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Payroll Outsourcing Services: The Ultimate Guide for Overseas Employers

Running payroll in a foreign country can be overwhelming with the many different regulations to follow, and calculations needed using local rules.  Due to this, multinationals will frequently rely on payroll outsourcing to handle the administrative and compliance steps of paying employees.  Even when a company has set up its own corporate entity abroad, it makes sense to outsource payroll to a third party with in country experience.

This guide outlines the types of outsourced payroll services and the pros and cons of each, as well as how to select the service provider that is a good match for your business.

How do Payroll Outsourcing services work?

The payroll outsourcing service steps into the direct administration of running the payroll, including calculating and withholding tax or statutory contributions, filing reports, depositing funds for employees or issuing checks, and creating the payslips.

Exactly how this is accomplished and the range of services available will depend on the type of payroll provider selected.

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4 Types of Outsourced Payroll Services: Pros and Cons

There are four main types of payroll outsourcing services available, each with advantages and disadvantages.

Software/Online Services

There are payroll services offered online as stand-alone virtual systems, or to be used in conjunction with your existing accounting and HR software.  The advantage to this is the calculations are automated and payroll can be generated quickly after you input the data.  But the downside is that the software/system has to be programmed accurately and reflect the specific rules of the host country or you could end up with costly mistakes.

Full Service Payroll Providers

A full service provider will step into the shoes of your HR department for the purpose of running a local payroll.  The advantage here is the provider will typically be located in the host country and up to speed on all the local requirements, and will have a knowledgeable staff on hand to assist you.

The downside is that you will be handing over all of your employees’ data and information to a host country provider, and some HR departments may not want the loss of control or risk of the payroll service mishandling information.

PEO

A step up from a strictly payroll-only service is the PEO (Professional Employment Organization) which takes on a ‘co-employer’ role with the client-company.  They run payroll locally but may also administer employee benefits, oversee compliance and risk management via private insurance or worker compensation statutes.

These additional services are an advantage, but may create a false sense of insulation or protection when the PEO is not the actual employer of record.  The company will still need a local entity for other employment and immigration registrations, and will remain legally responsible for compliance.

Accounting/Bookkeeping Firms

A more traditional method of outsourcing payroll is to hire a local accounting or bookkeeping firm to handle it directly.  The accounting staff will be locally trained and certified, with current knowledge of professional standards and techniques which may give a company some peace of mind over an administrative payroll service.

This has the advantage of professional service and flexibility, but may not be suitable for larger companies entering a new country that need a wider range of services or more capacity.

4 Things to Look Out for When Choosing a Payroll Outsourcing Service

When you are selecting an outsourced payroll service, there are some key questions to ask before you make a choice.

How will they interact with you?

You will want to know if there is there a dedicated account manager for your company who will be a single point of contact.   This is the norm with accounting firms, but your staff contact may vary with full service providers or a PEO. 

This is a crucial question for online services where you may only be interacting via a portal with virtual customer support.

What is the cost of using a payroll outsourcing service?

All of these types of payroll providers each have a fee depending on the level of service and number of employees. You will need to ask if there are any hidden costs such as running out of cycle payments, paying bonuses or accrued leave and filing tax reports.

Do they provide any additional services?

You will want to know any additional services that might be offered if needed, and which ones are included already in the service fee.  For example, a local accounting firm could offer financial consulting on other business elements that go beyond payroll, and the PEO service typically has an array of functions available depending on your needs.

How easy is the process?

For HR departments, entering a new country is challenging enough and your payroll outsourcing should run smoothly.  Once the employees’ data is in place and payroll is set up, there should be no delays in monthly payments or reports.  Any discrepancies or issues should be taken care of quickly and easily so that HR does not have to intervene with the provider or government agencies.

Using a GEO Service for International Employment

While all of these payroll outsourcing solutions are viable and may work for many companies, there is an alternative that offers a more complete solution. A GEO (Global Employment Service) is a step beyond the PEO or third party payroll service, and acts as single point of contact for all international employment needs. 

Instead of managing several service providers to hire your international employee, the entire spectrum of employment, payroll and immigration compliance is managed by a GEO. You’ll be able to give your business the answers they need. Wouldn’t it be great to go back and tell your team that not only can you hire your overseas employee quickly and easily, but you can also do it without engaging multiple providers or setting up an entity – giving them all the costs and timelines upfront? 

You’ll receive the support of in-country experts to set up payroll, manage taxation, make all contributions and obtain needed work permits.  All of this is accomplished in full compliance with host country employment laws, to make your international employment simple.

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