Five common Pitfalls in Global Payroll Compliance
Globalization has had a profound impact on the operational fabric of Global Payroll. Not only has it introduced newer ways of operating payroll, but it has also intensified the complexities and challenges associated with ensuring compliance. Employee salaries constitute a significant piece of the overall expenses pie incurred by any organization. It can also be considered highly sensitive because every employee needs to get paid, and an organization should comply with a wide range of complex laws before paying them.
Payroll processing is often associated with “opportunities & risks.”
- The opportunity is paying employees efficiently, accurately, and accurately within the set timelines.
- The financial and reputational risk could be hampered by inaccurate payroll processing and non-compliance with the ever-changing payroll, taxation, labor, and data privacy and protection regulations.
The common pitfalls that an organization faces in its journey to attain cent-per-cent compliance in its payroll function are:
1. Lack of understanding of local laws and requirements
Companies operating globally at times lack in maintaining multiple statutory compliances. The reason for this is inadequate knowledge of local laws and requirements of the particular country. This is becoming more challenging as regulations across countries are becoming complex because of continual amendments. Missing out on any essential mandates can have significant repercussions on business.
2. Inconsistent and inadequate documentation of compliance policies and procedures
Businesses are exploring new markets and bringing multi-country operations on a single platform. An organization’s executive leadership is essential in developing and maintaining robust payroll policies and procedures for the smooth running of the business. But many companies do not have adequate global payroll policies that could govern all countries of operations. The disintegration of international payroll policies and procedures increases the possibility of non-compliance.
3. Contrasting and fast-changing taxation policies of different countries
Ensuring compliance is an arduous task, mainly when an organization deals with multi-country payroll and keeping up with those changes that seem ever so constantly to occur. When an organization runs its business in various countries, they have to manage payroll taxation policies accordingly. Each country has due dates for filing paperwork, varying penalties, and diverse tax structures. Many times inconsistency between different jurisdictions leads to errors and misunderstandings. Taxation and compliance are phenomena that no company can take for granted.
4. The compliance dilemma in long-tail countries
Multi-national organizations are faced with the need to manage a diverse workforce. The unequal employee split across geographies will undoubtedly result in certain countries having a low headcount workforce working remotely from different countries (called the Long-Tail Countries). It increases the risk and challenges for the organization, especially for payroll functions, because employers fall short of managing the peculiarities of multi-country legislation. The possibilities of committing an error (including non-compliance to tax laws) in these countries are much higher compared to an organization’s primary or secondary countries simply because of the resources an organization cannot commit to in the Long-tail countries. There are significant chances that the cost (penalties) incurred due to non-compliance in these countries can exceed the ROI generated by operations in a tail country.
5. Lack of process visibility and control over the payroll processing value chain
For a payroll professional, it is crucial to track the threatening situations in payroll processing. The payroll cycle has different stages, and organizations struggle to execute a transparent payroll process. Due to ambiguity in data generation and improper reporting, professionals lose their hold on accuracy. The inefficiency in identifying the errors and glitches on time can put companies under the jurisdiction of non-compliance.
The panacea for effective global payroll compliance
To build and maintain a global payroll ecosystem, it is paramount for payroll professionals to structure their processes to comply with multi-country legislation. To drive a practical payroll function, professionals should develop a comprehensive understanding of multiple jurisdictions and make a periodical alteration in the payroll system according to the changes in laws and regulations.
Lastly, there are several options that an organization can adopt to become compliant with international rules and regulations, and it depends on decision-makers and payroll professionals what strategy they choose – in-house, fully outsourced, or partially outsourced.
Local compliances dynamically impact the global payroll industry. It is quite possible that a myriad of global compliance needs – especially in countries with sparse employee populations (long-tail regions) – may get unattended. Organizations may need to partner with companies with global infrastructure, expansive networks, and technology/ platform that institutionalizes best practices and requisite controls.
Are you experiencing nebulous processes in managing your global payroll compliance? Reach out to Irene Jones at firstname.lastname@example.org.