Since 2020, many companies have leapt forward in their digitisation and digitalisation initiatives. This sudden steepening of the technology adoption curve represents a jolt to established ways of working, prompting company leaders to reconsider the interplay of outsourced technology solutions and how the complex business partnerships behind them can generate value for the organisation.
A growing ecosystem of internal and external contributors
Outsourcing has existed in some form or other since the industrial revolution, although it wasn’t cemented as a mainstream business strategy in its modern form till the 1980s. Since then, many companies have relied on the advantages of working with external partners to:
- Optimise productivity and achieve cost efficiencies
- Gain access to new technologies and talent pools
- Help reposition themselves in response to economic cycles and emerging trends
The way we work has now changed. Business leaders in internationally expanding companies are paying more attention to their outsourcing value networks as they look for ways to adapt to ‘new normal’ expectations and dynamics.
At the same time, many firms are experiencing a blurring of boundaries among categories of internal contributors. Full- and part-time permanent staff, contingent workers and third parties such as freelancers and consultants all form a vital part of the workforce ecosystem, whether they’re directly on the payroll or not.
Why companies outsource payroll
As a prime example of a non-core business function, decades ago the work of the payroll department was one of the first that companies elected to contract out. (Founded in 1949, ADP positioned itself at the vanguard of this new industry as a manual payroll processing provider.)
The reasons why companies outsource their payroll operations have remained fairly consistent over the years. Typically, the decision might be prompted by ‘final straw’ situations such as fines for noncompliance, a data security breach or high staff turnover triggered by errors in calculating employees’ wages. More mundanely, HR and finance leaders will outsource payroll when they face limited personnel or technological bandwidth in-house.
These motivations prevail today, alongside more strategic business aims surfacing at the top of the agenda of growth-focused firms, such as:
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Enhancing operational efficiency, reducing costs and improving performance |
65% of senior payroll professionals say they’re reviewing how their company can run payroll with fewer payroll staff1 |
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Access to greater reporting and analytics tools as part of payroll digital transformation |
45% of senior payroll professionals would like to see their payroll teams spend more time on analytics and reporting1 |
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Integrating payroll data with other HR applications and time & attendance systems |
32% say their organisation’s IT teams are spending on average 30+ hours per week on managing data flow between business and payroll systems1 |
72% of businesses are ready to consider outsourcing all or most of their payroll processes1
Adapting to a changing landscape
The global payroll outsourcing services market is predicted to increase at a compound annual growth rate (CAGR) of 5% from 2024 to 2029.2 What’s fuelling such remarkable growth?
Since 2020 firms have started to extend their ecosystem of vendors and suppliers and cooperate with a wider range of partners in response to several significant socioeconomic changes. (These include increased consumer and employee focus on the merits of global cooperation, supply chain disruptions and the shift to a more geographically dispersed workforce).
Today, organisations are asking more of payroll than ever before. No longer is it enough to simply deliver accurate and timely pay — payroll is becoming more strategic. Businesses are discovering that it can help increase staff loyalty and drive new talent acquisition. It also improves efficiency, delivering greater profitability while using intelligent data to drive better decision-making. Essentially, payroll is now a contributor to business value, not just a bottom-line expense. But to deliver this successfully, businesses are recognising the need for real expertise, which is why more are outsourcing their payroll.
Here are some of the key drivers for global payroll transformation and how outsourcing payroll can help businesses achieve it:
- Adopting artificial intelligence within the payroll process. There’s significant pressure to do more with less, plus staff shortages are taking effect. More businesses are relying on technology to streamline processes, expedite repetitive tasks and help with complex requirements such as data analytics.
- Improving the employee experience. Businesses want to use innovative payment methods and services to deliver an improved flexibility for employees — helping to maintain staff satisfaction and loyalty.
- Enhancing data security. Cyber-attacks are on the rise, so maintaining data integrity has never been more vital.
- Delivering seamless integration. Organisations seek greater integration of payroll data with other business systems to reduce time spent managing information.
- Securing payroll skills and talent. With greater expectations comes the need for more specialised skills to meet the business’s strategic goals.
When it comes to your global payroll function, how do you go about striking the right balance between internal resources and outsourced expertise, and what are the main considerations?
Orchestrating a payroll partner ecosystem
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Gain internal consensus on the optimal number of payroll partners for your organisation
For as many companies that will tell you a single global payroll provider can’t manage all multicountry payroll needs, ADP has clients with outsourced payroll strategies who would cheerfully say the opposite.
Does partnering with a larger number of payroll providers inherently degrade the quality of the vendor-client relationship? It’s certainly true that with more B2B partnerships come inevitable consequences:
- More vendor management and liaison responsibilities
- Less internal control
- Cost implications
- And the need for an intentionally integrated technological approach to managing an ample partner ecosystem
How much you consolidate will depend on your vision for your company’s payroll function of the future and how you plan to elevate it to the status of a strategic business asset. Are you looking for external partners to complement the capabilities of your payroll specialists in-house, or shoulder the brunt of the work through a fully managed service agreement?
The driving factor behind your company’s optimal number of ecosystem partners shouldn’t be the size or location of your workforce, but what makes most sense for your business. A true partner will have your company’s interests at heart, however that impacts the configuration of your global payroll provider value network.
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Mitigate the risk of interdependencies
We’ve touched on a few already, but there are other risks to think about, not least in the technology licencing field.
- How will vendors’ individual technologies interact with each other, and could this at any moment disadvantage your company?
- Have you identified and accounted for all the ways in which cross-provider data sharing presents a risk?
- If you’ve collaborated with a business partner to create an application, do you need to safeguard your company through joint intellectual property (IP) ownership?
- Have you conducted a cost-efficiency study analysing whether the entirety of external providers is currently contributing more than internal assets to your value network?
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Develop a strategy to coordinate and capitalise on these interconnected relationships
Vendor governance isn’t just about having a dedicated team responsible for controlling costs and mitigating risks. How can you be sure that your network of outsourced payroll providers is collaborating in the most effective way? Start by mapping the interactions and end-to-end processes across the ecosystem. Identify any weak points and metrics needed to track not just individual performance, but the overall efficacy of the network.
What’s the magic number?
There is no one-size-fits-all number of payroll providers. It depends on your organisation’s size, locations, needs and goals. Some companies will be dealing with internal structures and politics that make a single mandated payroll solution impossible. Others will be working with a single provider who can’t cover all countries. Still others will face data security limitations that hamper implementing a global payroll model across their geographies.
What makes a profitable global payroll outsourcing partnership?
Outsourcing isn’t just a means to an end: companies nowadays expect and need a true business partner. But what criteria are essential for selecting such a payroll partner, and what are the inherent risks? How can you establish a mutually beneficial business relationship, and make sure it has the staying power to weather potential restructuring, carve-outs and expansion?
We’ve prepared a short guide to help you evaluate a potential payroll partner and ensure they have the experience and acumen to serve as a key member of your value network. Download it here.
1 ADP, The potential of payroll in 2025: Global payroll survey
2 Technavio, ‘Payroll Outsourcing Services Market by Product, Application, and Geography — Forecast and Analysis 2025-2029’
