Semi-Externalization of payroll: what does it mean?

Managing payroll is a sensitive and complex internal activity. It involves labor law and collective agreement rules, and requires in-depth knowledge of HR management. Furthermore, the legislation in this area is constantly evolving, requiring regular legal monitoring.

The performance of payroll management is linked to three key factors:

• Software performance
• Efficiency of internal organization
• Competence of the teams

A company, particularly a small or medium-sized enterprise (SME), may not have all three of these elements internally. In such cases, co-produced or semi-externalized payroll can be an appropriate solution, allowing the company to retain control over certain payroll processes while delegating others to an external provider. How does this hybrid organizational model work?

Full Externalization vs. Semi-Externalization

There are two levels of payroll externalization:

• Full externalization with an external service provider.
• Co-production or semi-externalization, where the company outsources the initial setup of the payroll software and legal and collective maintenance (updating legal rates as required by legislation and collective agreements), while retaining internal control over payroll processes such as entering variables, checking and validating payslips, DSN (Déclaration Sociale Nominative), etc.

To make the right decision, evaluating the company’s context is crucial. It’s essential to conduct a diagnosis of the organization, payroll processes, and management to determine the desired payroll structure and choose the most suitable tool.

Is My Company Suitable for a Co-Produced Payroll Solution?

To determine if semi-externalization is suitable for your company, we typically ask the following questions (non-exhaustive list):

• What is the size of the company?
• What is the complexity in terms of organization, function, and regulations (internal agreements, practices, etc.)?
• What are the company’s technological and IT constraints?
• What level of autonomy and responsibility does the management want to retain for payroll?
• Has a business continuity plan been established?
• Is there high turnover within the payroll team?
• Do current employees have adequate skills?
• Is there a payroll reference system in place?
• What is the volume of payslips per year?
• What is the level of complexity in payroll management?
• What is the current cost of producing a payslip (e.g., software costs, salary of payroll staff, training costs, backup in case of absence, hidden costs)?
• What would be the cost of producing a payslip with the proposed solution?
• What is the Return on Investment (ROI)?
   

When the company reaches a certain size, typically 100 employees or more, full payroll externalization may not be ideal (due to lack of flexibility in payroll schedules or the need for real-time data). Semi-externalization depends on the company’s unique characteristics.

What Are the Advantages of Semi-Externalized Payroll?

Semi-externalized payroll can be a smart choice, offering the best payroll solution tailored to your needs:

• Ready-to-use, with specialist-configured parameters.
• Real-time updates for legal and collective parameters (SaaS-based solution).
• Secure continuity of service, allowing the payroll provider to step in during the payroll manager’s absence.
• Reversible, should you decide to move to complete externalization.
   

Additionally, this organizational model allows for:

• Time savings when the payroll team is also responsible for purely HR tasks such as recruitment, professional training, HR development, and relations with employee representatives.
• Flexibility in payroll scheduling.
• The ability to handle emergencies in real-time (e.g., employee onboarding or offboarding at the end of the month, payroll simulations).
   

What Is the Task Distribution Between the Company and the Service Provider?

Once the decision is made, it's crucial to define the distribution of tasks during the different phases of work: setup and production.

Ourexpertise 

Pre-project Payroll Compliance Audit

In addition to the payroll management information provided by the client, the audit is an essential first step.

It aims to:

• Ensure the legal compliance of the documents provided.
• Ask the client about any inconsistencies or errors.
• Correct any incorrect data to ensure a solid base for configuring the new payroll software.

Managing the Project on a Daily Basis

This approach enables a collaborative and cross-functional team from different companies, professions, or departments to:

• Manage complex projects.
• Gain better control over the environment and processes, leading to reduced project completion time.
• Rationalize team workload and provide them with opportunities to acquire new skills.
• Increase motivation, responsibility, and adaptability.
• Foster innovation.

Changing organizational models or payroll management tools are not trivial decisions. Successful implementation requires careful preparation and anticipation. RSM can guide you through the study of payroll processes and management as well as the migration to a new payroll software solution.