For several years now, multinational companies with operations in one or more Asian countries have begun transitioning to an outsourced model for handling their payroll and HR administration. Already well-entrenched in the U.S. and UK, the accelerating trend towards outsourcing payroll processing is unlikely to reverse due to the huge efficiency and savings it brings. In Asia, however, the cost-benefit of outsourcing is significantly less clear-cut. In essence, the transition towards outsourcing in Asia is primarily being driven by three factors:
1. The increased importance of Asia-based employees to their organization, and the importance of ensuring the handling of their payroll in a professional manner.
2. The increasing number of Asia-based employees, and increased complexity of their compensation packages.
3. The increasing virtualization of HR administration, which has allowed work that previously entailed locally-based employees working with government bureaus to be handled from an online location.
Savings are now kicking in due to the virtualization mentioned above in countries like China and Vietnam, but the main motivation for companies to choose an outsourced model is more related to the ability to achieve a higher level of consistency in data management, greater transparency for management, and improved confidentiality across their Asia-based entities.
As companies continue to expand their operations across Asia, not only does their headcount grow, but the number of legal entities they must maintain also increases. Such expansion poses a great challenge to these companies when seeking vendors able to comprehend and efficiently explain local payroll requirements, and produce reports that seamlessly link in with the accounting platforms they are using.
“One-country” vendors can often do an efficient job, but communicating with several such companies every month can be very time-consuming for HR managers based at HQ. On the other hand, “global” vendors (a managed model) can sometimes struggle to meet all the local statutory requirements and customs in faraway markets that change rules and regulations frequently.
Stepping in to fill this gap are the “pan-Asia” vendors, offering shared service or integrated payroll outsourcing models. Their ability to coordinate multiple payrolls across the entire region represents a significant improvement over the traditional “one-country” and “global vendor” model. The proliferation of pan-Asia vendors is partially why the transition to the outsourcing model is accelerating.
This article is an excerpt from the January and February 2014 issue of Asia Briefing Magazine, titled “Payroll Processing Across Asia.” In this issue of Asia Briefing Magazine, we provide a country-by-country introduction to how payroll and social insurance systems work in China, Hong Kong, Vietnam, India and Singapore. We also compare three distinct models companies use to manage their payroll across various countries with external vendors, and explain the differences among three main models: country-by-country, managed, and integrated models while highlighting some benefits and drawbacks of each.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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