The 5 Most Complex Payroll Compliance Issues with Additional Pandemic Challenges

Ensuring compliance has always been a headache … staying ahead of each country’s legislation becomes more complex with ever-changing rules and regulations. The risk of being fined for non-compliance weighs heavy on the heads of payroll professionals in addition to the challenge of paying you employees accurately and on time. And then add the pandemic on top of that with constant changes, keeping up with compliance becomes even more demanding.

In conversations with numerous companies, 70% of payroll professionals cite compliance as their biggest concern. Ensuring regulatory compliance in every country a company operates and staying ahead of constant legislation changes creates unavoidable complexity. As companies expand their global presence, they are turning to payroll providers to assist in being responsible for handling compliance.

The Five Most Complex Compliance Issues

Companies turn to iiPay when they encounter compliance violations, such as incorrect payment for a leave of absence or maternity leave, or processing RSUs without proper taxes. In fact, companies often commission iiPay to conduct compliance audits, which often results in catching other providers’ errors when they don’t use the appropriate calculations, tax rates, and similar issues.

Compliance issues abound when considering the vast number of country-specific legislation and variable tax laws. While this list could never be exhaustive, it captures some of the commonalities among international payroll departments:

1. Taxes: A huge variable for compliance is taxes, such as income, social insurance programs, healthcare, retirement, region within a country, and disability.  For the United States, when looking at reporting at the parish or county level, it’s common that a company struggles with keeping track of taxes at that granular of a level. In Germany, employees must declare their religion; if they are Catholic, they must pay a certain percentage of wages to the Catholic church and that is taken out like taxes.
2. Country specifics: Each country has its own laws for situations like maternity leave, leaves of absence, and medical leave. For example, in France, a maternal leave of absence for twins allows twice the amount of leave, including extended time for paternity leave.
3. Healthcare: We all know that healthcare has huge differences per country with some having single-payer healthcare that’s government-provided, others with universal public insurance systems, universal private health insurance systems, and private health insurance. Within each of these, there are nuances such as in Brazil, which has single-payer healthcare, their healthcare regulations require medical check-ups to start a job and upon leaving.
4. Union rules: Regulations vary significantly by country for unions. In Vietnam, typically employers are obligated to pay a trade union fee, however it’s usually paid outside of payroll. And in China, if an enterprise trade union is formed, an employer must pay 2% of its workforce’s wages to the All-China Federation of Trade Unions, the only trade union legally allowed to exist in the country.  
5. Employment contracts: Contracts for employment also vary by definition and in payment terms. For instance, in Belgium, it has 4 different types of contracts: permanent or open-ended contracts, fixed-term contracts, specific-assignment contracts, and replacement contracts. Paid holidays differ by employment contract and in the instance of permanent contract, it depends on the number of months an employee was paid in the preceding year. In another examples, China requires employment contracts for employees, including employees that are transferring from one country to another with the same job.

The other common denominators across each of these examples are trying to meet deadlines and being able to stay on top of the huge volume of statutory requirements. To assist clients, iiPay built a knowledge portal for clients to search for changes by country that it constantly maintains. This provides real-time visibility into the constant changes in legislation that create time-sensitive hurdles for internal payroll teams.

Factoring in the Pandemic as It Relates to Compliance

As if there wasn’t already a constant pace of changes to keep up with, the COVID-19 pandemic presents more challenges with weekly and sometimes even daily updates. These country-specific updates include changes in how to handle getting tested for COVID-19, such as the amount of hours allowed for time off to get tested.

Another challenge lies in how each country defines “furlough.” For some, it’s working every other week, which complicates payroll processing. Some people’s jobs were reassigned, which impacts their salary or hourly rate based on job code. Some employees’ jobs got reassigned, which impacts whether they keep benefits or lose them or if they are considered full-time or part-time employees. Employers are sensitive to keeping up with the rapidly changing laws around medical leave and time off due to COVID-19.

A few examples of the ever-changing laws include some of these:

• Waivers of interest, late filing penalties, and related waivers in Czech Republic
• Unemployment allowance, base salary settlement claims, and hiring guidelines in Romania
• Expanded guidance on paid sick leave and medical leave in the United States
• Wage extensions, local hiring incentives, and deferments in Singapore
• Guidelines on working from home, tax changes, and dates of applicability in Switzerland

This sample of ongoing changes as the pandemic continues represents the tiniest glimpse into the overwhelming amount of updates to apply to stay in compliance.

The Path Forward in Global Payroll Compliance

Acknowledging the complicated and ongoing regulation changes due to the pandemic embodies the current situation. But when considering the additional complications for global companies to comply with local, state, and federal regulations, the waters get even muddier for payroll. Internal payroll teams often lack SMEs in each of these areas. It’s unreasonable and expensive to have a group of payroll employees to have this expansive knowledge.

As a means of keeping companies’ compliant, iiPay’s standard procedure is conducting random and spot audits, including auditing itself. This is a hallmark of the iiPay solution, guaranteeing 100% compliance in every country where it supports global payroll.  With its technology and in-house country-level experts, iiPay detects inconsistencies, which prompts payroll discussions with payroll clients to correct information where there are errors.

iiPay clients can access the Global Payroll Information at any time and also benefit from iiPay’s connections with country governments to get legislative updates before they go into effect.

In closing on staying compliant, companies need to know the unique aspects of the countries where it does business, ensure that entry into that country is worth it and fits with the company’s mission, goals, finances, and culture. Consider taxes, labor costs, and regulations that vary, such as vacation, maternity leave, insurance, and benefits packages. Some countries have laws on housing or paying a mortgage as part of the compensation package. While it can be daunting, full compliance is possible with the right tools and expertise.