Hidden Costs of Payroll: What’s Draining Global Teams’ Budgets?

Are you spending more on global payroll costs than you projected?

According to a commissioned study conducted by Forrester Consulting on behalf of Deel (January 2024), 42% of payroll leaders experience unexpected or hidden costs during the implementation of payroll services. While 40% of leaders are aiming to reduce software costs, these unplanned expenses can inflate HR budgets beyond the initial estimates.

So, where are these expenses coming from? It all comes down to the number of payroll tools being used. On average, organizations are using six different tools to manage payroll and 50% of teams are using a mix of internal and external management, which can lead to duplicated costs and overspending.

Read the highlights here or access the full study for additional insights from over 300 HR and finance leaders from around the globe.

Compliance costs

Compliance requirements are the most commonly unexpected cost among payroll leaders, as many are surprised by the extent of investment required to stay compliant across different jurisdictions. This includes the additional cost of adapting payroll systems to new tax and labor laws and the hidden expenses related to payroll errors, such as overpayments or underpayments.

For teams using multiple payroll systems, this work—and the associated costs—are multiplied, as they must ensure compliance in each system and location.

Payroll decision-makers say that some of the most unexpected compliance-related costs came from:

Cultural customizations

“The translation of documents, adherence to specific tax codes, and the incorporation of cultural sensitivity into the payroll solution.”

Tax compliance

“Tax compliance for different regions has been the biggest surprise. While we make sure to pay advance taxes, still we are charged for non-tax paid or less tax paid.”

Aligning systems with regulatory changes

“Staying compliant with changing tax laws and regulations leads to unexpected costs, as we may need to invest more in ensuring our payroll system is always up-to-date.”

“Modifying the payroll system to abide by recently updated or new laws, labor regulations, or tax laws may necessitate the use of more resources and result in unforeseen costs.”

Exchange rate fluctuation costs

Exchange rate volatility is a given, with economic, geopolitical, and market factors resulting in rapid and unpredictable changes. While this inherent volatility already complicates financial planning for global payroll, unplanned expenses are adding another layer of complexity.

Consider this: Over half of payroll leaders (52%) have encountered unexpected or hidden costs related to exchange rate fluctuations following payroll implementation.

These unplanned expenses can lead to overrunning budgets, diverted resources, and an inability to make informed long-term decisions, impacting the organization’s financial health, employee satisfaction, and operational stability.

Maintenance, training, and support costs

Almost half of payroll leaders (47%) have encountered unexpected or hidden costs related to ongoing maintenance and support.

For many teams, manual errors in payroll calculations are causing the headache. These payroll mistakes include overpayments, underpayments, and even payments made to employees who have long left the company. As a result of these errors, payroll employees spend half of their time working to resolve issues and on manual tasks, leaving limited time for more strategic work.

Hard-to-use payroll software is also driving up costs, as this challenge requires time-consuming support for employees facing recurring issues. This includes employee training, which 45% of payroll leaders say has been an unexpected cost of running global payroll.

“Ensuring that employees are properly trained on the new payroll system and providing ongoing support can add to the total cost,” said one decision maker. Another said they were not expecting the cost of expenditures related to communication efforts and training materials to keep employees informed of changes in payroll procedures.

While keeping systems maintained and employees up-to-date is vital for payroll processing success, vendors should share associated costs transparently to eliminate surprise expenses for business owners and their teams. By using an all-in-one payroll system, your team only has to be trained on one system, and you get a single point of contact for support, improving the process for all parties.

Data management costs

Custom reporting, integrations, and data security were some of the top causes of hidden or unexpected costs for decision-makers, with almost half (45%) of payroll leaders spending more than anticipated.

One payroll leader shared that accessing detailed payroll data beyond basic reports often requires additional subscriptions or fees for their team. Another pointed to customizing reporting solutions that included enhanced management information.

While many global payroll companies offer integrations to streamline data collection and centralize information in one secure location, 38% of payroll leaders say that features like human resources integrations and time and attendance tracking came with unexpected or hidden costs following implementation.

Data security was another unexpected expense. “Taking steps to secure your data comes at a price,” said one payroll leader. Another did not expect the costs associated with investing in the robust security measures and backup systems required to protect their data.

The impact of improper cost tracking

Despite the clear impact of these hidden costs, a significant portion of organizations do not actively track key expenses associated with running global payroll. This includes upfront purchase costs (25%) and costs associated with poor employee experience (30%), such as late payments, mistakes in payroll, and inaccessible documents.

This lack of tracking is part of a larger issue—which is that global teams need greater awareness and management tools to monitor the full spectrum of payroll-related expenses. Fragmented payroll platforms are only worsening the issue, as they involve siloed databases, varying reporting capabilities, and additional costs.

Anticipated increases in global payroll spend

A significant majority (85%) of decision-makers anticipate an increase in global payroll spend on a per-employee basis in the next year, with projections ranging from a moderate 1–10% to as much as 20%. This expected rise in costs reflects not only the direct expenses associated with payroll management but also the many hidden or unexpected costs that can significantly inflate budgets.

The benefits of consolidation with Deel

The hidden costs of global payroll represent a significant challenge for both small businesses and multinational organizations, as they drive up budgets and complicate financial planning.

But it’s not all doom and gloom: 85% of decision-makers believe that consolidating global payroll into a single solution would have a positive impact on administration costs.

As an all-in-one payroll and HR provider for global teams, Deel helps companies better manage their global operations, ensuring efficient payroll, compliance, and cost-effectiveness. And with transparent pricing, there are no surprising costs.

Book a 30-minute product demo with a specialist to learn more.