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Outsourcing Your Payroll

Outsourcing your payroll

A 21st Century Business Imperative?

In his book The Corporation in the 21st Century, John Kay observed that:

“The hallmark of successful businesses is access to collective intelligence that is not common property.”

This is precisely what outsourced payroll should provide.

By outsourcing payroll, a company gains access to specialist payroll, tax, compliance, technology and operational expertise without the cost, complexity and management burden of building and maintaining that capability internally. The value lies not only in reducing administration and avoiding penalties, but in accessing knowledge, skills and experience that would otherwise be difficult and expensive to replicate.

The concept is hardly new. In fact, it is a defining characteristic of many of the world’s most successful businesses.

Amazon, one of the most valuable companies in the world, reports hundreds of billions of dollars in assets. Yet the reality is that much of its operating infrastructure is sourced from specialist providers:

Warehouses are often leased from real estate operators such as Prologis.
Data centres rely heavily on specialist infrastructure providers such as Equinix.
Equipment and mechanical assets are frequently financed or leased.
Receivables financing is often provided by financial institutions.

Similarly, if a company wishes to move goods from China to Africa, it rarely builds an end-to-end logistics infrastructure itself. Instead, it leases containers from specialist operators, purchases capacity from shipping lines and relies on a network of logistics experts.

The lesson is simple: successful businesses increasingly focus on what they do best and leverage specialist expertise for everything else.

This represents a significant departure from the traditional model of vertical integration, where organisations sought to own and control every aspect of their value chain. While vertical integration had merits in the industrial age, the modern economy increasingly rewards agility, specialization and access to expertise rather than ownership for its own sake. In the early 20th century, Henry Ford built one of the world’s most vertically integrated businesses, controlling everything from iron mines to vehicle assembly. In the 21st century, many of the world’s most successful companies have adopted the opposite approach, focusing on core competencies while outsourcing specialist functions to expert providers.

According to Deloitte’s Global Outsourcing Survey, organisations continue to outsource not merely to reduce costs, but to gain access to specialised skills, improve service quality, adopt new technologies such as API integrations with other systems and to enable management teams to focus on strategic priorities. The objective is no longer simply efficiency. It is capability.

So where does payroll fit into this discussion?

Since the emergence of specialist outsourced payroll providers in the 1970s, business leaders have debated whether payroll should be outsourced or managed in-house. Decades later, that debate remains unresolved.

A simple internet search for "payroll outsourcing versus insourcing" generates thousands of articles, studies and opinions advocating one model or the other. Yet despite the volume of commentary, there is no universally correct answer.

The reason is straightforward – both models can work exceptionally well.

Payroll outsourcing providers benefit from significant economies of scale. Because they serve multiple organisations, they can invest in technology, compliance monitoring, tax expertise, cybersecurity, ISO and SOC certifications, training and specialist personnel at levels that would be difficult for many individual businesses to justify. The result is often a payroll "centre of excellence" built on deep expertise and continual investment.

Conversely, large organisations with substantial employee populations can often achieve similar economies of scale internally. They may choose to develop highly sophisticated in-house payroll functions that are deeply integrated into their broader operations, processes and tailored to their unique requirements.

The distinction often comes down to scale.

To achieve economies of scale, outsourcing providers generally encourage standardised processes and best practices. In return, clients benefit from expertise, resilience, technology investment and reduced key-person dependency.

An insourced payroll, by contrast, offers greater flexibility and customization. Processes, workflows and systems can be configured precisely to the organisation’s preferences. However, that flexibility comes at a cost. Maintaining specialist expertise, keeping pace with regulatory changes, investing in technology and managing operational risk can require significant resources.

This is particularly relevant in Africa, where businesses often operate across multiple jurisdictions, each with unique tax, labour and social security regulations. The challenge is no longer simply processing payroll accurately. It is maintaining compliance across an increasingly complex regulatory landscape, avoiding reputational risk and dodging crippling fines.

For many organisations, the question is therefore not:

“Can we run payroll ourselves?”

The real question is:

“Is payroll an area where we should build expertise, or where we should access expertise?”

The most successful companies of the 21st century have become experts at recognising the difference.

Does this mean payroll outsourcing is the right solution for every organisation?

No. Large enterprises with significant resources, specialised requirements and substantial employee populations may determine that an internal payroll function delivers greater value.

However, for many organisations, particularly those operating across multiple countries, outsourcing offers access to collective intelligence, specialist expertise, proven processes and continually evolving technology that would be difficult to replicate internally.

The debate between outsourcing and insourcing will undoubtedly continue. But one thing is becoming increasingly clear.

The defining trend of the 21st century is not ownership. It is access to expertise. The businesses that thrive in the 21st century will not be those that own the most expertise. They will be those that know when to build it, when to buy it and when to access it through trusted partners.

Payroll is no exception.

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African Inflation Trends: Impact on 2027 Salary Increases

African Inflation Trends and What They May Mean for 2027 Salary Increases

As readers of our previous salary increase forecast reports will know, inflation remains the single most important input when assessing future salary increase expectations. While salary decisions are influenced by a range of factors, including company performance, labour market conditions, affordability, and skills availability, inflation continues to be the primary indicator when employers determine annual remuneration adjustments.

Consequently, understanding inflation trends provides one of the earliest and most reliable indications of where salary increase budgets for 2027 are heading.

Why Forecasting 2027 Salary Increases Is Particularly Difficult

Forecasting salary increases for 2027 remains challenging due to significant uncertainty in the global economic environment.

The ongoing conflict in the Middle East continues to create volatility in energy markets, with oil prices remaining one of the most significant risks to inflation forecasts worldwide. Sustained increases in energy costs have a direct impact on transportation, logistics, manufacturing and food prices, often feeding through into wider inflationary pressures.

At the same time, global supply chains remain vulnerable to geopolitical tensions, changing trade relationships, shipping disruptions and currency volatility. Many African economies are particularly exposed to these risks because they are net importers of fuel, machinery, technology and consumer goods. Currency depreciation against major international currencies can quickly translate into higher inflation and, ultimately, increased pressure on employers to provide larger salary adjustments.

The Axiomatic Approach to Salary Increase Forecasting

At Axiomatic, our proven methodology begins with forecasting the expected inflation rate for the relevant year. Historical experience consistently demonstrates a strong relationship between inflation and salary increase budgets.

While remuneration decisions are also influenced by labour availability, skills shortages, organisational performance and employee retention risks, inflation remains the foundation of most salary increase discussions. Employees naturally seek to preserve their purchasing power, while employers strive to balance this expectation against affordability and business sustainability.

For this reason, early inflation indicators often provide the first insight into the likely direction of future salary increase budgets.

What Current Inflation Trends Are Telling Us

Our preliminary assessment suggests that salary increase budgets across many developed economies are likely to continue moderating during 2027 as inflation moves closer to central bank targets.

The position across Africa, however, is considerably more varied.

Several African countries continue to experience elevated inflation because of currency weakness, fiscal pressures, imported cost increases and structural economic challenges. In these environments, employers may have little choice but to continue granting relatively high salary increases simply to prevent a significant erosion of employee purchasing power.

Countries such as Nigeria, Egypt and Angola and several other emerging African markets remain particularly exposed to inflationary pressures. In addition to inflation, employers in these markets must contend with currency volatility, competition for skilled talent, a shallow talent pool and increasing employee expectations regarding compensation.

As a result, salary increases in these markets are likely to remain materially higher than those observed in lower-inflation economies.

Early Planning for 2027

While it may be too early to finalise 2027 salary increase budgets, now is an appropriate time for organisations to begin monitoring inflation trends closely. Inflation data released during the remainder of 2026 and early 2027 will provide increasingly reliable indicators of likely salary increase expectations.

Current inflation

Countries experiencing elevated inflation, ongoing currency weakness and skills shortages are likely to continue seeing relatively high salary increase budgets as employers seek to preserve employee purchasing power and retain critical talent.

The table below enumerates the latest inflation rate and the inflation rate recorded in January 2026 in order to gauge the trend:

Later in the year we will start publishing our preliminary 2027 salary increase forecasts for certain African countries.

Optimise Your 2027 Remuneration Strategy Today

Navigating unpredictable market shifts and currency volatility across African markets makes proactive salary budget planning essential. Reach out to our team of compensation specialists to discuss your organisation’s strategy or to receive our upcoming detailed country-level forecasts.

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Legal & Industry Update August 2026

Legal & Industry Update August 2026

This edition summarises the Responsible Investment in South Africa report, commissioned by the Principles for Responsible Investment, analysed by Krutham and supported by the FSCA. The report highlights a material gap between policy commitments and practical oversight by retirement funds.

Regulatory implications

Regulation 28 requires boards to consider material environmental, social and governance factors in the sustainable long-term performance of fund assets. FSCA Guidance Notice 1 of 2019 expects sustainability considerations to be incorporated into the Investment Policy Statement and addressed in annual reporting. CRISA 2 and King V reinforce stewardship, climate risk oversight and responsible ownership, although implementation remains largely dependent on each fund’s governance and capacity.

Axiomatic’s advice and guidance

Boards should focus less on adding policy language and more on demonstrating that policies are implemented, monitored and evidenced.
Investment mandates should include measurable ESG expectations, climate risk reporting requirements and clear escalation procedures where managers do not meet agreed standards.
Funds should introduce periodic independent assessment of asset manager performance rather than relying only on self-reporting.
Trustees and principal officers should receive targeted training so that they can challenge managers and advisers effectively. Where resources are limited, responsibility should still be formally assigned to a named committee or accountable officeholder
An immediate gap assessment against Regulation 28, FSCA Guidance Notice 1 of 2019 and CRISA 2 would help the board identify priorities, assign owners and establish a documented improvement plan. Funds should also begin preparing for the possibility of more prescriptive, ISSB-aligned disclosure requirements.
Funds should define their own responsible investment philosophy, reporting framework and risk appetite before delegating implementation to managers or consultants.

Need help aligning your fund with ESG governance standards?

Navigating evolving regulations like Regulation 28, FSCA Guidance Notice 1 of 2019, and CRISA 2 requires clear strategy and practical implementation. Our team of specialists can conduct a full gap assessment, refine your investment mandates, and set up independent monitoring frameworks to safeguard your fund’s long-term performance.

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2026 African Inflation: Salary Strategy Analysis

INFLATION PRESSURES IN FOUR AFRICAN MARKETS, IMPLICATIONS FOR 2026 SALARY INCREASES

Axiomatic’s salary increase methodology has consistently been anchored in a forward-looking approach, combining expected inflation with a real increase of approximately 1%, adjusted for sector dynamics, affordability, and broader macroeconomic considerations. This framework is appropriate in relatively stable inflation environments or where the future trajectory of inflation is relatively easy to forecast.

However, recent data from four African markets- Botswana, Mozambique, Rwanda, and Kenya—highlights a notable deviation from expected trends in 2026, with sharp inflationary pressures emerging over a relatively short period.

The table enumerated below details the inflation rate over the course of 2026:

These movements are significant not only in absolute terms but also in the speed at which they have occurred.

While these increases are material, it is important to contextualise them appropriately. Current evidence indicates that much of the recent inflationary pressure is being driven by external factors, particularly higher global energy prices and supply chain disruptions linked to ongoing geopolitical tensions in the Middle East. These dynamics tend to impact import-dependent economies disproportionately, especially those with exposure to fuel and food price volatility.

In this regard, the recent spikes may represent a cyclical or temporary adjustment rather than the onset of a sustained inflationary cycle.

From a remuneration planning perspective, the key issue is not whether these inflation increases are valid, they clearly are, but rather whether they should directly translate into immediate adjustments to salary increases granted earlier in the year.

At this stage, Axiomatic does not advocate for any revision to salary increases based solely on these recent data points.

Nevertheless, the developments in these four markets warrant close monitoring. Rapid changes in inflation, particularly when driven by external shocks, can have second-order effects on employee expectations, cost-of-living pressures, an erosion of employees’ disposable income and, ultimately, retention risk. Employers operating in these jurisdictions should be aware that employees are likely to experience a tangible erosion in real purchasing power in the short term, even if inflation moderates later in the year.

Our recommendation is that organisations should maintain their approved salary increases for 2026 but remain agile and responsive should inflationary pressures persist beyond the near term. This may include considering targeted interventions, such as a once-off inflation allowance, rather than broad-based revisions to salary budgets.

In conclusion, while Botswana, Mozambique, Rwanda, and Kenya have experienced unusually sharp inflation increases in early 2026, there is insufficient evidence at this stage to suggest that these movements represent a structural shift requiring immediate recalibration of salary increases.

Instead, these markets should be treated as areas of heightened watch, with ongoing monitoring of inflation trends and underlying drivers. Should the current trajectory persist or deepen, a more substantive response may be warranted.

Axiomatic works with organisations across Africa to develop reward strategies that balance competitiveness, affordability, employee retention, and market realities. Contact Brett Hopkins at Brett@axiomatic.co.za.

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2026 South African Salary Increase Forecast: May Update

2026 South African Salary Increase Forecast: May Update

In early November 2025, we published our 2026 South African Salary Increase forecast, outlining the methodology used to project future inflation and to determine a real salary increase. At the time, our forecast indicated a 5.00% salary increase for 2026. The full article can be read by clicking here.

We subsequently updated this forecast in January 2026, reflecting evolving economic conditions and lower inflation. We revised the recommended increase to 4.50%, balancing the interests of both employers and employees. The article can be read by clicking here.

As Brian Tracy aptly observed, “In a time of rapid change, standing still is the most dangerous course of action.”

Recent geopolitical developments, including renewed global tensions and rising input costs, have contributed to increased economic volatility. In this environment, it is both prudent and necessary to reassess prior salary increase assumptions to ensure they remain relevant and defensible.

The Governor of the Reserve Bank stated in the May 2026 Monetary Policy Committee minutes that, “In addition, we see renewed pressure on food prices, with the agricultural sector facing higher costs for both diesel and fertiliser. Our forecast now has headline inflation averaging 4.4% this year and 3.7% next year, before returning to the 3% target in 2028”.

This outlook highlights persistent inflationary pressures, particularly in food and energy-related inputs, which continue to influence the broader cost environment.

ur revised internal inflation projections are closely aligned with the MPC’s expectations. The table below summarises historical inflation rates and Axiomatic’s forward-looking forecasts:

Several clients have approached us to request what the revised recommended salary increase for various review periods would be if we were to use the latest inflation forecast. This analysis is tabulated below:

While earlier forecasts suggested more moderate salary increases, updated inflation expectations now justify a slightly higher salary adjustment for the 2026 review cycles.

If you would like further information regarding the article, please get in touch with Brett Hopkins at Brett@axiomatic.co.za or visit the Axiomatic Website to learn more about how we can help your payroll evolve.

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