5 Payroll Challenges Facing Modern Business
A thriving organization depends on several complex, interlinked processes. Each one needs constant attention. One of these unremitting procedures is the running of payroll – and with shifting trends in the business sphere, this procedure is growing more complex by the day.
The additional challenges involving payroll are due to a variety of reasons but are largely a result of global expansion. The old payroll challenges remain. However, companies now face them on a global scale too.
A well-managed payroll must be accurate, timely and secure. It must also handle multiple time zones, currencies and employment rules, so it’s no small task. Paying staff on time and accurately keeps teams happy. So companies can’t take it lightly.
In this article, we look at five top payroll challenges facing modern businesses, and how to solve them.
Changing Tax and Labor Laws
As anyone who has managed local or international staff knows, tax and labor laws constantly change. Changes often follow shifts in social norms, government policy, the economy and industry standards. However, because of the ever-changing nature of tax and labor laws, constant monitoring is required – but the larger the company, the more difficult these details are to keep track of.
When dealing with a global team, there are more than just foreign laws of specific countries to consider. Many foreign laws also vary by county, state or even personal factors, such as an employee’s religion. These laws also cover many issues. For example, they govern sick, maternity, paternity and family leave, minimum wage, overtime, deductions and holiday pay.
There’s a good reason tax and labor laws make companies nervous. The penalties for contravention of these laws are severe. Missing regulatory changes can lead to fines, lost permits and lawsuits. It can also damage your reputation and demoralize staff. In some severe cases, imprisonment is also possible.
When it comes to skilled talent in the modern business landscape, competition is fierce. No company can afford a reputation for ignoring the law. After all, top talent won’t join a dysfunctional company. Existing staff will also feel undervalued, which damages company culture.
So, with the pitfalls of tax and labor law-related compliance now clear, what is the best way to keep on top of this? The good news is that there are resources and methods to stay informed and up-to-date. From industry and government policy websites to training seminars, information is on hand. You can also consult tax and labor experts for payroll advice and guidance on new rules.
Staying informed coupled with meticulous record-keeping is therefore the ultimate way to avoid running into compliance trouble. However, for companies who simply don’t have the resources to manage this matter in-house, there are experienced outsourced HR agencies available that offer global payroll solutions. Not only do they streamline the process, but also ensure a compliant and accurate payroll.
Ensuring Payroll Accuracy
In short, payroll is only as good as its data. Payroll accuracy has always presented a significant challenge – especially as companies grow. Common causes include missing procedures, human error, poor time-tracking, worker misclassification and outdated systems.
There are a number of other factors that need to be exactly right in order to run an accurate payroll. These include the accurate record keeping of hours, correct deductions of tax and social contributions, and leave calculation. Any error in these calculations can result in an employee being overpaid or underpaid – and either result is time-consuming to investigate and fix, plus an underpaid employee is certainly not a happy one.
Fortunately, companies can take several steps to improve payroll accuracy. A good first step is time-tracking software that keeps thorough records. It also flags issues such as wrong pay rates, missing data or inconsistent reporting.
Keeping up-to-date records is also essential. Whether you use software or spreadsheets, record key data accurately. That includes employee details, pay rates, hours worked and deductions.
Companies also benefit from payroll advice and clear upfront policies. These should explain how you calculate pay, deductions, overtime, sick pay and holiday pay. Clear policies are highly beneficial in the formation of a consistent process that does not fall prey to neglectful practices.
Furthermore, regular payroll audits help you spot and fix system or data problems early.
In-house HR can do all this. However, many companies prefer outsourcing, because providers have advanced systems that automate processes, ensure accuracy and offer full visibility.
Managing Global Payroll Challenges
Local payroll is challenging enough. Remote work and global expansion make it even harder.
When dealing with global payroll, there are many additional requirements and considerations that need attention. Changing laws in each country demand serious focus. In addition, a global workforce means foreign-currency calculations and dealing with foreign banks.
A global workforce also needs paying on time, but time zones make this hard. Paying everyone at the same moment isn’t enough. Otherwise, workers in later time zones may receive their salary late. So you need to adjust processing times and payment deadlines for each time zone.
Also consider the burden global payroll places on in-house staff, whose time may be better spent elsewhere. With so many additional variables to pay attention to, it can be an expensive endeavor for companies to run a global payroll in-house.
As a result, for many companies, the best solution is to outsource global payroll to an expert global human resource company, which has all of the software and experience to provide a streamlined, accurate, and compliant global payroll solution.
Dealing with Data Security
Payroll data is highly sensitive and confidential, so companies must protect it at all costs. Yet many payroll systems are vulnerable to phishing and cyberattacks. As a result, exposed employee data can lead to identity theft, fraud, reputational damage and lost trust.
In addition to the dangers of a cyber attack, there is the issue of adhering to country-specific data privacy laws. Each country also has its own data privacy laws for cross-border payroll. For example, for countries falling under the European General Data Protection Regulation (GDPR), the fine for violating privacy laws can be costly – up to 20 million euros, or up to 4 % of total global turnover (whichever is higher).
It is not only the handling of personal data that can present an issue, but also the retention of it – with varying regulations also determining how long data should be stored and how it should be destroyed, depending on location.
However, you can reduce the risk of data breaches in several ways. This includes encrypting sensitive payroll data, limiting access to the payroll, providing additional security training to staff who work with the payroll, ensuring compliance with local data privacy laws (such as the GDPR), and finally, conducting regular security audits.
Cost of Payroll Management
Another major payroll challenge is cost. Given everything you need to track, paying in-house HR staff to manage it becomes very expensive. In addition to this, managing the payroll of a growing workforce will frequently require that additional staff be hired to help manage this – further adding to the financial burden.
With many companies employing remote workers and expanding offices globally, added to the existing challenges is managing the payroll of a global workforce, and all of the complexities that it brings. For example, just the task of keeping up to date and applying various tax and labor regulations takes a considerable amount of time to manage – and incurs a high cost of labor as a result.
In light of the size of the task at hand, it makes financial sense for many companies to outsource their payroll to HR specialists who offer global payroll services. Not only does this save a company money but also frees up internal resources to focus on other important HR tasks, such as onboarding, training, and employee relations.
In addition, by outsourcing payroll services, the compliance of the payroll and accuracy and punctuality of payments is pretty much guaranteed, with added assistance by a tax expert. Outsourced providers also run payroll through a secure, centralized process.
Conclusion: Implementing Effective Payroll Solutions
While managing payroll (and especially the payroll of a global workforce) can seem like a daunting undertaking, understanding both local and global payroll challenges is the first step to putting procedures in place to lighten the load.
It takes a careful analysis of local regulations and requirements to drive an efficient payroll, plus regular system compliance and security audits. Essentially, efficient payroll is a balancing act between knowledge, procedure and technology.
In conclusion, it is important for companies to weigh the pros and cons of running payroll in-house versus outsourcing, also bearing in mind that outsourcing payroll drastically reduces the risk of error and compliance-related fines. In addition to this, outsourcing payroll also saves a company time and money.
Ultimately, outsourcing payroll removes a headache. It also frees your resources while trained experts run this complex process.
Burnout is a serious issue in this fast-paced world. Learn how to best prevent it in your remote team by reading 10 Practical Tips For Avoiding Remote Employee Burnout.