Multi-country Payroll Outsourcing: The Changing Shape of Technological Advancements and Analytics | Sherpas in Blue Shirts

Posted On March 12, 2013

The multi-country payroll outsourcing (MCPO) market has grown at a CAGR of more than 30 percent during the last three years, and we expect this momentum to continue. And while this high growth rate may provide ample opportunities to MCPO providers, increasing competition is constantly pushing them to add more value to their offerings and invest in innovative solutions. As technology is the backbone of any global payroll solution, it takes center stage in this investment spend.

Three primary types of technology solutions enable gross-to-net calculations for multiple countries:

  • Single platform – Essentially a single system on one database that handles core payroll processing (gross-to-net) for all countries. This is appropriate for organizations that have a sizeable number of employees in each country of operation and want to replace their existing HRIS solutions.
  • Aggregated – Involves separate in-country software systems that process payroll at the country level. The payroll data from each country is then aggregated to provide a consolidated view to the buyer. This solution is better suited to an organization that has a small employee population spread across multiple countries with a large employee base in others and wants to leverage its own incumbent payroll platform.
  • Integrated hybrid – This is essentially a mix of a single platform solution and an aggregated solution.

Although the aggregated technology model is currently the most prevalent in the global payroll market, use of single platform and integrated hybrid solutions is rapidly emerging. Service providers are moving toward a single platform solution to enable greater centralization and standardization. However, given the difficulty in covering countries with small employee populations, it will become increasingly challenging to cover the entire globe with a single platform solution, especially as organization continue to expand into new locations. Hence, we expect adoption of the integrated hybrid model will increase in the coming years.

Consistent with other HR services areas, buyers’ interest in innovative, value-add, “consumerized” MCPO solutions is rising quickly. There is a growing need to enable employees to work from any remote location, at any point in time, and on any device of their choice. To cater to this demand, service providers are investing in the development of applications for mobile devices and smart phones. These apps will, for example, allow employees to receive notifications of their salary payments on their mobile phones, view their payroll summaries instantly, and submit their timesheets. In addition to increasing accuracy and timeliness, this consumerization also enhances employee engagement, satisfaction, and self-service.

Analytics and reporting is another hot segment within the MCPO market. Companies are increasingly looking for ways to better plan their future course and align their workforce to their business goals. Using business analytics on payroll data can help organizations achieve these objectives by providing critical insights related to absenteeism and employee turnover, aligning salary payouts (a significant chunk in P&L of many companies) with talent availability, and assisting in long term planning by way of salary budgeting and forecasting. Another area that both buyers and service providers are now concentrating on is consolidated global reporting (or single currency reporting). Although companies achieve some level of standardization and centralization from a “one provider for multiple countries” payroll model, truly global payroll is still evolving. Employing analytics around exchange rate synchronization can help companies achieve a consolidated reporting system. Service providers, therefore, need to focus on analytics as a value-added offering.

Buyers looking to achieve competitive advantage need to evaluate providers’ offerings on a holistic basis, rather than simply looking at their core payroll solution. As gross-to-net and other payroll sub-process capabilities have become table stakes, service providers now need to offer more value-add to obtain a first mover advantage. Technology and analytics capabilities can help them gain this competitive, differentiating edge.

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