It is no wonder, then, that despite evolving regulations, many organisations choose to either stay put with existing employment-related tax and payment compliance programmes or take the riskier path of avoiding compliance altogether. A common lament is, “Where do we start – and why should we?”
The answer to the “why?” part of the question is simple: The days of compliance being viewed as little more than a necessary arm of an organisation’s legal department are in the rear-view mirror. Today’s best-in-class compliance programmes are consistently contributing to the bottom line rather than merely protecting businesses against penalties and fees.
A recent ADP-CFO Research survey polled senior finance and human resources executives from 152 companies across a broad range of industries about their sentiments toward employment-related tax and payment compliance. The survey results indicate that many companies acknowledge the challenges related to compliance, but it also shows that many organisations that have invested in a robust compliance programme are indeed seeing significant – and often unexpected – benefits.
Enterprise-Wide Business Benefits
Nearly 60% of survey respondents said employment-related tax and payment compliance has had a positive impact on their company’s operational efficiency and employee productivity, and nearly half said it has had a positive impact on their company’s profitability.
Reducing administrative process costs was the most important tangible benefit of good employment-related compliance management realised by respondents, with 66% of survey respondents citing this benefit, in addition to reducing instances of noncompliance (61%).
Going Beyond the Bottom Line
The survey also found more unexpected, intangible benefits. Nearly 70% of survey respondents said employment-related tax and payment compliance has had a positive impact on employee satisfaction at their company, and about 67% of respondents said it has had a positive impact on the level of employee engagement. In addition, about 67% of respondents said it positively impacts the quality of their workforce.
A majority of survey respondents identified risk reduction as the most important intangible benefit of good employment-related tax and payment compliance management. Others include increasing employee satisfaction (47%) and ensuring the security and privacy of employee information (43%).
Many companies also are experiencing other intangible benefits, such as better access to data and improved collaboration among employees. With all of these benefits emerging, leadership teams are beginning to understand that compliance can be leveraged as an opportunity instead of a burden.
Not surprisingly, executives who grade their companies high for compliance are making ongoing compliance management a top priority. This is likely because they recognise both the tangible and intangible benefits that are delivered.
Compliance Strategies Inconsistent Across Companies
Though the potential benefits of a robust compliance programme are clear, the way companies approach compliance still varies widely.
Of the human resources, finance and accounting executives surveyed, nearly half rated employment-related tax and payment compliance among several of their priorities, while 13% said it was one of their top priorities. For nearly 40% of companies surveyed, the processes for managing employment-related tax and payment compliance are defined and managed at the enterprise level, while for 34% of respondents, the processes are defined consistently at the enterprise level but managed by individual functions or administrative units. Another 21% of respondents say the processes are defined and managed by individual functions or administrative units.
Half of the companies surveyed said employment-related tax and payment compliance is handled substantially in house, but with some outsourcing, while one-quarter of respondents say it’s balanced between in-house and outsourced. Only 17% of respondents said it was handled entirely in-house.
Despite the varying approaches, many of these challenges arise from the pressure companies are under to comply with increasingly complex regulations.
About 57% of companies surveyed operate in more than 11 different jurisdictions and about 12% are operating in more than 50 different jurisdictions. Nearly 70% of the companies surveyed said the need to conform to multiple regulatory jurisdictions increases the difficulty of managing employment-related tax and payment compliance.
The Costs of Inaction
Many companies unfortunately still take the “head in the sand” approach to employment-related tax and payment compliance by ignoring it altogether and chalking up penalties and fees to the cost of doing business. Others do the bare minimum to avoid penalties and fees but still see a negative return on their investment because they’re not doing enough.
Managing employment-related tax and payment compliance is a challenge for 40% of companies surveyed, and nearly 52% or respondents said the time and attention required for employment-related tax and payment compliance activities is a drain on company resources.
The survey found that problems with employment-related tax and payment compliance management have led to legal action for nearly one-quarter of the companies surveyed, resulted in unexpected increased costs for nearly 23% of respondents, and delayed or interrupted operations or production for 17% of companies.
Strategies for Improving Compliance
More and more companies are seeing the writing on the wall and are looking to technology and enhanced collaboration to help improve their employment-related tax and payment compliance management.
About 90% of companies surveyed said they’re likely to pursue technological investments over the next two years to improve employment-related tax and payment compliance management. Fully 51% of respondents said they’d improve the existing systems and technology used for compliance and nearly 39% said they’d invest in new technology.
In addition, about 65% of companies surveyed said they’re likely to pursue enhanced collaboration between departments over the next two years to improve employment-related tax and payment compliance management.
The full report from CFO Research and ADP is available here.
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