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17 October 2012 | Adam Leach

An increasing number of European and North American companies are choosing to outsource payroll functions to multiple countries in order to retain flexibility, according to a report.

Multi-Country Payroll Outsourcing – No Longer a Pipe Dream, published yesterday by the Everest Group, identified a growing trend of companies spreading their outsourcing. It found businesses, particularly those based in Europe and North America, are outsourcing payroll services to either at least three countries in the same region or at least two countries in different regions, in order to gain greater flexibility.

Rajesh Ranjan, vice president of Everest Group, said: “Multinational companies are increasingly adopting multi-country payroll outsourcing (MCPO) to cover their operations in the Asia Pacific and EMEA. While we expect the MCPO market growth to remain strong, we’re still in the midst of a weak economic climate that is prompting buyers to leverage a phased adoption approach.”

The report explained while the phased approach offers greater flexibility to companies, it erodes the savings potential offered by letting large, all encompassing contracts. The report calculated the current market value of MCPO to be $600 million (£371.2 million) and forecast it will rise to $1.3 billion (£804.3 million) by 2014. The key drivers behind the trend identified in the report included cost reduction, improved management control, risk management and compliance.

It identified Latin America as the area that buyers were particularly interested in outsourcing payroll to, but due to the relative immaturity of the market there, few companies were seriously investing in the options it provides.