If your company’s expanding into new international locations, chances are you’re thinking about partnering with a payroll outsourcing provider. This is a great move as it allows you to avoid the costs of hiring local experts in every region and streamline your operations.
However, it’s not always as simple as that. Hidden costs can climb as you scale and you might not even have centralized visibility over this.
In this guide, we take a real look at the costs involved with payroll outsourcing before exploring what’s usually the most cost-effective solution. We’ll explore the three most popular payroll outsourcing methods – local vendors, Employer of Record solutions, and global payroll platforms – to help you weigh up your options.
What are payroll outsourcing services?
Payroll outsourcing involves delegating payroll processing – and the burden of compliance, calculations, and payments – to an external provider. There are three main ways to do this within the context of global payroll:
- Using local vendors
- Using an Employer of Record (EOR)
- Using a global payroll solution
Using a local vendor
Companies turn to outsourced local payroll providers when they first expand into new territories. These local vendors offer region-specific expertise in tax regulations, labor laws, and payroll administration. They also manage payroll calculations, statutory deductions, filings, and payments to employees and authorities.
For companies unsure how to pay international employees, using a local vendor can seem appealing, especially in comparison to hiring in-house payroll specialists for every country of operation.
However, there are several risks and hidden costs associated with this approach. We’ll cover these in detail later in the article.
Using an Employer of Record (EOR)
An Employer of Record (EOR) is a third-party organization that helps companies hire, manage, and pay international employees.
An EOR provider officially employs the worker, managing all aspects of employment and compliance on your behalf – including payroll.
Platforms like Multiplier’s EOR pay international employees on your behalf in their local currency while complying with local tax and labor laws.
Using a global payroll solution
A global payroll platform processes payroll for employees in multiple countries – automating tax, compensation, and benefits calculations in line with local laws with the support of experts.
With Multiplier’s streamlined global payroll solution, you can see all payment data in one simple dashboard – whether that’s employees you hire directly, those managed through our EOR, or contractors you’re paying for projects.
How do payroll outsourcing providers structure their payroll costs?
Now we’ve covered the options for outsourcing global payroll, let’s take a look at how the different types of providers structure their payroll costs.
Local vendors
Outsourced payroll costs vary among local vendors, and depend on the provider, country, and level of service required. These costs are also hard to predict. “Many local payroll providers charge based on unpredictable factors like their own system limitations or unexpected service fees,” explains Menaka Karthikeyarayan, Multiplier’s Director of Payroll Operations.
Many local payroll providers structure their pricing around a per-employee, per-payroll-run model. And while this may seem straightforward, many providers charge additional fees that can make outsourcing more expensive than expected. For example, some providers charge more for essential services such as year-end tax filings, compliance updates, off-cycle payments, and amendments to payroll data.
Local payroll vendors can also impose setup fees and monthly account maintenance charges. Services that relate to complying with local tax and labor laws are frequently offered as costly add-ons, despite being a core risk area for global businesses.
As a result, companies outsourcing payroll to local providers may struggle to predict their total payroll services costs, especially when dealing with multiple vendors for multiple jurisdictions. “Smaller providers, often sole proprietors, may lack the robust infrastructure to offer transparency in pricing, which can result in hidden or unclear costs for businesses,” warns Karthikeyarayan.
This is compounded by the fact that, as you begin to use several local vendors, your cost data gets distributed across multiple systems.
EOR providers
Employer of Record (EOR) platforms provide a comprehensive payroll and compliance solution for companies with an international workforce. Pricing is typically based on a fixed monthly per-employee fee or a percentage of each employee’s salary.
Some EOR platforms also deliver additional valuable services that relate to paying a global team, including:
- Local compliance management
- Employee benefits administration (healthcare, pension contributions, etc.)
- Work visa and immigration support
Global payroll providers
Global payroll solutions centralize multi-country payroll management into a single platform, offering businesses a streamlined way of processing payroll across different regions.
Their pricing models typically have a per-employee, per-month structure, although some providers charge based on usage (e.g., number of payroll runs, etc). Some providers also charge monthly or annual base platform fees.
The real cost of relying on local payroll vendors
Pricing isn’t the only factor to take into account when weighing up your options for payroll outsourcing. When it comes to using local vendors, there are some hidden costs and additional risks to be aware of.
Lack of data visibility and control
Outsourcing payroll to multiple local providers means fragmented reporting and a lack of centralized payroll data.
Without real-time access to payroll information from a single “source of truth”, companies are unable to track labor costs across regions, analyze payroll trends, and ensure that payments and deductions are accurate and consistent.
Relying on local vendors also means that companies lack control over their compliance with local tax and data laws. As Karthikeyarayan puts it “100% dependency is created on these local providers and we are sometimes forced to go by their decisions.”
The cost of non-compliance
Outsourcing payroll to local vendors doesn’t eliminate compliance risks – it can actually increase them. Local providers may be able to handle tax calculations and filings, but they can’t guarantee compliance with local tax and labor laws.
Unless companies pay for costly compliance monitoring services, they won’t know whether their vendor is taking the necessary action to ensure compliance, like addressing changes in local tax regulations proactively.
Responsibility for any mistakes, late payments, or misinterpretation of the rules, lies with the company – not the local vendor – and the repercussions can be both costly and serious. Financial penalties, reputational damage, and even legal action are just some of the potential consequences of compliance breaches.
As Sagar Khatri, co-founder and CEO of Multiplier, puts it: “The cost of non-compliance is high. Even if you’re delayed by just a day paying social contributions, you’ll pay a large fine. It’s important to understand your risks.”
The risk of fraud or theft
Karthikeyarayan warns companies to be extremely cautious when thinking about using local payroll vendors. “Most of the local service providers are either sole proprietorships or individuals,” she warns. “This makes it inherently risky to trust them with money or payroll processing.”
Operational inefficiencies and delays
Relying on external providers for payroll processing can introduce delays, especially when changes need to be made. Payroll adjustments, off-cycle payments, and corrections may require lengthy approval processes, leading to frustration for both employees and payroll teams. Additionally, coordinating with multiple providers across different time zones and languages can slow down issue resolution and increase administrative overhead.
What might, at first, seem to be a manageable solution for a few international locations can quickly become unwieldy as a business expands. For each new country the company expands into, payroll is required to source, vet, and manage yet another local provider, often dealing with time differences and language barriers in the process.
Inconsistent quality of services and systems
With local payroll outsourcing, payroll teams face inconsistent systems and varying levels of customer service from providers. “These small-time local providers might not use great systems for processing payroll,” Karthikeyarayan warns. “Chances are that they process payrolls on Excel sheets.”
Inconsistencies between multiple providers don’t just cause administrative headaches for payroll staff. They can also increase the risk of regulatory breaches, which can result in fines, legal disputes, or reputational damage.
The most cost-effective solution
To find the most cost-effective and compliant solution for paying international employees, there are several important factors to consider. Here, Michael Nierstedt, Payroll Product Director at Multiplier, shares his top three features to look out for and questions to ask.
1. A technology-first approach
When you’re looking for a payroll service provider, consider the extent to which the solution makes use of technology. “Employers really should look at solutions that lead with a technology-first experience” Michael shares.
One way to identify a truly tech-driven solution is by checking whether the provider openly showcases its platform. “My general rule is if a service provider isn’t showing screenshots and/or videos of their products, then they’re not a technology-first organization,” says Michael.
2. A single system that integrates with existing processes
A payroll service provider should do more than simply process payments. It should integrate seamlessly into a company’s existing HR systems. “Look for a solution that can incorporate itself into your People Experience’, Michael urges, adding that a provider should be able to share data across other HR systems, regardless of location.
Khatri echoes this view. “In payroll, integrations are very important”, he says. “We’re creating an ecosystem where we can speak to all the top solutions.” Multiplier integrates with HR and accounting tools to streamline operations, eliminate manual data entry errors, and enhance overall efficiency in payroll processing.
3. A solution that is compliant-by-design
Payroll compliance is one of the biggest benefits of outsourcing payroll. As such, any solution should be geared towards solving these issues efficiently and effectively. “However it delivers its services, any global outsourcing provider has to manage the compliance tasks that matter most to payroll, like escalations, notices, tax payments, and filings,” Michael explains.
Compliance-by-design means that every aspect of the payroll process is built with local regulatory requirements at the center, automatically updating alongside changes to tax rates and local laws. Local experts support in each region, but the system is designed to adapt to local regulations without the need for constant manual intervention.
Choosing a scalable payroll outsourcing solution
While outsourcing to local vendors can work in the short term, it can leave you navigating a mess of direct and indirect costs. A global payroll platform, like Multiplier, brings all your data and payroll processes into one place.
As you grow your international headcount, we’ll keep you compliant in every country – and across country-specific labor laws and regulations – making payroll adjustments for time off and adjusting tax rates based on real-time updates.
Our payroll experts are stationed all over the globe, equipped with local knowledge and multiple languages.
Multiplier’s global payroll solution has:
- 100% compliance and 99.95% accuracy are guaranteed in every pay cycle
- On-the-ground local expertise
- Support for 100+ currencies
- 24/5 help around the clock
Make global hiring a breeze. Book a demo to find out more.
Payroll outsourcing costs FAQs
What are the security risks of outsourcing payroll?
Security is a critical concern when outsourcing payroll, particularly when dealing with small, independent providers who may not have robust payroll security measures in place. This increases the risk of data breaches, fraud, and mishandling of sensitive employee information. Global payroll platforms like Multiplier typically have strong security protocols, including encrypted data storage, role-based access controls, and regular security updates, to ensure the safety of your payroll data.
Is a global payroll solution suitable for companies with a small international presence?
Yes, global payroll software like Multiplier can be an effective solution even for companies with a small international footprint. It scales easily as your company grows, so you’re not burdened with managing multiple local providers as you expand into new regions. The platform centralizes payroll processes, making it easier to ensure compliance and handle payroll across countries, regardless of company size.
