroll provider. These providers can keep businesses compliant with local labour and tax laws, create efficiencies and cost savings through consolidation, and provide other benefits.

That said, not all global payroll providers are created equal. Some specialise in a specific region, while others have a more global footprint. Some can provide authoritative advice, while others do not, meaning you’ll have to hire additional consultants to lower your payroll risks. And of course, they offer different payroll platforms and implementation plans.

As economic uncertainties persist and country-specific laws and regulations proliferate, companies seeking to expand internationally — or to make their current operations more efficient — should carefully evaluate multiple global payroll providers before hiring one. This article provides 12 questions to ask during the due diligence process to help ensure you find a provider that lowers your organisation’s compliance risks and decreases its administrative burdens. 

1. Do you actually process the payroll?

This is an important question in an industry where many global payroll providers don’t directly process payrolls but instead outsource the work to local providers. This arrangement can cause inefficiencies that may negatively affect the client’s service, including hindering the client’s ability to speak directly with an expert who’s running a local payroll.

2. Do your advisors offer payroll compliance information and other guidance related to the countries I’m operating in and the countries I’m considering expanding into?

Not all service providers employ advisors with expertise in different countries. Hiring a provider with global advisory services eliminates the need to vet and manage additional consultants to maintain compliance in all your countries of operation.

3. Do you offer employer of record (EOR) services?

Some global payroll providers offer employer of record, or EOR, services. Using an EOR in a country is distinct from establishing and running a traditional payroll. In the case of an EOR, the provider you hire acts as the employer of record (including providing local benefits) for your employees in the country in question, while you direct and control the workers. It’s a popular solution that’s appropriate in certain situations, such as when you’re testing a new market or after an M&A carve-out deal. Hiring a global payroll provider that also provides EOR services can give you flexibility as you grow — or wind down parts of — your organisation.

4. Can you set up and wind down legal entities, register payrolls, deregister payrolls, and establish bank accounts?

Although many providers claim to be specialists in all areas of international expansion and operations — from setting up bank accounts to winding down legal entities — some outsource the work to several suppliers. This causes a complex web of deliverables and failure points and can increase costs and risks. It’s beneficial to retain a supplier that can manage all aspects of your international expansion in-house.

5. How do you ensure that our payrolls comply with any new or changing regulations in each country of operation?

Staying updated on all payroll-related regulatory requirements should be a high priority for global payroll providers and their clients. The consequences of noncompliance — such as failing to meet minimum wage requirements for local workers — can include fines and penalties, reputational damage, and damage to worker morale. It’s important to hire a global payroll provider with experts that continuously monitor payroll-related laws and regulations and notify you when there’s a change in any of your countries of operation. Some providers use systems that automatically notify clients of regulatory changes, payroll reporting and tax filing deadlines, when insurance or other thresholds are reached, and more.

6. Can you describe the time and costs associated with the know-your-customer (KYC) process?

Increasingly stringent know-your-customer, or KYC, regulations have significantly affected payroll implementation in recent years, resulting in longer processing times across multiple jurisdictions. Complying with KYC regulations often requires expending significant resources for both the client and the provider. The process involves identifying all the legal entities linked to an organization and their respective business owners, along with gathering evidence and verifying the identities of these individuals. Don't underestimate the difficulty of this process, and gain as much knowledge about it as possible from the providers to understand their respective practices.

7. If I close down one or more entities after entering a payroll engagement with you, do I still have to pay for the terminated employees that were part of the original agreement?

It’s essential to understand contract terms because certain conditions may not be obvious. Some contracts stipulate that the same number of countries and employees specified at the start of a project stay unchanged throughout the duration of the payroll engagement. In that case, if one of your organisation’s local offices reduces its staff or shutters, you would still be obligated to pay the provider for the terminated employees.

You might notice this clause and mistakenly assume it won’t affect your organisation. Because of current global economic challenges (such as rising inflation and interest rates), however, corporate strategies may unexpectedly shift, causing your assumptions to backfire. To prevent unexpected charges, negotiate a grace-period clause in the contract that permits scope adjustments without termination fees or other costs.

8. Is it possible to generate one invoice in a single currency for all our payrolls?

Not every global payroll provider can produce an invoice in one currency for payroll in multiple countries — many providers must bill multiple invoices in various local currencies. Depending on the number of countries your organisation is operating in, or plans to operate in, the ability to receive a single invoice in one currency can greatly reduce your costs and administrative burdens.

9. Can I get an implementation project plan example for a typical client of our size, including timelines, milestones and budgets?

Reviewing an implementation project plan can provide insight into whether a provider follows best practices and whether the plan may require adjustments to meet your own business practices. The implementation plan should include information on transitioning from the current provider, connecting to your human capital management (HCM) system, and how to reduce the risk of losing key personnel during the transition.

10. Can you give me a similar example plan for integrating your payroll application with our systems?

Merging systems with payroll is an intricate endeavor that demands changes from individuals throughout an organisation. You should consider each integration process from a technological, operational and service-related standpoint. A provider’s integration plan must ensure that payroll data can be processed securely from different systems and that the data is verifiably consistent across systems. Make sure the project plan has clear milestones that don’t jeopardize the payroll's accuracy in favour of all systems going live concurrently.

11. What services will be provided during the months immediately following implementation — the so-called hypercare phase?

To make transitioning to the new payroll service as error-free as possible, negotiate a strong hypercare phase that includes intensive user support. This will increase the likelihood that problems are promptly resolved and will maximise your chances of a successful transition. Generally speaking, the provider should have their implementation personnel stay on the project for one to three months.

12. Can you tell me about the measures you take to ensure that we consistently receive high-quality payroll services?

Ask providers to describe their complete service delivery models, including whether they have a global delivery model (GDM) that uses proprietary software and shared services centres (SSCs). They should also provide a list of local offices where they provide payroll. Having local payroll experts who relay clear instructions and guidance can help you navigate complex regulations and ensure that business processes continue to run smoothly. They should also have processes in place that ensure service problems are addressed promptly and that service is continuously improved during the length of the engagement.