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Compliance complexity: lessening future risk

Posted by: ADP on 18 November 2015 in Compliance

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It seems that the volume of tax, employment and payment related regulatory changes are going to keep increasing. So how will human resource and finance executives be able to maintain compliance now, and mitigate future risk? One thing is for sure. It’s not going to be easy without some help. 

Employment-Related Compliance in a complex global compliance environment used to be exclusive to a relatively small cadre of multinational corporations. In the last 20 years, the world has literally changed. The “globalization” trend has tripled the number of employees working for a subsidiary of a multinational corporation. As a result, the language of business is becoming more standardized across borders and oceans. However, employment law remains as culturally complex as ever.

The need for organisations to manage risk and compliance issues effectively has never been greater. At the same time, it has never been more difficult to achieve that internally. Businesses must understand the risk and compliance issues they face in every jurisdiction where they conduct business. Improving the efficiency of compliance management isn’t just critical, it’s a business imperative.

Noncompliance costs can be high

Risks to small and mid-sized companies can be just as great as those for large employers. Many companies often lack the internal expertise and resources to keep abreast of ever-changing local, regional and national employment law. Errors can lead to serious and costly compliance consequences.

  • Companies that move staff or operations from country to country might not consider issues such as not properly withholding income tax or not having properly filed national insurance payments that could result in criminal investigations and penalties.
  • Misclassifying self-employed freelance workers could mean millions in retroactive payments – including penalties and unpaid taxes.
  • Entrepreneur start-ups are making the same classic mistakes that large companies made 25 years ago: they hire many people and do not have the time to monitor compliance requirements.
  • Even companies with little geographic expansion still require the resources to understand employment law as legislation and regulations change.

Risk can transcend direct noncompliance costs

The risks generally associated with noncompliance typically focus on costs, significant fines and the time and expense of correcting errors. These costs are high but easy to measure. It is much harder to quantify the cost of damage caused by noncompliance to your brand reputation, low employee engagement scores and increased turnover – not to mention the opportunity costs of not claiming valuable business tax credits, where available.

Many organisations focus on improving HR efficiencies, technology and speed, to the detriment of accuracy and risk mitigation. An over-reliance on in-house teams or historic legacy processes can leave organizations believing they are compliant when, in fact, they are exposed to potentially damaging noncompliance issues. In some countries, this can even lead to jail time for company executives.

Leverage the power of  technology

 While technology has revolutionized many aspects of business, many organisations are still tied to manual compliance management processes or multiple vendor contracts put in place years ago by their counterparts. Untangling the web of spreadsheets and paper documents, or the paths of information from various vendors, often proves to be extremely difficult internally.

While these processes may have once been effective, in many instances they can become significant obstacles to improving the efficiency of the compliance process and responding to legislative requirements.

Streamline, automate and integrate

 Adapting quickly to changes requires significant skills and knowledge. The 2013 ADP SmartCompliance survey found that 65% percent of CFOs believe reducing the number of touch points in compliance processes could increase efficiency and productivity. Additionally, more than 75% of finance executives report having no access to real-time, consolidated compliance data.

The 2013 research report “Managing Talent Risk: Data Management to Ensure Workforce Compliance” by the Aberdeen Group reports, “Even top-performing companies must find ways to deliver HR data to business leaders to guide decision making, and in order to do this they must use automated tools – instead of relying on manual processes – and find ways to integrate their HR data and systems.”

Tools and technology that help organisations consistently apply policies and rules around leave, overtime and other critical workforce management activities are critical to maintaining a compliant environment.”

Outsource to transform your risk and compliance complexity

According to research by the Loughborough School of Business and Economics, the benefits of outsourcing “go beyond the one-time cost savings.” Organisations unencumbered by maintaining costly and time consuming in-house capabilities can find it a competitive advantage to work with outsourcing partners instead.

However, executives need to look beyond solutions and platforms that help simplify compliance management, and select providers that are on the cutting edge of technology and innovation, provide the best local experts that know when legislation is coming, and are ready to comply before other organisations are even aware of the changes.

With the heightened challenges and complexity of compliance risk comes a unique opportunity for human resources and finance executives to help drive organisational change. By finding new ways to help maintain compliance, mitigate risk, improve business process efficiencies and, ultimately, business growth, human resources and finance departments can demonstrate their own strategic value to the company.

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TAGS: Compliance compliance complexity HR noncompliance costs technology

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