Running a thriving organization leans heavily on the success of several complex procedures, all of which are interlinked and require 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. While the payroll challenges of yesterday still remain, introduced to the mix are now payroll challenges on a much broader, global scale.
When a well-managed payroll needs to be completely accurate, real-time, and secure while also being able to factor in multiple time zones, currencies, and employment regulations, it is clear that this is no small task. However, when paying staff punctually and accurately is an essential part of maintaining a happy team, it is not a task that can afford to be taken lightly.
In this article, we dive deeper into this subject and take a look at five of the top payroll challenges affecting modern business, plus ways to solve them.
Changing Tax and Labor Laws
As anybody who has managed local or international staff will know, the only one constant when it comes to tax and labor laws is change. These changes are often a result of a shift in societal norms and policies and changing government policies, economic influences, 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 tax and labor laws can also vary depending on the county, state, or even personal factors, such as the religion of the employee. And also important to consider, these labor laws cover a profusion of issues, such as sick leave, maternity leave, paternity leave, family responsibility leave, minimum wage, overtime pay, pay deductions, and holiday pay.
There is a good reason though that the thought of tax and labor laws gets companies sitting up straight in their seats. The penalties for contravention of these laws are severe. Failure to stay on top of regulatory changes can be damaging in a number of ways, from fines, loss of permits, lawsuits, reputational damage, and demoralized staff. In some severe cases, imprisonment is also possible.
When it comes to skilled talent in the modern business landscape, competition is fierce. No employee can afford to grow a reputation as being neglectful or irresponsible when it comes to adhering to laws as simply, no top talent will be interested in joining a dysfunctional company. Not only that, but existing staff will also begin to feel undervalued and disheartened, ultimately resulting in a negative 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. There are also industry tax and labor experts available for consultations, who will be able to give the best payroll advice and guidance on new regulations.
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
It can be said that a payroll is only as good as the data that it is built on. Payroll accuracy has always presented a significant challenge – especially as companies grow. This is often due to a lack of procedure, human error, poor time-tracking, misclassification of workers, and outdated systems, among other things.
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.
For companies, there are several measures that can be adopted to alleviate these potential payroll accuracy issues. An effective first step would be to invest in adequate time-tracking software that can keep a thorough register of time records, plus indicate where any possible issues are occurring, such as incorrect pay rates, missing data, or inconsistencies in time reporting methods.
Keeping up-to-date records is also essential. Whether this is done with payroll software or on spreadsheets, there is important data that must be recorded and stored, such as employee information, pay rates, hours worked, and deductions, to ensure that payroll records are correct.
Companies will also benefit by seeking payroll advice and establishing clear policies upfront when it comes to how pay is calculated, how deductions are calculated plus how overtime, sick days, and holiday pay are worked out. Clear policies are highly beneficial in the formation of a consistent process that does not fall prey to neglectful practices.
Furthermore, companies that take a proactive approach and perform regular audits of their payroll systems will be in stronger positions to identify and attend to any system or data irregularities.
While all of this is achievable with in-house HR managers, many companies find that outsourcing presents the best solution here, as outsourced HR companies have advanced payroll systems that not only automate processes but also ensure accuracy and offer complete visibility.
Managing Global Payroll Challenges
While managing the payroll in a local company is challenging enough, the recent trend of remote work and global expansion takes these challenges to the next level.
When dealing with global payroll, there are many additional requirements and considerations that need attention. Not only will the changing tax and labor laws in different countries demand a serious amount of focus, but managing a global workforce also means calculations in foreign currencies plus the difficulties involved in dealing with foreign banks.
A global workforce also needs to be paid punctually, but the time zone differences can make this a challenge. It is simply not sufficient to pay the entire team at the same time, as for many workers who live in a country ahead in time it could mean that they receive their salary later than needed. As a result, payroll processing times and payment deadlines will therefore need to be adjusted according to the different time zones.
Further consideration also needs to be given to the costly burden that managing global payroll places on in-house staff, especially when these resources can best be used 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
The data that a company stores with regard to payroll is understandably of a highly sensitive and confidential nature, and must be protected at all costs. But with many payroll systems vulnerable to phishing and cyberattacks, sensitive employee information can be left exposed, leading to identity theft, fraud, and reputational damage for companies, plus a loss of confidence from employees.
In addition to the dangers of a cyber attack, there is the issue of adhering to country-specific data privacy laws. Different countries have varying data privacy laws and specifications that need to be followed when paying employees across borders. 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.
It is important to note however that the risk of data breaches can be mitigated in a number of 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 significant challenge the management of payroll encounters is the high cost it takes to run. Considering all the different aspects that need to be factored in and monitored, paying in-house HR staff to manage this will become extremely costly. 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. The outsourced payroll is also efficiently managed in a secure and 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. In essence, running an efficient payroll requires something of a balancing act, where equal importance should be given to knowledge and understanding, 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 reduces the headache involved for companies, while also allowing them to more effectively focus their resources, letting experts that are trained in these specific issues run this complex undertaking.