Global payroll strategy: what it is and how to create one

Global payroll involves numerous processes, systems, and vendors, which makes it incredibly complex. Without a firm strategy that defines processing standards and explains how payroll should be managed across geographies, the complexity can quickly become overwhelming. Creating a detailed global payroll strategy can prevent this.

What should be included in a strategy for multi-country payroll? How to develop a global payroll strategy that is tailored to your business’s needs and offers enough flexibility to scale operations as you grow?

A global payroll strategy is a roadmap for your cross-border payroll operations that outlines how to manage people, processes, systems, and providers across locations. It’s a detailed plan for organizing, streamlining, and centralizing payroll processes in order to gain complete global oversight.

The main focus of a strategy for global payroll management is to develop a framework that allows you to gradually increase the strategic value of your payroll while simultaneously improving efficiency, accuracy, and compliance.

A global payroll strategy is essential for future-proofing your payroll operations. But what requirements must be met for international payroll operations to be effective?

A successful global payroll strategy should be:

• Resilient: The recent COVID-19 pandemic has revealed several weaknesses in global payroll. In order to prevent disruptions, a global payroll strategy should focus on resilience across the entire payroll operation.

• Scalable: Once you start expanding into new markets, you usually keep growing your global presence. Your global payroll strategy should reflect your business’s need for growth by providing scalable solutions, processes and workflows.

• Comprehensive: Global payroll is multifaceted and complex. All the different elements that are important when running a multi-country payroll should be included in your global strategy, hence creating the need for a comprehensive, detailed framework.

• Centralized: Centralizing processes is key when it comes to running a successful global payroll. The same goes for a payroll strategy for a multinational organization. Create a central document that can serve as a reference for vendors, processes, and payroll standards across all your geographies.

A global payroll strategy isn’t created overnight. Instead, the whole process requires careful planning and consideration. In other words, global payroll managers need to invest time and effort into their payroll strategy project.

Many payroll professionals wonder if it’s really worth taking time out of their busy schedule to build a strategy for their global payroll. Also, the thought of having to put the business’s entire global payroll operation into a formalized strategy can be very daunting.

In the 2021 EY Global Payroll Survey, 67% of organizations said they had a payroll strategy in place. Looking at the survey results, Ernst & Young concludes that “[having] a formal payroll strategy is critical”. There are several reasons for this:

• A firm payroll strategy reduces risks and increases global payroll compliance.

• Creating a leading global payroll operation model requires a strategic approach. 

• Approaching payroll in a strategic way enhances the overall efficiency of the payroll.

• Having a proper strategy in place enables businesses to leverage the full strategic potential of their payroll.

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Before you can start working out the details of your global payroll strategy, there are some preliminary considerations to take into account. This includes:

• Global payroll expertise: Expanding into new markets and setting up a local payroll always comes with a new set of challenges. The available payroll expertise in your organization is an important factor when it comes to deciding whether to keep payroll in-house or outsource it to an in-country partner.

• Global payroll technology: Running a global payroll is not possible without a robust tech infrastructure. Manual payroll processing is often not an option for small local businesses, and definitely not for large multinationals. Before working on the finer details of your strategy for payroll, you should take inventory of the systems and tools you are already using and identify existing pain points you would like to solve with your global payroll strategy. Also, consider whether your current set-up is scalable and future-proof.

• Global workforce: Payroll is all about people. That’s why you should also think about your global team when starting to develop your payroll strategy. Get a clear picture of where team members are located, which countries you want to hire new staff in next, and what employment types should be considered (e. g. full-time employees, part-time employees, or freelancers).

• Global payroll expenses: Salary payments account for the largest share of global payroll costs. However, there also is the cost of running payroll to consider. The more complex your global payroll set-up and the more software tools, payroll professionals, and vendors are involved in the process, the higher the cost of your payroll. One aim of creating a global payroll strategy should therefore be to reduce payroll processing and management costs. Identifying potential cost savings is part of the preliminary work.

Many businesses that want to create an effective global payroll strategy face one major hurdle in the beginning: They simply don’t know where to start. Given the complexity of global payroll, a comprehensive, all-encompassing strategy is needed. But what are the pillars a payroll strategy is built on? What are the key areas it should cover?

Global payroll accuracy and efficiency

One of the main objectives of creating a global payroll strategy is optimizing global payroll processes with regard to accuracy and efficiency. This means that such strategies must provide answers to questions like:

• How to ensure similar levels of quality in payroll processes and services across geographies?

• What aspects to prioritize when drafting payroll SLAs for new payroll partners?

• How to connect systems and providers to ensure frictionless data transfers?

• What payroll KPIs to keep an eye on to track improvements?

Global payroll compliance

Payroll compliance is one of the main concerns for businesses whose payroll operations span across several geographies. This makes compliance one of the key areas that should be included in any global payroll strategy. Aspects that should be covered include:

• Where to get information on legislative changes that affect payroll,

• How often to check for legal updates,

• How accountability for payroll compliance is distributed between in-house teams and/or external payroll providers, and

• How to minimize the reputational and financial repercussions of compliance mistakes.

Global payroll model and payroll vendor management

With regard to the global payroll model, your payroll strategy should detail:

• Whether payroll is kept in-house or outsourced, or if a hybrid approach is preferred,

• Which geographies are covered by a local payroll provider and which ones are covered by the in-house payroll team, and

• Whether you want to work with a centralized or decentralized payroll.

Depending on your chosen global payroll model, you will also have to decide on how to manage your payroll providers or partners. Think about:

• Attributes and qualities to consider when choosing new payroll providers,

• Challenges and solutions linked to multi-vendor management,

• Feasibility of working with a single payroll provider who offers the necessary global coverage to support your business’s needs.

Tech infrastructure for your global payroll

The next point to address in your global payroll strategy is the technical side of running your multi-country payroll. This includes deciding on aspects like:

• Choosing between a cloud-based or self-hosted payroll system,

• Leveraging payroll automation to increase payroll efficiency and reduce payroll errors,

• Consolidating your global payroll to avoid data disparity due to the high number of systems and providers,

• Deciding on the key measures to ensure payroll security,

• Setting standards for the needed payroll software integrations,

• Outlining the use cases and requirements for leveraging payroll analytics, and

• Defining requirements for global payroll reporting.

Global payroll governance and risk management

Payroll, and especially multi-country payroll, poses many risks for organizations. Understanding and mitigating these risks is an integral part of working out a global payroll strategy. A global payroll governance framework is the basis for successful risk management.

Your global payroll governance framework should address questions like:

• Who are the global, regional and local process owners?

• How are roles and responsibilities distributed on a global, regional, and in-country level?

• What are the best practices to adhere to for payroll standards, processes, and policies?

Based on this governance framework, a global payroll strategy should define how risks should be managed across the entire payroll function. This includes aspects like:

• Regular payroll audits,

• Internal control structure and segregation of duties between different actors in the global payroll architecture, and

• Documentation and self-assessment on different levels.

Even if you know what aspects to address in your global payroll strategy, things can still go wrong. Here are some final tips to help you succeed:

• Know where you are going: Don’t just think about the here and now when working out a strategy for your global payroll, but already consider any existing or potential expansion plans.

• Focus on your most urgent issues: The main global payroll challenges faced by multinationals are global payroll compliance, multi-vendor management, and manual data handling. But on top of these common pain points, every business has its own individual struggles when it comes to payroll. These struggles should be prioritized when working out a global payroll strategy.

• Align your global payroll and expansion strategies: If expanding into new markets is on your roadmap for the next few years, this should be reflected in your payroll strategy. In this case, it is important to pay close attention to growth trajectories to ensure the scalability of your global payroll operation.

An organization’s global payroll strategy is the central document that determines how global payroll should be managed from start to finish. It is built on several pillars that range from payroll compliance to multi-vendor management to payroll governance. For a global payroll strategy to be effective, it needs to be resilient, scalable and comprehensive, detailing all the important aspects linked to your business’s payroll operations.

One of the key components of a global payroll strategy is the choice of a global payroll model. This mainly involves deciding between a centralized and a decentralized approach. In the long run, a decentralized payroll costs businesses more money than a centralized system, which is why a growing number of multinationals opt for a centralized global payroll solution like Lano.

Lano’s global payroll consolidation platform allows you to manage all your local payrolls under one roof. Centralize employee and payroll data for all of your entities, synchronize payroll changes automatically from your HRIS, and get standardized, consolidated reporting for your entire global team. Book a demo with one of our global payroll experts to learn more.