The End of Payroll Aggregators
There is a famous saying:
‘The foundation of a company’s success, lays on the structure of its payroll’
Companies are managed by employees, and as long as the employees are happy, the company is bound to reach the height of progress. Satisfied employees:
- Offer their best of qualities
- Are utmost loyal to the senior management
- Never rationalize fraud
- Help to achieve goals
- Perform their roles with due diligence
But how to get this? To cut short, the satisfaction of employees is parallel to the PAYROLL SYSTEM. When being paid the right amount, at the right time, any company can buy, faithful team of workers, ready to perform excellence. No business can run without its people, hence payroll and Human Resource are one of the most important functions of a running company. Very few management personals realize the fact that a good payroll system directly controls the good running of a company’s operations.
As the world has become more of a Global Village, international companies have brilliantly expanded their operations beyond the boundaries of local regions. Where at one end this is fascinating, at the other is a complexity. Global payroll management across multiple countries, is a fairly challenging task for the present H.R managers. Complying with versatile local laws and regulations is not only exhausting but also demands huge investments!
In the past, during the Stone Age (as we call it) companies would enter into multiple payroll contracts with local vendors from every country of their operation. This made things highly complicated to handle, requiring huge commitment, time & resources. To escape the fuss, H.R & payroll management took hand in hand with the so-called solution to their problems, ‘The Payroll Aggregator model’.
The Payroll Aggregator Model was perceived as a step forward to the local vendor model. It is a type of payroll outsourcing for companies who have employees spread across the globe. This model worked on the foundation that a payroll aggregator (the vendor), acts as a payroll manager taking all the data from the company (the customer), then, by using multiple local payroll partners in collaboration with an aggregation platform, in the end provided uniform data in one central interface.
This gave companies geographical coverage and a comfort that their payroll is being effectively managed across the seas but this comfort was just another ‘illusion’. The management thought that it has opted for the best alternative under a single contract model, but little did they know, that they are being deceived by a flawed system which is risking their company’s success.
For many decades the aggregator model has sugar coated its deficiencies with such perfection that even the most capable HR departments were unable to see the destruction happening within the company. As we know,
‘A hidden error can cause more harm than a known mistake’.
This defect in a payroll system has been affecting the company’s performance like a little cancer cell, spreading quietly across the whole system, only to be discovered when it’s all too late.
As, company’s payroll system is among the very few structures acting as financial and non-financial factor for growth in the long-term, the damage caused from the use of payroll aggregators is so immense that without immediate action, downfall is inevitable.
By looking at the matter in detail, one can easily visualize the cracks in the payroll aggregator model. Let us dig-in to some of the factors responsible for the collapse of this famous version of payroll management (we would rather say payroll mismanagement):
Single contract yet NOT a single contract: One of the most unknown surprise of this model is that the management believed it has chosen a single contract model, enabling:
- Data security,
- Single provider,
- Data safety.
Now, this perception is the most deceiving one. Most aggregators have further subcontracted or outsourced the company’s payroll to local vendors. So, to think of it as a chain, previously the company used to deal with local vendors itself, now has a third party doing the same. Hence, in real time this single contract myth, rather fails badly as the damages caused by multi-contract system is affecting the company still but a little indirectly.
Expensive solution: The aggregators originally charge double commissions:
- Margin on top of fees of local providers
- Significant overheads
This makes the fees for this aggregator solution, two to three times more costly than the original domestic payroll system. Some aggregators charge near about 40% margin, which is huge for the client, just for the service of managing contracts for them. Talk about trying to save money and ending up spending even more money than before.
Highly inflexible solution: Since inflexibility shows in ability, these models are firm & rigid. A mix of outsourced payroll or in-house payroll setups are not assisted by them. They are indifferent for any customer specific reporting needs or service levels, resulting as a complete failure for many multinational companies.
Lack of options: On adopting the aggregator model, companies have to tear and replace all the prevailing local salary system. This means a colossal load of:
- Operational risk,
- Financial cost,
- And of course, time.
The global provider has a closed network of vendors which the customer is bound-to. If any customer wishes to switch from the dictated ones, tremendous costs awaited their way.
Lack of efficient global service: The payroll aggregator system has a ‘central service center’. The global payroll queries are all submitted to this inefficient helpline. Different queries presented to this service center takes days before a suitable answer arrives. Why? Well, this center obviously does not have knowledge about every country & its regulations. Queries put forth to them are pushed forward to the local vendors. Then follows a game of cat & mouse hunt as the service representatives chase the local vendors for answers. This entangled procedure results in delays and inefficiencies.
An extra layer of incompetence: Many companies using the payroll aggregator model upon inquiry revealed that they would have rather loved to remove this extra layer of the middle man & communicated with the local vendors directly. The aggregator gave them a little comfort of not dealing with each individual vendor and thus saving their time, however this solution, at the same time made things far more complicated.
Lack of flexibility for new services: The aggregator model lacks compatibility to quickly change the services or the service terms. As the change meant a change of individual contracts of the aggregator with the vendor, this is a high time & cost consuming exercise. The company has to stick to the original contract or go through a prolonged wait before the change of terms could be implemented.
A false global coverage: Often the term global coverage failed to achieve its true meaning as the aggregator model at most times, won’t work in the countries a company needs, or to do so, require expensive interfaces.
Breach of confidentiality of data: Where the payroll aggregator system promises security of sensitive data, in reality breach of confidentiality is amongst the most obvious fact. As these global providers work closely with the local vendors, company’s highly secretive data is roamed around from one hand to another, shared at every corner of the world. This not only affects fragile matters but risks the loss of important information. Making the company even more vulnerable than ever.
Conflicting data formats: The client and the aggregator both use different systems. The format of data requirement request from the aggregator (ultimately requested by the local vendors) is fairly inconsistent with the normal norms of the company. Essentially, the data has to be structured to meet the specific requirements of the aggregator. This manual amendment results in:
- Impairing compliance
- Introducing significant business model risk
- Utilization of resources
- An extra contracted employee to do the job
- Additional costs
- Additional time
Inability to switch: Most organizations find it rather traumatizing to rip and replace the existing infrastructure again and again, hence end-up sticking with the aggregator. This factor proves excellent for the aggregators but as for the customer, results in an inability to choose the next best option for them.
What we would say is that the payroll aggregator model was broken since the very beginning it was introduced. Yet somehow for many years it has expertly hidden all the flaws, like a fresh coat of paint on a wall full of cracks. The payroll aggregator model has failed to add-in any value to the company’s structure.
Living in this fast-forward world, the demand for a good payroll system is not only high but a vital obstacle in the success of a business. We need a one-time, all-in-one solution. A technology that will enable efficient global payroll processing, delivery, reporting and workforce management. A solution that would:
- Centralize the global data processing
- Bring compliance and control
- Introduce global visibility
- Be efficient and cost saving
- Help to reap benefits of global outsourcing
As they say:
‘Winning the workforce will lead to winning the market’.
Making the right decision today can help save you from future losses. Using the aggregator model has such inherit disadvantages that cannot be eliminated by any safeguards. But it’s better now than never. Make wise choices when thinking to outsource your global payroll system.
So if you are considering or are currently using a payroll aggregator model, I think you should give your decision a second thought.