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Why managed payroll services is not a commoditized service

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EY Global

Multidisciplinary professional services organization

09 Jun 2023

The variable nature of payroll processes across organizations highlights the need for professional knowledge in managed payroll services. 

In brief

  • The payroll function has rapidly evolved from being perceived as just a back-office function to being a major value driver for businesses.
  • Understanding and keeping up with the changing payroll landscape is essential for organizations to succeed with managed payroll services.

Payroll Managed Services are often referred to as a commoditized offering. However, it is worth noting that if managed payroll services were as straightforward as many think, everyone would have been doing it — which is not how it is currently. This is particularly true when it comes to multi-country payroll.

In this article, we will explore the reasons behind this perspective and why managed payroll services should not be treated as a commoditized offering.

Five reasons why managed payroll services is not a commoditized offering

Managed payroll services are complex and ever-evolving. It requires a high level of knowledge, and there is no one-size-fits-all approach. Managed payroll services involve a range of different elements, including payroll processing, payroll tax compliance, employee benefits administration and HR administration. Naturally, the treatment of each of these elements varies greatly from country to country (in some cases within the country itself) and between different industries. Regulations are also continuously reassessed and updated, keeping payroll professionals on their toes.

A good understanding of laws and regulations: Managing payroll requires a deep understanding of labor laws, tax codes and regulations, either locally or on an international level. This knowledge is constantly changing, making it difficult for organizations to stay up-to-date and remain compliant. Payroll managed service providers must have the necessary knowledge and experience to help ensure that their clients are always compliant with all the relevant regulations.

Ability to customize solutions as per industry or business needs: Service providers must be capable of customizing services to meet different types of business and industry needs. Each organization has unique payroll needs that differ in complexity, and payroll managed service providers must be able to scale their services to meet these needs.

How EY can help

  • Payroll Operate

    EY Payroll Operate professionals can help your business organization streamline global payroll operations and reduce compliance risk. Find out how.

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Attitude toward technology and innovation: Technology plays a pivotal role in global payroll. After being one of the very first back-office functions to become automated several decades ago, payroll technology has not been seen as an area of fast innovation. This perception changed in the last years with the push to transform into a more data-driven, automated and value-adding function, moving away from a traditional back-office role into true business partnering. 

This requires vendors to leverage technology in new ways, combining structured and unstructured data from a wealth of data sources to form the payroll input, and to provide insights into global payroll data. This will help drive statutory initiatives like reporting on pay equity (as announced by EU) while remaining compliant with strict data privacy regulations such as the General Data Protection Regulation (GDPR) statutes. Vendors must have a high degree of technological expertise and investment to manage payroll data effectively.

 

The need to handle sensitive information: Managed payroll services involve handling sensitive information about employees, such as social security numbers, home addresses, tax information and many others. Vendors must ensure their operating procedures are designed to guarantee the utmost confidentiality and security, continuously train their staff and test their tools to meet this non-negotiable requirement.

 

Performing due diligence: The combination of processing sensitive data and using complex technology to provide services to clients requires diligence in the applied processes and controls. Managed payroll services vendors often choose to invest in various third-party certifications such as the ISAE (International Standard on Assurance Engagements), to help enable their clients to rely on vendor controls and reassure their stakeholders of their adherence to industry standards and controls.

Summary

Global managed payroll services should not be considered a commodity service. It requires a high degree of experience and knowledge, the ability to scale services to meet different organizational needs, familiarity with HR administration and compliance, technological expertise, and an unwavering commitment to confidentiality and security.

About this article

EY logo with black background
EY Global
Multidisciplinary professional services organization
Related topics
Managed services

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.
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