Compliance risks in a post-COVID world - Topia Blog

Why technology is needed to leverage distributed workforces effectively amidst changing regulations. This post originally appeared on ReLocate.com. 

Covid-19 is having far-reaching effects on how and where work gets done. The massive shift towards globally distributed and remote work is likely to persist long after Covid-19 stops being a pandemic.

To protect workers, recoup lost tax revenues and offset public expenses relating to Covid-19, governments around the world are mandating more transparency and placing further scrutiny on businesses. With this heightened government focus, it is essential for organisations accurately to report business activity by all their representatives and in all domains to authorities.

To stay ahead of this potential compliance nightmare, HR, finance and payroll teams need a technology solution to help monitor employee location and activity, and therefore ensure safety and regulatory compliance. In this article, we’ll take a look at why modern technology is required to address the challenges of distributed employees in a new and evolving world of work.

How is the regulatory landscape changing?

The pressure on governments to adjust to new ways of doing business and recoup tax revenue to pay for Covid-protective policies is coming into sharp focus. New legislation concerning the OECD’s BEPS initiatives and GRI revisions will also impact compliance topics, such as Permanent Establishment (PE). Other influences such as Brexit and Posted Workers Directives are driving material changes in business obligations that will result in penalties for non-compliance. These emerging tax regime changes and new regulations require executives to make significant adjustments to their existing business models, enterprise resource planning systems and related business processes.

In these challenging times, where many businesses’ revenue is negatively impacted by the pandemic, business leaders need to ensure they are aware of all of their financial obligations and avoid financial penalties from not being compliant. In some cases, the impact can go far beyond financial consequences. Aside from the potential legal implications of wrongful actions, incidents of non-compliance often impact on an organisation’s brand.

Operational challenges with distributed workforces

When we speak to organisations, typically the biggest concern and challenge with mobile employees is knowing where those employees are and their business activities. Pre-Covid, employees often needed to travel outside of their home country (Europe) or state (US) for work. Even though there has been a reduction in business travel since the onslaught of Covid-19, we still a need to know where employees are.  A large portion of the workforce is now distributed and working from home; wherever “home” may be. This makes reporting activities carried across all these different jurisdictions all the more essential to ensure business compliance.

Business leaders and stakeholders are increasingly aware of the potential risks associated with mobile workforces. Yet, it is tempting to think that current restrictions impacting business travel mean potential risk is lower. However, the reality is that compliance risk is still very much a challenge in the Covid-19 pandemic. In fact, for many organisations with a mobile, highly remote and distributed workforce, the risk is even higher. Business leaders should still be concerned about tax considerations, permanent establishment risk and other regulatory compliance issues when allocating their workforce for remote working.

According to a Global Guide to Remote Working published by DLA Piper, the key risks for employees working abroad include, but are not limited, to: payroll tax risks, permanent establishment tax, ‘doing business’ risk and immigration risk. Monitoring headcount in locations where employees are permitted to work is also an area of focus where preparedness will be necessary to manage finances. Therefore, proactively knowing employees’ locations and the activities they undertake while working in non-home jurisdictions are essential data.

Collecting employee footprint data is an enormous challenge for many businesses, but essential. If overlooked, it creates significant compliance risk and potential liability. Many organisations are seeking a technology-first solution to manage this function and to report activity for financial planning and their tax obligations. This gives them real-time visibility and accurate data in one central place.

Traditional challenges in employee footprint monitoring

To date, organisations have approached these problems in different ways from manual approaches to outsourced service providers. However, there are many reasons why they are finding these methods challenging, inefficient and ineffective.

Organisations attempting to manually manage compliance risks from mobile and distributed workforces are relying on employees to self-report accurate travel schedules. This practice is reactive and depends on employees providing the data accurately and in a timely manner.

Business leaders realise that manual self-reporting is not a long-term solution. As well as being inefficient and inaccurate, it lacks valuable analytic and auditing capabilities and delivers a subpar employee experience. Collating receipts and ticket stubs impacts productivity and diverts time and attention from an employee’s core responsibilities.

Even though many organisations are using other data systems, such as travel management systems and expense systems, these offer only part of the solution. Focused primarily on consolidating the travel data from a booking and expenses perspective they don’t properly address compliance risk.

Now more than ever before, data silos and reporting complexity are a concern for the organisation’s payroll/HR admin teams, who are often required to include reporting on a biweekly basis for payroll tax-withholding. However, performing these tasks manually is time and labour–intensive. What is needed is on-demand reporting that helps automate this process.

Some organisations have sought to address some of these global challenges by leveraging outside help from service providers. An outsourced service approach may be a remedy. However, it can be limited when addressing operational challenges at a global level. Service provider tools often lack the necessary level of sophistication, especially when coupled with their clients’ own digital architecture.

The challenges to approaching distributed workforce compliance manually or in piecemeal can therefore be summarised into three areas:

• Lack of centralised data: There is no single repository for employee location information. For example, some travel booking systems do not account for travel by car.
• The complexity of multi-state, multi-country withholding calculations: Each state and country has different thresholds and reciprocity agreements, making tracking and allocating non-resident workers’ time in a state or country difficult.
• Manual nature of self-reporting travel: Reliance on employees to self-report accurate travel activities takes time away from other activities and opens the process up to errors.

Why are organizations are turning to technology?

As economic and political events are increasingly impacting corporations and their operations on a global scale, it is no surprise that organisations are looking to best-in-class software to mitigate risk and manage dispersed workforces. Advanced resource and financial planning and preparedness for future audits is a key focus and on the top of the agenda for executives.

Subscribing to a best-of-breed digital solution provides out-of-the-box connectors for interfacing with HR, payroll and finance systems. This close integration and downstream process automation deliver real-time employee footprint knowledge, accuracy in data and point-in-time reporting – core ingredients needed for organisational success in the new future of work. Modern technology also delivers a sophisticated and positive user experience, as well as providing organisations the digital means to proactively mitigate risk and be compliant with global financial and tax obligations.

With a purpose-built solution for managing the compliance of distributed and mobile workforces, organisations have the right tools to tackle:

• tax and regulatory compliance issues associated with a distributed workforce
• preparedness for audits
• challenges associated with country by country reporting
• multi-jurisdictional payroll withholding
• advanced planning for financial obligations
• duty of care for employees.

Going live with a technology solution can happen in as little as a few weeks. Many organisations leverage a phased approach. In doing so they can cover the most critical regions or areas of concern for compliance management quickly – realising fast value in their investment – while expanding the coverage over time.

Covid-19 has shown remote and distributed workforces are a viable way to get work done and are here to stay. Providing HR, payroll, finance and business compliance teams with the right technology to manage this new world of work will create competitive advantage rather than adding another burden on teams without the right support. Investing in technology now will protect your business and employees from compliance risks today and into the future.

To learn more about Topia’s compliance management solutions, click here.