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.
Moving Forward
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:
- Pre-payroll processing;
- Print payments;
- Journal entries;
- Payroll reports; and
- 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.
