New legislation over the past few years has left organisations with no shortage of challenges to deal with, not least of which are unclear process and control requirements, tight compliance deadlines and limited resources for accomplishing these goals.
The storm of legislation, however, does not appear to be subsiding. Regulatory requirements will most certainly increase globally over the next few years and companies must be prepared to handle these requisites with minimal complexity.
According to Gartner, “the answer to SOX and other compliance regulations does not lie solely in software packages, but in business processes and controls, and leveraging technology to support and enhance those processes”.
Peter Ibbotson, CEO at Praxima Payroll Systems, explains: “Corporate governance provides a means to protect shareholders’ assets and the payroll is one area where companies need to comply with strict guidelines to ensure transparency.
“However, the task of evaluating current enterprise governance practices to establish quick and efficient support of changing regulatory requirements is no small undertaking.
“For this reason, many progressive organisations are turning to specialised outsource service providers to assist in the effective management of their networks, human resources, data storage and payroll, among others.”
Due to complex legislative requirements, payroll management has become a specialist field and a vital part of an organisation’s management responsibilities.
South African organisations lose thousands of rands, sometimes millions, through inefficient management of their payroll – for instance, through non-compliance with legislation, not applying payroll management industry standards and best practices, and having to make do with underskilled or unqualified payroll staff.
In addition, payroll fraud can be a major problem, especially in large environments with many employees, a large turnover and a casual workforce.
In many cases, directors are unaware that their organisation’s payroll is not meeting good corporate governance requirements and lacks in the application of best practice.
Transparency is key to upholding corporate governance and this should be supported through functionality that is built into payroll systems – whether outsourced or managed in-house.
For example, each time a salary change is made – including benefits and deductions – an E-mail should be generated alerting not only the payroll administrator but also the financial manager or director.
Technology that supports good corporate governance prevents many a case of payroll fraud within a company.
This raises serious questions about the overall effectiveness of payroll management corporate governance practices.
Ibbotson explains: “Many South African organisations are not fully compliant with payroll management standards and thus find themselves in breach of government tax legislation, potentially making them liable for major fines from the South African Revenue Services (SARS).
“Even though payroll is one of the largest organisational expenses, payroll staff are often not proficient in implementing the new legislation and procedures and advised how to handle these changes – this is seen as a low priority within HR initiatives.”
Best practice is central to efficiencies in the payroll department and following defined procedures and guidelines allows companies to be more effective and position themselves more competitively in the market, says Ibbotson.
“Best practices are still to be developed in the market yet a culture of compliance must be encouraged and promoted within companies. This will propel businesses to establish their own best practices, which promotes a more efficient and effective organisation.
Some areas where best practice can be applied include information management (for instance, ensuring data is accurate and up to date) and reporting.
Having data and information that can be extracted into a meaningful and contextualised report is essential to further enhancing good corporate governance, such as developing skills within an organisation – skills development itself being a critical area of best practice which affects payroll and business performance.
“Organisations urgently need to review their governance practices relating to payroll procedures to ensure that they are both efficient and effective, and in line with principal corporate governance guidelines and principles”, advises Ibbotson.
“They need to ensure that their payroll management practices are aligned with industry benchmarks and best practice.
“Adherence to strict compliance with payroll-related laws and regulations is key to a safe, efficient payroll department. Finally, identifying processes and system improvements that will reduce payroll management running costs will improve an organisation’s bottom line.”
To avoid liability for negligence, directors of organisations need to set clear measures for their CEO, CFO and HR manager to ensure that they are held accountable for enforcing payroll management industry standards and best practices.