The advantages of the in-country partner model in global payroll

Global payroll providers can operate based on two different service delivery models. They can either open their own legal entities in the countries or regions where they offer their services, or they can provide their services through a network of in-country partners (ICPs).

When talking to clients, we often find that the question of which model is best sparks both curiosity and concern for international businesses that are looking for a suitable provider to cover their global payroll needs.

This article provides an in-depth analysis of the pros and cons of the ICP model for global payroll and debunks some common misconceptions.

Before we dive deep into the advantages and limitations of the local partner model, let’s first have a look at how the two models compare in terms of operations and set-up.

Owned-entity model

Under the owned-entity model, global payroll providers establish their own legal entities in every country where they offer their services. While this approach enables providers to maintain full control over their operations, it also involves substantial challenges, such as high set-up and maintenance costs, significant administrative responsibilities, and slower entry into new markets to respond to the service needs of rapidly growing international businesses.

In-country partner model

The ICP model is based on partnerships with local experts to deliver payroll services in specific markets and regions. These partners handle localized operations and ensure compliance with local labor laws and regulations while making sure that fine cultural nuances are respected. By building an international partner network, global payroll providers can easily scale the coverage of their solutions and quickly enter new markets.

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When comparing the ICP model and the owned-entity model, the partner model proves to be the better choice regarding most of the main considerations for choosing global payroll solutions.

Real local experts

One major advantage of the ICP model is the unparalleled expertise that in-country partners bring to the table. Navigating payroll in different countries requires an in-depth understanding of each country's labor laws, compensation rules, tax regulations, and the fine cultural nuances surrounding pay and benefits. Working with local specialists is the only way to understand the intricate details and unique demands of each market.

Improved compliance

Real local expertise directly translates into better compliance. Unlike owned-entity providers that often operate through regional hubs, where teams manage payroll compliance for multiple countries without being familiar with the specifics of each market, ICPs are always up to date with the latest regulatory changes in their jurisdictions. This minimizes blind spots that are often associated with regional teams and ensures a proactive approach to compliance.

Another compliance-related advantage of the ICP model is that the payroll calculations that are performed by the ICPs are independently reviewed by the global payroll provider. This double-layered approach is far more robust than owned-entity models where the solution provider effectively audits their internal team’s own work.

Proven track record and vetted operations

Setting up direct entities to provide global payroll services may seem like a straightforward plan, but the reality is far more complex. Even with a team of highly skilled payroll experts, a newly established entity cannot match the operational maturity of a seasoned ICP that has a proven track record with years of experience during which they developed robust processes.

Flexibility and best fit

Flexibility is another major advantage of the ICP model. While the owned-entity model ties clients to a single service provider per country with no alternative options, the local partner model provides a choice of different providers. This means that businesses can seamlessly switch to another ICP within the partner network if the current provider doesn’t meet the expectations.

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Tailored services

Every client is different, and so are their needs. By working with multiple partners in each country, global payroll providers can offer customizable solutions and address the unique requirements of each client individually—whether they need specialized tax expertise or require help managing a complex payroll set-up. A single local entity cannot offer this level of specialization.

Quality of service

Global payroll providers vet their ICPs before adding them to their network and typically re-assess their performance and service delivery on a regular basis. The clear separation of service delivery and oversight ensures an objective evaluation of the services provided. The direct-entity approach, on the other hand, lacks this independent evaluation, since solution providers with this operational model basically audit their own teams which often leads to a conflict of interests.

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Real global coverage and scalability

In contrast to wholly-owned infrastructures, the ICP model allows for easy scalability and truly global coverage. Establishing a legal entity is time-consuming and expensive, which considerably limits the country coverage of direct-entity providers. Solution providers that operate with local partners, however, can rapidly add new ICPs to their network to cater to specific client requests and expand their services to cover new markets.

Cost effectiveness

Establishing and maintaining legal entities in multiple countries leads to significant overhead costs—costs that are often passed on to the end client. A global payroll provider that works with local partners avoids these expenses and can offer competitive pricing without compromising on service quality.

Although working with in-country partners to provide global payroll solutions offers many advantages, the model also has its drawbacks. Here are two reasons why the ICP model might not always have the upper hand in all cases.

Better suited for larger organizations

The in-country payroll provider model typically demands a degree of process optimization and technological infrastructure that very small companies may not have in place. For organizations that are still building operational maturity, this model can introduce unnecessary complexity and resource strain.

Redundant for straightforward payroll environments

In countries with uncomplicated payroll regulations, the need for a specialized in-country provider may be diminished. For businesses operating in these environments, simpler, cost-effective solutions can often achieve the same outcomes without added overhead.

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There are some recurring questions and concerns regarding the partner model in global payroll that frequently come up in our conversations with clients. While we can't answer for every global payroll provider operating with local partners, we can provide insights into how we manage the ICP approach at Lano.

Common concerns surrounding the partner-based approach are centered around issues such as poor communication, lack of standardized SLAs, long response times, non-digitized practices, and an overall lack of centralization. Let’s deconstruct these misconceptions one by one.

Myth #1: No centralized communication and slow support

Misconception: Using an ICP global payroll solution means having to deal with multiple third parties and accepting substantial waiting times.

Reality: Lano provides clients with a dedicated account manager who acts as the single point of contact and takes over ICP coordination and communication. Our SLAs guarantee a first response within 8 hours for urgent queries. The genuine local expertise of our ICPs further helps achieve faster response times compared to providers that operate through regional hubs.

Myth #2: Non-standardized level of service

Misconception: Having a solution provider that works with different ICPs means patchy service and varying service levels.

Reality: Inconsistency in service delivery when working with local partners only happens if the partnerships are not properly managed by the global provider. This can easily be avoided by introducing clear payroll SLAs and choosing ICPs that have a strong service offering. Lano’s provider vetting process is significantly more thorough than the industry standard, ensuring that our clients receive best-in-class payroll services across all locations.

Myth #3: Lack of transparent pricing

Misconception: Global payroll providers that leverage an ICP network for their services have complex pricing structures with hidden fees and a variety of additional costs.

Reality: The ICP-model is no obstacle to a transparent pricing structure. At Lano, we collect all the necessary information about fees, including set-up fees and additional charges, from our ICPs, standardize it, and adapt it to our pricing model to create full transparency for our clients.

Myth #4: Lack of responsibility and commitment to compliance

Misconception: A global payroll provider that works with ICPs does not assume responsibility for the quality of the services provided or any non-compliant practices carried out by the local partner.

Reality: Lano’s responsibilities are clearly outlined in the service contract that is concluded with clients and range from delivering timely and accurate payroll outputs to resolving payroll- and compliance-related queries in the shortest delay possible. We commit to compliant payroll practices and take responsibility for ensuring that our ICPs actively follow local compliance.

Myth #5: Negative side effects of having an intermediary

Misconception: Having an additional intermediary in the communication between client and ICP results in long response times and poor outcomes.

Reality: At Lano, we act as a single point of contact for our clients across multiple locations, seamlessly navigating diverse languages, jurisdictions, and time zones. Despite dedicating an account manager to each client, all external communication happens through a ticketing system, which makes information accessible across all team members and enables us to track response times.

Myth #6: Questionable quality and expertise of ICPs

Misconception: Global payroll providers that work with local partners don’t have the necessary expertise to accurately assess the professionalism of the ICPs and therefore cannot provide any assurance regarding the quality of their partners.

Reality: Lano collaborates with ICPs who leverage years of expertise in payroll and compliance. To ensure the highest standards, we conduct comprehensive audits of both new and existing providers covering legal compliance, data security, technology, commercial practices, and payroll expertise. Additionally, we validate our assessments through customer reference calls to gain first-hand insights into the quality of service and the overall client experience.

As shown in this article, the ICP model for global payroll has significant advantages over wholly-owned infrastructures. Compared to providers that operate through their own legal entities, global payroll providers that leverage a network of vetted in-country partners score higher when it comes to crucial aspects like expertise, flexibility, scalability, ancillary services, and service quality.

At Lano, we offer global payroll services across a range of over 170 countries through a network of local partners who leverage years of experience in the industry and know the intricacies of payroll and compliance in their jurisdictions like the back of their hand. Book a demo with one of our global payroll experts to learn more about what sets us apart from other solution providers.