Are you a company that browses the possibilities of expanding globally? Or have you already established the entity abroad, but the complexity of international payroll makes you wonder if you manage the difficult procedure of payroll in a compliant way? Does the amount of people on your payroll grow too fast for the capacity of the team? Or perhaps you would prefer to outsource the administrative burden of salary processing and prioritize the resources of the company on other strategic tasks? If you have answered “ yes” to any of these questions, then payroll outsourcing may be the right fit for your company.
In this comprehensive guide we will cover everything you need to know about payroll outsourcing: what does it mean, which benefits it can provide and what are the cons to consider.
What is payroll outsourcing?
As suggested by the name, payroll outsourcing means the transfer of payroll processing and any related tasks to another company. A specialized provider can assist with monthly wage calculation and compliant processing of salary changes, annual bonuses, or unused leave days payout for offboarding employees. The external payroll services team also assists with necessary tax management, which includes processing mandatory monthly social security contributions and preparation of annual tax returns for each employee. Monthly tasks of a payroll provider also include the preparation and distribution of payslips and statutory filings with respective authorities.
Learn more about payroll outsourcing services in our company in our payroll services page. Payroll outsourcing can be divided into local and international outsourcing.
Local Payroll Outsourcing
Local outsourcing is bound to one country and is managed under a single legal system. This type of payroll management is mostly used by entities that do not have a vast global presence. The main advantage of this type of payroll is a deep expertise of the provider in a national legislation. In addition, local outsourcing can provide greater flexibility and a personalized approach.
International Payroll Outsourcing
When a business needs to outsource the payroll in multiple countries simultaneously, an international payroll may be used. This approach brings some benefits as a centralization of a payroll, crucial for internal audits and convenience for salary management with several exchange rates involved. Large international providers, however, often have limited resources for providing personalized support and flexible solutions.
Why do companies outsource payroll?
Salary administration is not a place for error. Incorrect payroll does not only bring a risk of potential fines and license revocation, but it also can lead to reputational damage and affect the operational flow due to employee dissatisfaction. Therefore, payroll outsourcing is regularly used by businesses that do not have necessary in-house expertise and knowledge of local labour laws to avoid compliance risks.
How does payroll outsourcing work?
When choosing to outsource the payroll, the company is entrusting the provider with several tasks.
1.Firstly, the payroll outsourcing company is in charge of calculating the remuneration of each employee on a monthly basis. That includes counting the salary based on a start and end date of employment, additional bonuses and allowances the employee is eligible for, or individual situations such as absence from work due to sickness, unpaid leave or parental leave.
2.Secondly, payroll services provider is responsible for registering the employee with local authorities and regular payment of taxes and social contributions to respective organisations. Each country has regulations on managing this process:
- German employers request the ELStAM (wage tax deduction characteristics) from tax office (Finanzamt) and manage all tax data in My ELSTER Portal.
- In the Netherlands, the employer is obliged to deliver the payroll tax to the Tax Administration of the Netherlands (Belastingdienst).
- In Poland territorial branches of National Revenue Administration handle collection of taxes,
- In the UK – HM Revenue and Customs and in Spain this area falls into the Tax Administration Agency ( Agencia Tributaria) .
In addition to taxes, payroll outsourcing companies need to calculate all statutory deductions, such as health insurances, pensions etc and deliver the payment for all employees to the respective organisations.
3.Thirdly, the provider is managing the payment of salaries to all employees on time and takes care of keeping accurate payroll records.
What are the benefits of outsourcing payroll?
The decision to outsource the payroll can bring a lot of value to your company. Below are the main benefits that the business can get regardless of the size of their organization.
Time saving
Monthly processing of payroll requires a great time investment from the team. If the task of managing salaries and statutory deductions is outsourced to the payroll services provider, finance team can focus on strategic actions that help business to nourish.
Maintain compliance
As any legal sphere, payroll-related legislation is being regularly reviewed and renewed. In order to stay compliant and avoid possible fines, the team must stay up-to-date with all recent changes in the payroll world. Payroll providers take this responsibility from the hands of the company.
Avoid payroll errors and ensure accuracy
Trustworthy payroll service companies have teams of professionals, who have extensive knowledge of payroll procedure. In many cases they also utilise special software, that helps to optimise the process and decrease the risk of human error.
Improve business security
Payroll involves a management of sensitive information. A reputable payroll provider invests in data security to protect the information of employees.
Multiple country support
When expanding your business to several areas simultaneously, the payroll team needs to have in-deep knowledge of legislation of those countries. Multi-country payroll services providers allow you to receive centralized support. Whether you need to process social security deductions in Spain or prepare PIT-11 forms in Poland for your employees, it can be handled by one team.
Reduce costs
It may be costly to maintain the team of payroll professionals in your company due to staff turnover, training of in-house payroll, payment of salaries and deductions. In addition, if your payroll team is inexperienced in local payroll laws, the budget for possible noncompliance fines should be set up.
What are the pros and cons of outsourcing payroll
However, like any operational solution, there are a few things to keep in mind when making a decision on outsourcing your payroll.
Loss of Control: Less direct oversight
Because the payroll is managed externally, businesses may feel less in control due to reduced oversight on the process. This can be mitigated by choosing a reputable GDPR-compliant provider with clear reporting and established workflow.
Dependency & Communication
Payroll outsourcing essentially means reliance on a third party. Any miscommunication can lead to an incorrect salary payment or a delay. This risk can be minimized when the experience provider follows strict deadlines and provides a team of dedicated contact persons to tend to urgent needs.
What type of payroll outsourcing services are there?
Payroll outsourcing is not a universal solution. The service can be provided in several ways for you to choose the right fit for your business needs.
Fully Managed Payroll
“fully managed” payroll outsourcing refers to an entire payroll lifecycle being managed by an external provider. Think of all tasks from data input to payslip distribution being managed by the vendor. This option is perfect for entities expanding to new countries or small companies without a payroll department.
Post Managed Payroll
“Post managed” payroll is also sometimes called “partially managed”. In this model the external provider is only taking control of compliance check and tasks related to taxing. This option suits large companies that have capacity to process standard tasks, but need expertise of professionals for complex payroll compliance issues.
These standard packages do not always meet the specific business needs that your team may have. Therefore, some payroll providers provide flexibility approach to their services. Explore our payroll services.
How much does it cost to outsource payroll?
It is hard to put a fixed cost on outsourcing your payroll, as it varies greatly depending on the type of payroll assistance your company needs and the size of the organisation. In most cases payroll services companies will provide you with a fee based on a per-employee-per-month basis and the level of involvement.
Payroll Outsourcing vs Employer of Record
If you already have a legal local place in the new area of business or if you wish to tend to your growing team without the risk of noncompliance, payroll outsourcing will be a great solution.
But in some scenarios simply outsourcing the payroll will not be enough to cover your business needs. For example, if your business does not have a legal entity in the country, you cannot process the payroll in that area and have any employees on your payroll. In such cases the Employer of Record (EOR) solution comes in handy.
Employer of Record is a 3-rd party organization that becomes a legal employer of a worker and seconds this worker to the company (you). The business then provides the work to the employee, while EOR carries out employment functions both legally and operationally. EOR is responsible for completion of onboarding and offboarding employment documents, processing of salaries, benefits and payment of social deductions, assistance with immigration services (in some cases) and handling legal matters related to the employee.
Explore our EOR solutions here.
Does my business need payroll services?
Every company has different payroll needs based on the size of the entity, geographic footprint, or available resources. A small entity without a dedicated payroll team or in-house expertise may need a full package of payroll support, while larger companies may only need assistance with complex tax and compliance tasks.
Payroll outsourcing can bring much value to your company with:
- Reduced risk of non-compliance and reputational damage
- Cost and operational efficiency
- Expertise shared by the team of experienced professionals
ThisWorks EOR Services provides payroll services in countries such as the Netherlands, Germany, Poland, UK and Spain. We ensure compliance with local regulations in these countries and provide flexible models depending on business needs. More information can be found here: https://www.thisworks.jobs/our-services/payroll-services/
For companies that want to expand globally without the hustle of setting up their legal entity abroad we also provide Employer of Record ( EOR) services .
To summarize, payroll outsourcing may be a great tool for the companies to manage the global expansion in a compliant and cost-effective way.
If you think that your business may benefit from it, feel free to contact our team of dedicated professionals to discuss how we can streamline your payroll processes!
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Article Author –
Vlada Pavlenko
Vladislava Pavlenko is a Marketing Manager at ThisWorks with a background in operations, giving her a unique perspective on the inner workings of Employer of Record (EOR) services. Inspired by the evolving landscape of global employment, she is passionate about simplifying complex topics like compliance, onboarding, and international workforce management into practical, engaging insights that support companies expanding across borders.
ThisWorks supports companies expanding internationally.
As an Employer of Record (EOR), we enable you to hire employees in the UK, Netherlands, Germany, Poland, and Spain without setting up a local entity. We handle payroll, contracts, and compliance, so you can focus on growth.
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✔ Hire internationally without foreign entities
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