Payroll Compliance – What Does it Really Mean?

Payroll Compliance – The payroll industry never really speaks about compliance in depth, nor does it explore the various ways in which it is ensured across the supply chain.

Instead, it’s easy to gloss over compliance with vague statements around payroll processes. This isn’t because payroll professionals aren’t adhering to required rules and regulations, but rather because it can be difficult to demonstrate. And we can’t overlook the fact that what compliance looks like will vary across different businesses and geographies.

The risk of non-compliance

There’s a huge complexity of standards to abide by globally and payroll teams can ill-afford to overlook the detrimental consequences that non-compliance will bring. If we fail to pay employees on time, file payroll taxes incorrectly or late or keep incomplete payroll records, companies will be at risk of audits and fines from government agencies, penalties and interest, legal expenses, loss or irreplaceable data and even a dip in employee morale.

So payroll compliance is not only difficult, it’s a fundamental success factor for any business of any size.

How can payroll providers help firms operate compliantly?

One of the ways that payroll providers help firms operate compliantly is by accurate tax filings. However, what is often overlooked is that payroll tax filing can be a real challenge, particularly due to the ever-changing global tax legislation environment. With legislative requirements continuously changing across countries, what may have been considered compliant a year ago, might not be today.

It’s the job of your payroll provider to not only ensure that taxes and benefits are being properly deducted and paid, but also be in the know of tax and reporting deadlines – all of which can vary depending on where employees are located. A good example of this is Brazil where income tax is due within the first five days of the following month, while social security tax is due on the 20th of the following month.


Country specific laws

As we know all too well, payroll laws will differ around the globe, and payroll teams across international companies need to be acutely aware of this. A few examples of the variety of laws that need to be adhered to around the world are:

  • Labour Law of the People’s Republic of China: In addition to regulating how many hours employees can work per day and per week, the Labour Law provides guidelines on employment contracts, wages, labour disputes, working conditions, welfare, and overtime.
  • Wages Protection System of the United Arab Emirates (UAE): Requires businesses to register with the Ministry of Human Resources and Emiratisation and pay employees through an approved financial institution by established deadlines. If employers don’t register or make the payments on time, they can be denied work permits.
  • UK Employment Rights Act: Provides guidance for employment contracts, reasonable dismissal notices, unfair dismissal, parental leave, and redundancy.
  • Labour Standards Act of Japan: Since its passage in 1947, Japan’s Labour Standards Act has been amended numerous times and covers minimum wage, working hours and overtime, and annual leave, among other employment issues.
  • German Act on Part-Time Work and Fixed-Term Contracts: Provides guidelines for increasing or reducing work hours during fixed-term employment.

Main challenges of payroll compliance

Payroll compliance isn’t simple. And all of this time spent combing through country-specific rules, maintaining the accuracy of recorded hours, calculations and government procedures is time that many payroll teams simply don’t have.

This is why it’s always smart to have a payroll partner who is already in the know and can assist with the finer compliance concerns that companies may overlook globally. However, even if you do opt to partner up, always remember that compliance is a dual effort. The company itself is ultimately responsible for ensuring data integrity and quality, whereas payroll partners will be in charge of what is done with this information.

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What should you be doing to maintain payroll compliance in your company?

Maintaining payroll compliance can be quite the challenge, but it’s not impossible. With some small steps, your company can easily make sure its doing what it can to get it right:

  • Keep employee records up to date: We often hear from employers that even though they have a global HCM, it’s not being used to its full advantage across all geographies. Depending on the country, certain pieces of information need to be reported within a specific time frame, and rigorously maintaining HCM data is key. Then allowing data to feed into your payroll partner daily will eliminate the risk of missing data causing errors in the payroll.
  • Classify employees correctly: The world is changing and so is the way we work. We are seeing more independent contractors, freelancers and interim staff being utilised, than ever before. Making sure you’re keeping the correct information on employment status and classification is a must, for the same reason as it is for employees.
  • Track local and national regulations: It can be hard to keep up with international payroll laws and regulations, so consider collaborating with a payroll partner with the global reach to support this.
  • Use payroll tools: Technology and software can be hugely valuable in automating processes, accurately collecting and compliantly storing data, and ensuring information is being shared with the relevant parties at the right time.
  • Calculate overtime hours correctly: If you are a time-based organisation, make sure that you have a robust Time and Attendance system that meets different overtime requirements by country.
  • Understand your payroll rules: Keep your payroll process simple and try to avoid high levels of corrections or mid-pay period rate changes.

Payroll compliance isn’t an easy topic to navigate, particularly across borders. But ultimately, the risk of non-compliance does sit with the business. Knowing that those you partner with are abiding by the rules they should in the countries in which your staff operate is becoming increasingly important for firms of all shapes and sizes in our increasingly complex world of work.

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