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Paying employees is one of the most important transactions that a business has to make. But over the last few years, it’s been tougher than ever to do this consistently.
This isn’t just because of the effects of the pandemic: increased globalization has created more complexity from a payroll standpoint, as firms have had to deal with regulations, compliance issues, and working cultures that vary substantially from one country to another. Additionally, the more distributed nature of flexible workforces has made some payroll operations and data difficult to secure.
At the same time, payroll innovation, especially around the integration of payroll and HCM systems, has been accelerated by the cost of living crisis as businesses explore ways to support their staff better. This brings its own set of compliance and security concerns, as is always the case when processes change significantly.
In this blog, we’ll take a detailed look at the biggest security and compliance risks for payroll teams today, and what you can do to respond and mitigate the potential impacts of them.
People and operations
Some of the most pressing risks to payroll security and compliance are human, rather than technological.
For example, consider the effects that the ‘Great Resignation’ has had on the business world over the last year or two. Employee turnover has increased abruptly at many organizations, and this naturally leads to a disruption in payroll processes and an increased risk of errors or non-compliance. Every payroll cycle, therefore, brings more employees that have left the company (and so should be removed from the payroll run), that have switched roles within the business (and so need their payroll specifics adjusting), or that have recently joined (and so need adding to the payroll run).
The cost of living crisis has also had an impact from a human perspective. More employees taking time off because of stress-induced health issues (mental or physical), leading to more variables that payroll teams have to deal with. As mentioned above, a large number of businesses have innovated with new solutions and better integrations to improve the employee experience, but these changes mean security and compliance have to be reviewed and updated as required. This may necessitate a global payroll business continuity plan, where all new and existing risks are assessed, and actions determined to mitigate them (e.g. cross-training staff from other business functions to fill any temporary skills gaps).
Inconsistent visibility and dispersed control
The pandemic delivered a window of opportunity for many businesses to accelerate their globalization and international expansion. While this is excellent for growth, it has also generated some sizeable compliance and security risks in a number of key areas, such as:
- Decentralization: international businesses face a difficult balancing act here. Centralize and standardize all payroll policies and processes globally, and they risk creating internal friction and payroll errors when those processes work better in some countries than others. But while decentralization removes those frictions, monitoring, and visibility of payroll activity is much more challenging due to so many different payroll systems being in place.
- Data and reporting: when payroll, finance and HR platforms are out of sync, it results in inaccurate payroll and financial reporting and significant consequences for the business. HR platforms provide the necessary data for calculating payroll, such as employee salaries, hours worked, and benefits. Finance platforms provide essential data for financial reporting, such as tax withholdings and contributions. The accuracy and reliability of this data are critical for ensuring compliant payroll and financial reporting and require a robust payroll integration
- Legal complexity: not only does every country have its own set of payroll and employment laws (for example, there are over 100 social security systems in place across the globe), they are also subject to change on a regular basis. Keeping on top of all of these changes, in every country a business operates in, is vital for staying compliant but can be extremely difficult and time-consuming to do in-house nonetheless.
The best way to resolve these issues is through payroll software with a centralized, joined-up approach that allows payroll in different countries to be run consistently, with access control to keep employees’ personal data safe.
This should come in tandem with closer integration between payroll, treasury, and HCM systems. Not only will this minimize errors, but also provides global control and a digital audit trail, as well as analytics and visibility to guide decisions locally and ensure you are fully compliant.
Payroll complexity is more of a challenge in some countries than others based on region-specific challenges. We highlight the countries currently facing the biggest challenges in our Payroll Efficiency Index, and although the countries featured in our difficulty matrix change from year to year, some countries, like Japan and China, always feature in the top 5.
Data privacy and security
The prevalence of hybrid and remote working in businesses all over the world means that the security and privacy risks to payroll data have increased substantially. This is because employees are working far apart from each other (especially in a global business), using different systems, and using internet connections of varying quality and levels of security.
Additionally, as the ‘novelty’ of hybrid working has worn off, employees generally have become less vigilant and meticulous around security best practices and data protection. This complacency means that the high security and compliance standards required, especially by regulations like GDPR, become far more difficult to adhere to.
Businesses have to ensure that all connections used for payroll data and related activities are secure and that the handling and storage of data comply with regulations in all the countries they operate in. The consequences of a failure in this area – whether legal, financial, operational, or reputational – can be extremely severe.
In summary
It’s natural that businesses want to take advantage of all the opportunities for globalization and growth in the months and years ahead. However, that has to be balanced with operations and processes that are always secure and compliant, including payroll solutions.
As this blog has demonstrated, that is easier said than done: new innovations, greater distribution of workforces, and complexity of regulations are all tough challenges to navigate. But by outsourcing the right technologies and support frameworks place and moving towards better integration with areas such as treasury and HCM, organizations can expand with confidence that they are well–insulated against some of the business world’s biggest current risks.
Find out how CloudPay can support your secure and compliant move towards a modern pay experience, and sign up for our upcoming webinar with the Global Payroll Association for priority access to the new Payroll Efficiency Index.