The Future of Work – Challenges of Payroll Compliance in a Changing World

The way we work has undergone fundamental changes through the pandemic, shifts which are likely to become permanent.

These changes include increasing flexibility and working from home. Amidst these changes, payroll is one thing that has remained the same. Yet changes to the way we work are also influencing the way finance departments manage payroll. This was the topic for discussion at a recent CFO Lunchtime Live discussion.

As panellist Husain Al-Badry from Datacom Foundry said: “A lot of organisations have started to embark on accelerated digital transformation, resulting in widespread adoption of new technologies. This has all been in the name of productivity.”

As Al-Badry noted, while employee experience was once a secondary aspect of doing business, increasingly, organisations need to start looking at employee experience as a core pillar of their strategy.

Panellist Ross Fodie, national sales manager Datacom Payroll said while the way organisations are working has changed, the need to pay staff accurately and on time has not changed.

“Payroll hasn’t changed. But with more people out of the office, they rely on technology such as their mobile to manage their pay and get access to information such as how much annual leave they have, their tax code and KiwiSaver contribution rate. Mobile devices are absolutely key from a payroll perspective,” he said.

In New Zealand, payroll staff have had particular challenges meeting the complexities of the Holidays Act. Verushka Dyson, Deloitte NZ consulting director, says the biggest challenge is the interpretation of the Holidays Act can be subjective.

“It’s open to the reader’s interpretation. That is why every organisation in New Zealand is facing a compliance challenge. There are so many things to think about if you want to ensure your payroll is compliant. Traditionally, payroll was seen as a back-office function. Now it is much more prominent,” says Dyson.

“As long as people got paid and they got paid on time, and they were paid accurately, no one really cared about what was happening in payroll. Now suddenly, it has become front of mind. It’s hitting the newspapers,” she adds.

Dyson notes over the years there have been initiatives to simplify the understanding of the act’s requirements and to guide employers to ensure they meet compliance. Working with the right payroll provider, having good payroll staff and having the right systems in place are key.

“It’s important to remember payroll is not a set and forget exercise. It requires ongoing monitoring,” she says.

Payroll remediation priorities

When it comes to remediating any errors, Dyson says the first priority must be to identify any salient issues such as incorrect payroll practices or processes that require streamlining.

“For the most part, the issue is around how your payroll has been configured or set up. For many businesses, there will be a requirement to readjust how they set up allowances or pay rate calculations,” she advises.

Once an issue has been identified and a method found to address it, it’s important to assess how the issue has impacted the organisation and its employees on an historical basis. It is often useful to engage payroll specialists through this part of the process.

“When organisations try to fix these problems, they often under-estimate the complexity and time commitment. They also want to ensure any further decisions they make are correct. Professional advice helps along that journey,” she adds.

Fodie agrees when it comes to remediation, working with professionals is paramount. “Payroll providers can only offer certain assistance. They are not remediation organisations, rather they are there to process payroll. Datacom works closely with remediation organisations. But I strongly recommend CFOs talk to organisations like Deloitte in the first instance.”

Common pitfalls

CFOs should be aware of some of the common pitfalls when it comes to payroll, recommends Dyson.

“It’s important to apply the correct leave rate calculations, especially if employees work varying hours from pay period to pay period. For instance, let us say a staff member is taking annual leave. If their hours are fairly stable, a comparison of ordinary weekly pay against average weekly earnings is the starting point.

“But if they work unplanned overtime or irregular overtime, you need to perform a four-week ordinary week pay calculation. So, it’s about making sure your system is set up to identify specific scenarios that enable rules to be applied and so the correct rate is calculated. That’s the first thing.”

Second, it’s important the right settings are in place to calculate allowances for different brackets. Says Dyson: “This requires the inclusion of specific allowances into gross earnings because gross earnings is the basis for all calculations.”

The third variable to watch is around movements of employees between full time and part time. When they change their working hours, their leave entitlements are also impacted and need to be adjusted accordingly.

Says Dyson: “One of the historic challenges for most payroll solutions was calculation of leave in hours, whereas the Holidays Act requires it in days and weeks. What’s important is being able to demonstrate calculations do not disadvantage employees. These are the three key areas on which to focus.”

When it comes to choosing the right payroll provider, what’s important is to select a partner whose solution is fit-for-purpose.

Says Fodie: “Not everyone needs a tier-one payroll product. But equally, if you’re a small organisation, but you’ve got a complex workforce needs, you may need a more complex payroll solution regardless of size. It’s also important to ensure the software you use is the latest version. That’s one of the best ways to help with payroll compliance.”

As this shows, payroll is complex but critical to get right. Selecting the right payroll solution provider and experts to provide ongoing support is one of the best ways to ensure you pay staff accurately and can identify issues as they arise.