Keeping up with tax rules and employment laws can require additional resources and a significant financial investment for businesses.
Navigating a vast sea of government regulation can be a challenge for even the most-seasoned captains of industry. Tax rules and employment laws evolve frequently, leaving many businesses in a never-ending game of catch-up, trying to manage compliance and avoid penalties. Since January 2015, Congress enacted 142 new laws, many of which impact businesses that are already dealing with compliance challenges related to the Affordable Care Act and preparing for the upcoming changes to the Fair Labor Standards Act (FLSA) overtime rules.
Keeping up with these changes can require additional resources and a significant financial investment. According to Thomson Reuters, 75 percent of compliance leaders expect that managing compliance will require more or much more attention in 2016. Many expect to commit more resources (both in terms of time and staff) to compliance policies and procedures.
For small and midsized businesses with limited resources, trying to manage the seemingly ever-changing landscape of compliance can have a direct impact on profitability. So it’s no wonder that the mounting level of overall government regulation is the top concern of midsized employers, according to the fourth annual ADP Midsized Business Owners Study. The survey of more than 700 business owners, C-suite and senior executives at U.S. companies with 50-999 employees revealed a significant spike in concern from the previous year over the amount of regulation with two in five now ranking it as their primary concern.
Despite overall regulatory worries, the majority of midsized company executives report being confident in their ability to comply with payroll tax laws and other workforce regulations. But this confidence may be misplaced given the number of penalties they experienced. More than one-third of midsized employers experienced unintended expenses due to non-compliance in 2015, a slight increase from the previous year. Even more shocking is that nearly half didn’t know how many fines they incurred or how much those fines cost their organizations. For those who could recall, the number of fines experienced doubled since 2012 to 13, on average, over a 12-month period. Some of the leading reasons for the fines were non-compliance with payroll taxes, workers compensation, and state unemployment insurance tax.
Judging from its place among the top three concerns of midsized employers for the past four years, it appears regulatory concerns aren’t going away anytime soon.
The first step executives should consider to get a better handle on compliance is taking an inventory of the systems they’re using to manage compliance activities.
According to a survey from ADP and CFO Research, half of companies surveyed said they rely on multiple, separate information systems or manual processes to handle HR-related compliance. That can come with a price tag: 78 percent of respondents said that they are forced to spend more money on compliance due to the lack of integration between their existing human capital management systems.
With that in mind, companies should consider implementing a solution that can help prioritize and organize compliance activities across all core business operations (payroll, benefits, etc). Having a tool with a robust reporting and analytics function can also be an asset for providing valuable data that businesses can use as they evaluate operations and the bottom line – and improve their profitability. Finally, businesses should make sure that the tool or system they use for helping manage compliance has the flexibility to adapt to changing legal requirements.
The bottom line: If a business is overconfident in its ability to handle compliance tasks, it’s more likely to get burned by fines. It’s better to enlist the right technology and help of third-party experts to keep up with constantly moving compliance targets than to face penalties down the road.
This post is by Tom Perrotti, president, ADP’s Major Account Services
This article originally was published by FEI.