The Coronavirus (Covid-19) pandemic might not be cataclysmal but it is already kickstarting critical conversations about the future of work. In a situation where all that is required for work is a computer and internet connectivity, is it necessary for people to come a physical location every day to work?
For instance, Gallup, reports that 36% of U.S. workers were involved in the gig economy in 2018 and McKinsey notes than between 20-30% of workers in the EU is involved in the gig economy. Interestingly, a T. Rowe Price Group’s survey showed that 26% of millennials believe that the gig economy offers more security than traditional employment. Also, Intuit reveals that 80% of large U.S companies plan to adopt a flexible workforce of non-traditional workers from 2020 onwards.
More importantly, migration has become a sensitive political topic and it perhaps has the biggest effect on where labor lives and works. Talent is evenly distributed but opportunity is not. However, demographic shift, technological advancement, globalization, and deeper internet penetration are opening the doors of opportunities across borders. This piece explores some of the challenges with managing payments for global workers.
The challenges of managing payroll in a global economy
As employees becoming increasingly independent, and companies move more and more to a remote or de-centralized model the process of managing payments for such workers or employees poses serious challenges to many organizations. To start with, the traditional global banking industry is fragmented even though regional blocs are working towards a centralized financial system. Also, government regulations in relation to applicable taxes for employers and their employees vary across jurisdictions.
The performance of the traditional payroll companies especially in the wake of Covid-19 suggests traditional payroll solutions might struggle to keep up with the new realities of work. Whilst companies specializing in remote worker payments are set to benefit from this ‘new world of work’, the poor stock performance of publicly traded payroll companies in the year-to-date period indicates the markets lack of confidence in their solutions for the gig or remote workforce economies.
Paychex Inc (NASDAQ:PAYX) serves small and mid-sized businesses on the U.S and Germany with a range of HR, payroll, and benefits outsourcing services. In the year-to-date period, the stock is down 3.51%; however, this stock had gain 17.18% in the same period in 2019.
Insperity Inc (NYSE:NSP) also provides HR (including payroll and financial management) outsourcing services to small and medium-sized businesses through bundled cloud and native software offerings. In the year-to-date period, the stock is down a massive 24.71%; conversely, it had gained more than 30% in the same period last year.
Trinet Group Inc (NYSE:TNET) serves small and medium-sized businesses with HR, payroll, and benefits management software applications. In the YTD, its stock is down 4.86% whereas the stock was up by more than 42% in the same period in 2019.
SAP SE (NYSE:SAP) provides corporations with enterprise software solutions for managing human capital. In the year-to-date period, the stock is down 9.33% but it was up 8.46% in the same period in 2019.
Workday Inc (NYSE:WDAY) delivers different kinds of analytics, human capital management, and financial capital management solutions to businesses. In the year-to-date period, the trading price of the stock has declined by 3.51% but it had gained 13.71% in the same period in 2019.
Automatic Data Processing Inc. (NASDAQ:ADP), is perhaps the most popular publicly traded payroll company. It provides a suite of human capital management solutions for compliance, benefits, and payroll administration. In the YTD, the stock is down 6.66% but it had gained 13.82% in the same period last year.
In contrast, Zoom Communications Inc (NASDAQ:ZM) which provided enterprise video communications solutions has been seen it’s stock outperforming the general equities market. In the year-to-date period, (chart above) Zoom’s stock is up more than 68% as more businesses continue turn to its products for video, audioconferencing, chat, and collaborations instead of being in the same physical location.
Also, the shares of Slack Technologies Inc. (NYSE:WORK), has also been on a winning streak that contrasts with the general direction of the market. Slack provides enterprise collaboration solutions for real-time chat, archiving, file sharing, collaboration, and team organization. The 17.53% gain in its stock suggests that more businesses are looking towards flexible remote work instead of the traditional centralized model.
To bring it all home, the uptrend it stocks of firms promoting flexible work suggests that the future of work will continue to lean towards decentralization. Hence, traditional payroll solutions built specifically for U.S and EU markets might be inadequate when businesses start to tap into the global talent pool.
Challenges facing the traditional payroll industry
The traditional solutions for managing payroll for international workers might prove inadequate when needed to be deployed at scale across multiple jurisdictions as the future of work continue to be decentralized.
For one, the fact that an increasingly large number of employees now choose to live and work in different countries mean that payroll solutions must be designed to comply with local payroll and labor laws in different parts of the world. While many of the traditional payroll solutions are compliant with US and EU regulations, employers need to start thinking about being compliant with information on salary benchmarks, regulations, and benefits for employees outside the traditional labor markets of the EU and U.S.
Secondly, some traditional payroll workaround such as putting international employees on the payroll of a local affiliate or ignoring the labor laws of the host countries during short stints abroad could be borderline illegal and subject the employer to serious legal and regulatory risk.
Thirdly, leasing or assigning foreign employees to a local company who then invoices the home company for managing the payroll might be harder to replicate at scale when you have a handful of employees in different countries or digital nomads who only spend a couple of month in a country before moving to another country.
Also, it is hard to justifying paying a global talent as an independent contractor especially if the “contractor” has set work hours, receives performance evaluations and benefits. This might also post some regulatory risks in the home country of the supposed “contractor” holds an executive position and is featured in the corporate organogram.
Conclusion: The future of work
Change in the new constant and the future of work is potentially predictably unpredictable. Based on the growth of the gig economy over the last decade, there’s a high chance that the future of work will become more independent. Employees will gradually opt to work like consultants and contractors rather than follow the traditional 9-5 mode of employment.
Interestingly, employers who are quick to understand and accept the paradigm shift in how people work will be better off competitively than companies that are averse to change. Nonetheless, payroll will continue to be key finance mechanism as employers are forced to work with employees living in different countries.
