Survey Result: 70% list compliance as the big worry
In a survey, over 600 global payroll professionals were asked about the biggest challenge they face in their global payroll process at present. The issue of compliance came out as the overwhelming winner in this survey with a massive 70% of those surveyed stating that it was their largest concern.
What are the concerns and key issues affecting global payroll compliance today that would result in such a comprehensive statistic appearing in a survey? Why is global payroll compliance that bit more complex and nuanced than other compliance obligations? What is it about reporting responsibilities and multi-country compliance procedures and legal obligations that creates additional workloads for many professionals who work in global payroll today?
In this article, we are going to take a look at compliance, what is involved and what global payroll professionals need to do to make sure they are compliant in each and every country that they operate a global payroll process in 2021.
The Calculations
Multi country payroll can be complicated as it involves several different payroll elements, many of which can be unique to a country or specific employee compensation package. This means there are complexities involved in getting the calculations correct and ensuring that the proper deductions are made at the right points during the year.
A good deal of payroll legislation knowledge is required here as well as a keen eye for detail, anomalies and error spotting. Aside from the actual calculations, another factor is determining what needs to be sent to the various tax offices and local government agencies and at what times during the financial calendar year.
Specific in-country reporting may be required to take account of local nuances and remain compliant. Employment law structures differ between countries and regions and you also have to determine which country to file tax returns or compliance information in - an employee may be located in one country but due to the original set up, there may be an obligation to disclose tax and other related compliance information in a different country.
Clarity and Control
Clarity and visibility around compliance is always going to be an issue, especially in large multinationals who tend to regularly scale into new countries and territories. Once the process of scaling begins, there is an immediate obligation on the part of the global payroll team to research, address and develop a plan around how to meet compliance obligations in the new country. These compliance obligations also need to form a part of the wider global payroll reporting when it comes to achieving compliance on a global level.
It comes down to a very basic question, how do you know if you are compliant in a particular country? This is a major question facing many payroll teams today. It is not always easy to answer as the nature of the global payroll framework means that a lot of outsourcing partners tend to be involved in the delivery of global payroll. This means a lot of moving parts and getting a clear picture can be difficult.
In an aggregator model, global payroll will be performed by the in-country partner (ICP) connected to the aggregator network. In this scenario, responsibility for compliance calculations lies with the ICP- however, overall compliance responsibility lies with the multinational employer as they must be in a position to provide documentary evidence that they are adhering to all local and international compliance laws.
Therefore, they need to have a lot of confidence in their ICP as they will rely heavily on their local knowledge and in-depth experience to file the correct returns in a timely manner and in a consistent way. It is useful to have a detailed calendar mapped out at the start of the financial year, highlighting all the major file return obligations during the calendar year so you can maintain a sense of control over your compliance.
A lack of compliance visibility
The difficulty many global payroll professionals encounter is the communication blocks that are sometimes in place with the aggregator model - in many cases, the central global payroll team at a multinational corporation does not have regular access or open communication with the ICP because this relationship is managed by the aggregator. The aggregator acts as a go between in terms of communication and tends to supply the information upwards after speaking with the ICP.
This makes it difficult for a global payroll team to assess the quality of compliance work carried out by the ICP- they will have limited visibility of the process undertaken by the ICP and they are also unable to influence how strict and robust this process is likely to be. The matter of compliance procedures is out of their hands, but they still bear the full responsibility for it, and should anything go wrong, they will be the ones facing the consequences.
Compliance Structure
Global payroll departments and procedures will likely follow the corporate structure at a multinational which has been in place for many years. They will need to find a way to make their compliance commitments work while adhering to this structure.
This leads to important questions for global payroll such as in what country do you want to be taxable in? There are likely to be financial gains involved in locating employees, lines of business or product lines in countries that offer significant tax advantages. The global payroll function needs to learn how to be compliant in these countries and adhere to local laws while also operating within the parameters of the overall corporate structure of the multinational.
Global payroll teams need to understand exactly what details need to be reported and during what time periods. There is a legal obligation on global payroll teams to immerse themselves in any available information and then create strong internal procedures that prioritize compliance.
Compliance and tax reporting are understandably complex areas that are subject to regular change when laws and regulation around them also change. It is an ongoing process of keeping informed and it is usually best to establish a local in country relationship with subject matter experts or a legal/accountancy firm to make sure you stay on the right side of the law. File returns can be on a country level, state level or regional level -it is easy to see why things can get complex with such dense and detailed information needing to be analyzed and acted upon. A strong policy around fast and transparent reporting is needed for any global payroll manager to feel comfortable that obligations can be met in the appropriate manner. The pandemic has added a new complexity- remote workers asking to work from their home countries- the implications around how this may play out are not yet clear but governance and compliance control will be key to controlling it.
Global Compliance
Maintaining compliance can be difficult when you have employees in multiple countries. Expanding into new territories means having to deal with local, country specific regulations and nuances around key pay run elements like tax, benefits, state deductions and more.
Keeping track of all these can be time consuming and, in some cases, requires additional resources. Most global payroll teams will receive some initial guidance around the laws in a specific country and then they will examine the reporting they receive from ICPs to see if these laws are being adhered to. Issues tend to arise from a lack of local knowledge or the absence of a subject matter expert, who can advise them on best practice or who gets in immediate contact when there is a change to a local law that is likely to have an immediate impact on the next month's payroll.
Outside of payroll, overall company compliance at many multinationals falls under the Sarbanes-Oxley Act (SOX) which sets deadlines for compliance and publishes rules on requirements. Other compliance obligations Include data protection, data privacy, GDPR and information security.
Help with compliance
While it is undoubtedly a very complex area, the good news is that multinational corporations do have options available to them to ring fence and control the manner in which they achieve full compliance in all the countries in which they deliver payroll.
This may involve adopting an entirely new global payroll model and it will almost certainly involve the use of innovative technology. Most global payroll professionals will state that any investment that results in a positive change in process or technology which helps to secure global payroll processes and compliance for many years to come is likely to be money well spent in the long run.
“Managed service environments really showed that they can support and de-risk payroll fundamentally by having modern technology and a partner to turn to that can help you navigate the business of doing payroll”
Pete Tiliakos
Principal analyst, Nelson Hall
Below are some things you can introduce which will help you meet compliance obligations:
Automate workflows
Automated workflows can help reduce human error and data inaccuracies-something that serves to mitigate risk when it comes to global payroll compliance. Any system with less risk is likely to be more compliant by default. Compliance failures can come down to manual data entry inputs that are not correct. Automated workflows employing standardized data can improve accuracy rates and payroll cycles turnaround times, paving the way for transparent payroll compliance.
Calendar Tools
A calendar tool can give global payroll professionals greater visibility over key dates in the compliance annual calendar. It is helpful to digitize your calendar so that it triggers alerts in advance of key compliance deadlines, this way everybody knows what to do and is prepared.
Move into the cloud
MNCs can choose to operate their global payroll from the cloud and link it to the wider business function as part of an overall cloud-based operation. The cloud allows processes to be streamlined, controls to be monitored & measured and crucially, significantly increases the visibility around the data points which contribute to international compliance.
Standardize processes
Compliance is easier if the payroll delivery process is at a standard level across multiple countries. When data, system processes and reporting is standardized, there is greater room for monitoring controls and achieving a clear overview of all payrolls at once. It is also easier to view and trace payroll information in an audit trail.
Payslip
Paylsip use automation and integration technology to introduce both standardization and automation into the global payroll processes. Our platform is hosted in the cloud and facilitates global consolidated reporting on a multi country level. These platform features help global payroll professionals to maintain compliance across several countries on their payroll books.="https:>
Our calendar tool allows you to digitize and set up alerts for key compliance dates throughout the financial calendar year. GDPR and SOX requirements can be assisted via the platform’s automated entries and clear audit trails identifying user access rights to data and outlining who did what with data at various points of the lifecycle. It can also automate the end of lifecycle data requirements.
The platform allows users to create access rights and single sign-on usage for geo-dispersed teams ensuring all access to data and document storage adheres both to GDPR and pre -defined information security procedures.
The single dashboard view allows for greater visibility and centralized control over the global payroll process, contributing to a more efficient way to meet compliance obligations at a multinational company.