Staying on top of legislative churn — an increase in new laws — is a huge task for payroll and HR departments. In addition, many of the established legal requirements change periodically (e.g., the recently released EEOC regulations on fair pay). With the upcoming U.S. presidential and Congressional elections, there is an expected increase in the number of new laws affecting payroll and HR. For HR leaders, staying up-to-date on new legislation should be a primary area of focus.
While it remains to be seen how labor laws and compliance requirements will evolve, and how they'll impact your organization, being prepared is always a good stance to take. PricewaterhouseCoopers predicts competing plans will be introduced from both sides of the aisle on tax reform, benefits, economic growth and other issues, all of which have the potential to impact HR leaders and wage and hour legislation.
Here's a review of why compliance readiness is crucial and how to plan for changes, even if you aren't sure what they'll be.
Is Legislative Churn Risky for HR Operations?
The Department of Labor's (DOL) recent update to Fair Labor Standards Act overtime regulations, which will extend overtime pay protections to more than 4 million workers, offers a glimpse into how regulatory changes affect HR leadership and the organizations they support. The Society for Human Resource Management (SHRM) projects 7.4 million businesses affected by the most recent change will spend an estimated $592.7 million on compliance updates. This breaks down to $254.5 million on getting familiar with new regulations, $160.1 million on adjustments and $178.1 million in managerial costs. Compliance isn't cheap, and these estimates don't include any potential increases in payroll expenditures to compensate employees under the new regulations.
The cost of noncompliance is even more shocking. In 2015, the DOL collected $246 million in back wages owed to employees, achieving a 21 percent increase since 2009 in the average amount of back wages owed. ADP's 2015 Midsized Business Owners Study indicated that 36 percent of midsized businesses were hit with unexpected compliance penalties.
Internal Change Management Needs
HR leaders should take pains to fully understand how new payroll laws impact their organization and educate their payroll teams because wage and hour laws can impact not just payroll, but other vital systems like time and labor management. According to staffing agency Robert Half International, "Change-management efforts typically falter at the execution stage." The report indicates that for 65 percent of leaders "communicating clearly and frequently" is most important when leading a business through a major change.
The Role of Updated Payroll Systems
For both multinational and U.S.-based firms, staying on top of fast-changing payroll laws is a huge task. Regardless of how much or how little technology is used in your payroll process, it serves your organization well to be proactive about identifying those systems that could be affected by new or changing legal requirements.
Experts acknowledge a gap between intent and action when it comes to compliance. While HR leaders work hard to comply, their technology could be sabotaging their efforts. ADP research found that two-thirds of executives lack a strategic approach to HCM-driven compliance issues. If your systems aren't ready to pivot when legislative change occurs, you could face inconsistent processes, a spike in manual work, poor data quality and a higher risk of penalties.
By making the necessary preparations to be ready to update payroll and time and labor management systems, especially in light of anticipated changes to wage and hour laws, organizations can simplify the process of future compliance. With systems that are designed to be agile in responding to legislative change, you can adapt more quickly to new requirements and redirect other resources to drive strategic growth.
With next year set to be filled with legislative and national leadership changes, new overtime regulations set to take effect at the end of this year are likely just a precursor to a new year of even more adjustments, including EEOC pay equity reporting, Fair Pay & Safe Workplaces regulations and emerging scheduling restrictions. HR leaders would be wise to anticipate new legal requirements by preparing for compliance with sound change management and smart technology, so that it's possible to facilitate these regulatory transitions and avoid costly penalties.