What is payroll compliance?

Payroll is an integrated list of employees in a company, the amount of payment these employees receive per pay period, and the total amount of payment the company pays their employees. The company is responsible for developing an organization pay policy, which includes flexible benefits and leave encashment policies. In the corporate world, payroll and compliance go hand in hand. If payroll compliance laws are not abided by, this could result in the company facing legal charges. 

Why is compliance substantial?

Compliance and obedience are significant in multinational businesses that departments like Human Resources spend roughly 36 hours a week on compliance-related activities. This includes navigating regulatory changes to ensure that the company policies keep up. One area of global payroll that is especially crucial is the privacy of the security of employee data. The vitality of this portion in global payroll is a byproduct of the European Union’s General Data Protection Regulations (GDPR), which did not take effect until May of 2018 and swept changes in payroll compliance.  

It should be noted that this legislation only affects organizations with employees in the European Union. Non-compliance could warrant companies to face penalties as dictated by payroll error laws. Companies ruled to have improperly and unlawfully stored and processed employee information can face fines of up to 20 million euros or four percent of annual revenue, depending on which is a higher amount. 

Teams in the Human Resources department assigned for payroll and statutory compliance tasks are therefore charged with managing and processing sensitive employee data, including names, addresses, pay scales, tax codes, bank account numbers, and employment contract statuses. The employees in these teams are required to remain vigilant as they hold the fate of the business. One mistake could topple their whole organization. It is their job to protect both the employees and the organizations they serve by accurately and promptly performing payroll compliance reporting.  

Handling payroll processing is an essential aspect of human capital management. Some call this the lifeblood of every successful organization. Payroll becomes even more challenging when legal entities in multiple states, each with its own tax rules and regulations, are taken into consideration. When the company grows in scale and begins administering payroll on a global scale, that is a higher challenge level. Once this is already the case, companies hire a certified payroll compliance practitioner to handle the payroll compliance-related tasks.

The primary problem in the accurate management of payroll lies in compliance. Every country has its own economic conditions, currencies, and laws about the compensation of employees. Compliance warrants companies to manage their payroll in a way that keeps employees compensated and engaged with their jobs, and measures up to various national and international challenges of payroll processing. Accurate Global Payroll Management has myriad things to consider, but here is a summary of these considerations into three aspects.

1. Data Security

Most global Human Resources systems do not institute payroll-specific data—usually, these store sensitive employee data at each location. Storing sensitive employees in emails and spreadsheets can account for an insecure environment. Vulnerability is increased due to manually storing employee, HR, and payroll data in multiple locations.

Companies must take good care of their payroll data. This is even more imperative for companies that operate globally, and noncompliance could necessitate enormous fines. Companies will need to ask the right questions about how employee data are stored and transmitted to the core system of record. All these should be found in a shared service or centralized payroll.

The need for data security is especially magnified in the recent dismissal of the Safe Harbor Act by the European Union. Keeping track of those who have access to payroll data is also necessary.

2. Data Accuracy

Information such as time and attendance, vacation and sick time, and its corresponding entitlement balances make a critical part of workforce management information and are therefore required to be accurate to the tiniest increment. For example, the pay stubs in an employee’s paycheck must follow pay stub requirements by the state. Ideally, the payroll team should view and approve gross pay before this is fed into payroll calculation, thereby significantly increasing the accuracy of the net pay. However, in hourly environments, the case is different.

Understanding which data inputs are required in each country to calculate payroll and the processes and people that collect the data are, therefore, responsibilities of the company.

3. Technology Leverage

Automation of data collection processes and removing spreadsheets is most likely how sensitive global payroll data will be collected in the next few years. These modern technology platforms can provide system workflow capabilities that allow for custom approval processes, data validation, and, most importantly, employee self-service. Improving and having a better understanding of data sources and the collection processes is important. Companies today now have to keep up with the changing payroll legislation across each country a company operates. One way to do this is to change and make efficient how data are collected using technology.

Conclusion

This article established how global payroll compliance matters to your business. The inadequacy of aptness and promptness by your employees who are tasked to perform this task could result in your company’s downfall. Therefore, it is necessary to invest time, effort and money in fulfilling the requirements of global payroll. 

(READ: 4 Steps to Plan Global Payroll Implementation)

If you are looking for a firm to give you just that, Rivermate happens to offer services in global payroll, compliance, and Human Resource tools. 

Rivermate has payroll compliance practitioners that are more than happy to provide payroll compliance services and address your issues in that aspect of your business.

Frequently Asked Questions

What is single touch payroll compliance?

Single Touch Payroll (STP) is an initiative by the Australian Government that makes the reporting of tax and information more manageable and efficient by coordinating and corresponding with the Australian Taxation Office (ATO). An STP-enabled software will require you to send your employees’ salary and wage, tax withheld, and other information. More particularly, the ATO expects you to perform the following tasks: 

  • report payroll information to the ATO each time you pay your employees
  • report super liability information to the ATO

The ATO also says that you will no longer need to give your employees a payment summary for the information you have already reported and finalized because of the STP. (READ: Australian Taxation Office: Single Touch Payroll)

Why is payroll processing necessary?

Processing payroll is an essential task in any business as it affects the company’s financial stability and reputation. When payroll is processed accurately and punctually, employees can be more engaged and motivated to perform their company’s responsibilities. This is in contrast to when employees receive paychecks with errors. In this case, they can lose the trust of the company they work for. More importantly, a company that does not abide by payroll compliance laws and regulations will likely be charged with substantial penalties. 

What is global payroll?

Global payroll is the overall management of a company’s entire payroll data for all locations via a single system. Companies that set headquarters in a particular location will need to compensate employees working in different locations, thus creating a global payroll system. 

What is payroll compliance?

Payroll compliance is the general term for the activities needed to comply with laws and regulations that dictate how payroll should be processed. This includes the integration of data, the calculation of allowances, deductions, benefits, and the net wages of every employee in an organization.

What is a payroll aggregator?

A payroll aggregator is an entity that obtains payroll data from a company’s employer and distributes it to the partner network of the company. Companies with employees located across multiple countries outsource their payroll to an aggregator. 

What are the services provided by Global Payroll Solutions Mexico?

Global Payroll Solutions Mexico provides services related to the workforce and human resource necessities of their clients. It brands itself as a company that manages payroll and all aspects of their clients’ personnel. 

What are the steps in payroll processing in the United States? 

The U.S. Payroll process can be summarized into five steps, namely: 

  1. Pre-payroll processing;
  2. Print payments;
  3. Journal entries;
  4. Payroll reports; and
  5. Final update.

To comprehensively process employees in the United States through a payroll cycle, these steps must be accomplished. A basic understanding of payroll processing is warranted before moving on to set up and process payroll information for your employees. JD Edwards EnterpriseOne explains more about this. (READ: JD Edwards EnterpriseOne Applications US Payroll Implementation Guide).

What is a compliance officer?

A compliance officer is an employee in a company that ensures that the firm is in full compliance with the regulatory and legal requirements mandated by the state where the company operates. This includes technical facets like payroll tax compliance and pay stub requirements and general aspects such as timeliness, comprehensiveness, and the like. The compliance officer also initiates that the company’s internal policies and bylaws abide by the said legal requirements. Compliance officers often work with management and staff to manage and mitigate the company’s regulatory risks.