Staying compliant is challenging, but with the right approach, companies can not only improve compliance but gain new insights and boost business performance.

COVID-19 continues to test the resolve and resourcefulness of companies striving to maintain operations while supporting the needs of their employees. One of the biggest stresses placed on HR and finance during the global health event has been maintaining compliance with federal and state requirements for payroll taxes, wage garnishments, and tax credits, particularly those related to the recently enacted CARES Act and Families First Coronavirus Response Act (FFRA).

Here are three common compliance challenges companies of all sizes face, with recommended best practices to help address compliance risk and stay ahead of the compliance curve.

Challenge 1: Identifying which laws and compliance requirements apply

Companies can't comply with laws or regulations if they do not recognize and identify their legal obligations. Complex federal and state laws and regulations for a wide range of employer obligations, including employment taxes, Affordable Care Act (ACA) compliance, wage garnishments, termination pay, and unemployment claims can make it difficult for companies to comply accordingly.

During a recent ADP workforce compliance webinar, attendees polled about their top COVID-19 challenges cited "determining which government relief programs to leverage" as the most complicated issue for their companies. Forty percent regarded delivering pay to employees, processing employment tax deferrals, determining tax credit eligibility, and managing wage garnishments as equally challenging.

The introduction of federal stimulus in response to COVID-19, in the form of the CARES Act and the Employee Retention Tax Credit included in the legislation, increased complexity for employers. It also accelerated the urgency and stepped up the pace for employers to respond to legislation, the intent of which was to provide organizations fast access to funds to support their operations.

Solution: Documenting potential compliance risks and leveraging internal and external expertise

Companies can overcome these challenges by embracing routine practices to identify requirements and their exposure to compliance risk, including:

  1. Create a list of all workforce compliance areas of risk. Start with known obligations when it comes to payroll, taxes, tax credits and incentives, wage garnishments, and unemployment.
  2. Rely on the companies you partner with for payroll, payroll taxes, and employment-related compliance services to help monitor changes to legislation or guidance and to recommend best practices that apply to your business.
  3. Addressing this challenge will become increasingly critical as the pace of legislative change and compliance requirements continues to quicken. According to Thomson Reuters Cost of Compliance 2019 Report, three-quarters of firms expect the amount of regulatory information published by regulators and exchanges to increase over the next year.
  4. With more changes coming, companies struggling to keep up today face increased compliance risks and costs. According to Guardian Life Insurance Company of America, seven in 10 companies believe their firms will be unable to keep up with changes to federal, state or local laws, including the Affordable Care Act, paid parental leave laws, the Family Medical Leave Act and the Americans with Disabilities Act.

Challenge 2: Applying compliance rules effectively

Often, when it comes to employer obligations under federal and state laws, multiple stakeholders have to be involved, including different departments within the company (HR and finance), the employees themselves, and outside agencies and partners. This challenge is magnified by the need to securely manage sensitive data across those stakeholders and supporting systems, so that compliance information can be gathered and validated in a timely fashion.

The CARES Act and the Employee Retention Tax Credit (ERTC), introduced on March 27, 2020, is a recent example where new legislation and follow-on guidance challenged companies to sort through the legislation and understand their requirements. Determining eligibility and calculating their potential ERTC was particularly confusing. In May, the IRS published a set of FAQs for the ERTC, providing additional guidance to help clarify the law and its requirements, while simultaneously adding to the complexity and confusion when it came to compliance.

Solution: Map the people, processes, and systems critical to compliance

When it comes to identifying employees who qualify for tax credits, ranging from the Work Opportunity Tax Credit (WOTC) to the recently-enacted ERTC, companies can follow these steps to better understand and apply the right rules to the right employees, including:

  1. Whiteboarding the compliance process to identify broken or fragmented workflows
  2. Highlighting tasks that need to be performed on an annual or regular interval
  3. Identifying individuals and departments involved in supporting these processes
  4. Documenting system touchpoints to help secure data and ensure proper process flow

One solution to help overcome coordinating and connecting people, processes and systems is to automate routing tasks, integrate siloed systems and provide better process transparency to all stakeholders. Having lots of manual processes and stand-alone technical tools means spending time, effort, and money on maintaining and updating them – tasks that don't move the business forward and can hold back strategic systems improvements. They may also contribute to a poor worker experience, not just for your compliance team but also for the company's broader workforce, which can put you on the defensive when it comes to attracting and retaining talent.

Manual effort can introduce human error, bottlenecks, and delays that can result in financial penalties, government audits, and summary judgments. Overcoming these issues means devoting even more time and resources to investigate and mitigate compliance challenges.

Challenge 3: Reporting to the appropriate agencies and entities

Companies benefit from deep expertise and experience when reporting to the appropriate agencies in support of their employment-related compliance. Staffing cuts in response to the economic downturn, in addition to staff turnover, can result in companies losing much of that critical knowledge and expertise at a time when they need it most.

In a recent ADP poll during the CARES Act compliance webinar, more than 38% of attendees rated their staff's workforce compliance skill level as "somewhat familiar" or "unfamiliar" with regulations related to tax laws, wage payment regulations, Affordable Care Act requirements and wage garnishments. These are the kinds of gaps companies need to identify and fill to help overcome reporting and compliance issues.

Solution: Identify knowledge gaps and resources

To overcome this ongoing challenge, companies should:

  1. Assess their existing internal compliance knowledge
  2. Document gaps in knowledge/resources and prioritize risks that need to be addressed
  3. Gauge the interest and enthusiasm among their current stakeholders for acquiring the requisite knowledge/expertise to fill the gaps
  4. Identify other steps to ensure enough current knowledge and future coverage, including outside expertise, process automation, and steps to ensure internal knowledge sharing and transfer.

Staying compliant is challenging. With the right tools and partners, companies can not only improve compliance but also gain new insights with improved analytics and better visibility across their entire human capital management compliance landscape.

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