1. HR Challenges and Solutions
Maintaining Compliance
and Mitigating Future Risk
In partnership with:

2. 2 | Maintaining Compliance and Mitigating Future Risk
Introduction
While the language of business is becoming more standardised, one thing remains as culturally complex as
ever: employment law. Organisations must know the risk and compliance issues they face in every jurisdiction
they do business – and it’s an almost impossible task for any business to attempt alone.
Managing HR, payroll and benefits generates a wide range of issues from compliance and risk management
to costs. Changes in tax, regulatory reporting requirements and compliance policies and procedures impact
not only HR but also line managers and employees. A recent Ernst & Young payroll survey found that the key
issues organisations face relate to legislative compliance (23%)
and consistent payroll processes (18%) across the organisation.
The survey also found that the most frequent payroll errors include
incorrect tax withholding and existing payroll operations that are
unable to remain compliant with increasingly complex legal or
regulatory requirements.
So how can organisations know they are continually meeting their
HR and payroll compliance obligations against the latest, ever-
changing regulations? An over-reliance on in-house teams or
historic legacy processes can leave organisations believing they are
compliant when in fact they are exposed to potentially damaging
non-compliance issues. Recent ADP research finds that 80% of
organisations believe they comply with national regulations despite
one third of the same respondents having been penalised for non-
compliance in the previous year.
Compliance and Risk Challenges
Failing to address HR risk and compliance can open up the organisation to fines, reputational damage and
high staff turnover. Understanding the specific legal requirements, is essential knowledge for any organisation
wishing to remain on the right side of the law while benefiting from the time and resources savings offered by
working with an expert.
With the volume of tax, employment and payment-related regulatory
changes continuing to increase, it is becoming more difficult than
ever for human resources and finance executives to maintain
compliance and mitigate future risk. For example, in 2011 alone,
there were 17,000 proposed tax rule changes across 10,000 unique
tax jurisdiction types in the US. In Italy, approximately 700 tax and
contribution changes plus another 100 Collective Labour Agreement
renewals were introduced in 2013 and the UK sees 20-30 changes
annually to HR and payroll regulations, according to ADP internal
data analysis. Additionally, recent research found that one-third of
companies reported having been fined or penalised in the previous
12 months with an average of 6.4 fines or penalties each due to non-
compliance (penalties typically made up 25 percent of the total tax
amount owed, with some reaching 90 percent).
Failing to address HR
risk and compliance
can open up the
organisation to
REPUTATIONAL
DAMAGE and
high staff
turnover
Over-reliance on
in-house teams or
legacy processes
can increase
non-compliance.
CFOs become more predictive (anticipating and preventing compliance failures,
rather than reacting after they’ve incurred penalties) and can control costs.

3. Maintaining Compliance and Mitigating Future Risk | 3
The most pressing HR and payroll risk in Australia has to do with the correct application of legislative
awards against industry, the role in pay calculations and/or HR legal requirements. Due to the large number
of potential recipients, the complexity regarding electronic payments notifications is also a big issue for
employers.
The growth of complex rostering requirements in the expanding services industry, and the need to roster
according to varying award interpretations, has also led to a growth in Time and Labour Management (TLM)
applications. Locally developed software is being utilised to manage the complexity and the results are then
transferred to the payroll calculator. This leaves the onus on the TLM system to calculate the infamous
Australian Award Interpretation requirements, which can sometimes fall short of fully addressing the
requirements.
Stephanie Edwards, General Manager of Strategy and Marketing, ADP Australia, estimates that 40% of new
clients have compliance risks due to the on-going nature of legislative changes. 2014 is likely to see many
more changes regarding superannuation, minimum wages, gender equality reporting and paid parental
leave. In each case, companies need to work closely with government departments to fully understand the
implications of legislative changes as they are drafted and before they are imposed upon firms operating in
Australia.
Edwards identifies five key areas of compliance for clients to focus on [see top tips below]: “If you
address those five elements well from the beginning, you have at least some of the basics covered.
Otherwise, unforseen consequences will emerge in the future when you cannot do anything to fix them.”
Australia at a Glance
Top compliance tips:
• Maintain legislative knowledge by monitoring the FairWork Australia website
• Subscribe to news alerts from national and state government departments
• Join relevant professional or industry associations – they often provide advice and alerts on
changes to legislation
• Outsource to specialist vendors where compliance may be at risk
• Organisations no matter how small are expected to consider markets beyond their borders. As
soon as an employee crosses an international border, it is necessary to know what potential
regulations and compliance issues have been triggered.

4. 4 | Maintaining Compliance and Mitigating Future Risk
Increasingly complex
Michael Magotsch, partner and employment lawyer at DLA Piper with over 20 years’ experience in German and cross-
border employment law and author of ‘Employment and Labour Law, Jurisdictional Comparisons’, agrees that risk
and compliance has been getting more complex for organisations in recent years. “We’re now talking more and more
about a complete flexible HR where staff work across borders and are mobile, with people switching from one location
to another – that immediately triggers HR, social security and tax consequences that need to be carefully looked at.
Companies are totally overwhelmed by it because if they don’t hire experts in that field they end up in difficulties very
quickly. The classic mistakes that large US companies made 25 years ago when they entered non-US markets you see
now with young entrepreneur start-ups that grow so quickly: they hire many people, and are so successful that they don’t
have the time to basically monitor all their rapid steps of growth, leading to serious consequences.”
However, it is not just rapidly expanding or multinational organisations that face complex compliance issues. The risks
to small and medium-sized companies can be just as great, being without the level of internal expertise and resources
needed to keep abreast of ever-changing local, regional and national employment laws.
Research findings from the 2013 SmartCompliance survey, ‘Managing Compliance in a Changing Environment’,
which found that more than 80% of CFOs say the task of monitoring tax, employment and payment-related rule
changes has become more time-consuming over the last two years. Nearly 75% of respondents believed that the
increased complexity of newer tax regulations will take up additional company resources over the next two years.
Additionally, companies are often not claiming valuable business tax deductions, which means missed opportunities to
help reduce their effective tax rate.
More legislation, higher costs
National legislation and sector-specific regulation heavily
influences the complexity of the end-to-end payroll process.
Studies commonly show that payroll combined with personnel
and benefits administration account for 35% of total HR costs,
an amount of approximately USD 525 per full-time employee
(FTE) annually with payroll costs representing nearly half of
this. This cost of course varies by country: in Europe, payroll
costs range from USD 100 to four times that in countries with
complex rules.
The annual “time to comply with labour tax” corresponds to
the time spent by a medium-sized company in a given country
to prepare, file and pay labour taxes and social contributions
levied on employees and from employers. It ranges from 10
hours in Singapore, 490 hours in Brazil, 45 hours in the UK,
148 in Germany and 214 in Italy.
Magotsch of DLA Piper explains how organisations can fall
into difficulties internationally: “For example, if a company
moves staff or operations from country to country not
looking at issues such as ‘do I thereby create a permanent
establishment?’ and all of a sudden have a social security or
tax audit where any mistakes in not properly having withheld
income tax or not having properly filed social security would
result in criminal investigations and penalties. It’s a very
costly issue. We have worked with a company who had, due
not to intent but simply negligence, disqualified freelancers
At a Glance
HR compliance issues of most concern in
Australia:
• Payroll taxes
• Pay requirements / worker’s
compensation
• Terminations and employee
relations
• Risk and safety management
• Secure handling of employee data
• Management of leave entitlements
• Superannuation contributions
Value range of fines for non-compliance:
• From thousands to hundreds of
thousands of dollars.
HR Experts can do a better job and provide more strategic guidance.

5. Maintaining Compliance and Mitigating Future Risk | 5
“The HR and finance
team have a much
greater visibility as
to what’s happening
within the business.”
Air Livery is an aircraft painting and
refinishing company, based across five
airport locations in the UK, with about 220
employees in total. They have overseas sites
in Bratislava, Slovakia, and recently in France
through a subsidiary company and are part
of an Indian-owned international group of
companies.
Beverley Brooks, HR Manager sees that, “UK
employment law and payroll is a difficult
compliance environment to work in. For our
company, payroll in particular is the area of
greatest concern. We run two payrolls with
only a small proportion of our workforce
salaried monthly and the majority of our
production staff on variable contracts – their
gross pay is very good, but their hours are
completely flexible due to the seasonality of
the business, and are paid weekly. Holiday
is also accrued as a proportion of each hour
that they work, making it complicated to
track and ensure that staff get their statutory
entitlement.
One of our reasons for moving to an
outsourced service provider was linking the
time and attendance recorded on an hour-
by-hour basis with an HR system for tracking
and compliance. For the finance team that
would also give them a full audit trail.
Workplace pensions are also coming in as of
1st of May 2014 and is our major focus at the
moment. All employers are now obligated to
undertake automatic enrolment of employees
onto the company pension scheme; we
have to have a pension scheme which we
weren’t obliged to previously, and we have
to make contributions. It’s a major change
for UK employers. I can’t see how we would
have implemented this in-house – the fact
that we can now easily extract information,
potentially build an interface between the
systems, just makes us feel more confident
about the process.
The outsourced service provision went live
in July 2012. I didn’t have an HR system
previously. We have a reasonable turnover of
staff so keeping track of who was employed at
any one time was a challenge, as was how that
linked across the business in terms of health
and safety, inductions, quality standards
and so on. Payroll was previously managed
by a single individual – there was always a
concern in terms of holiday or sickness and
“what ifs” - the fact that we are now served by
a large corporate organisation gives us that
reassurance.
Now not only myself but also the HR and
finance team have a much greater visibility
as to what’s happening within the business.
Because it is internet based, all the hours
worked and recorded against each project
can be looked at by anyone, anywhere, at any
time. While there may have been cheaper
options than the service we went for, from
our perspective it was important to have
something that was compliant across the
board – if new legislations come in or things
change, a ‘bespoke’ route might cause
problems further down the line, whereas
using a standardised system means the
outsourced provider can be expected to
update each time to meet the compliance
needs of hundreds of thousands of clients.
We’ve got the security of a team of HR and
payroll specialists, plus the IT support that
backs everything up.
Our international operations are not using
the same provider fully from a payroll
perspective, but I can still access a database
of information that gives me an oversight,
keeping track of who is at which site. As
part of a larger group of companies, I know
the Group IT Director is very keen on the
fact that we have gone with an external,
global outsourced organisation. He has the
assurance of the compliance and IT systems
that our provider offers – whilst we are a
relatively small part of the group, we are
seen as best practice.”
GREATER VISIBILITY AND AUDIT TRAILS

6. 6 | Maintaining Compliance and Mitigating Future Risk
HR Directors can maximise productivity and engagement in their department
by focusing on employee productivity rather than compliance issues.
and so-called contractors - the authorities looked at it and said ‘no they are employees’ and they were faced with millions
in retroactive payments including unpaid social security and taxes.” This can happen within local companies too. In Italy
for example there are over 9,000 cities each with independent tax laws. The smallest firm in Foggia might have to brush
up on their tax law were they to branch out into nearby Bari. But even the most static of companies would still require
the resources to understand employment law and compliance legislation as it changes, is updated or amended.
Ignorance is no excuse
Many organisations live in ignorance of the payroll and employment law that their operations breach. Given the costs in
fines and potential damage to brand reputation, ignorance is not bliss. In the words of Ernst & Young’s Global Payroll
Survey of April 2013, “When looking at why organisations operate their current payroll model, the old adage of ‘if it
isn’t broken, don’t fix it’ seems to apply. Historic practices still dictate why organisations continue to operate many of
their processes and systems. Of course, if little has changed in the way of business strategy, size, geographic scope,
acquisitions or mergers over the past several decades, then this may
be a perfectly appropriate response. In reality, however, relatively few
organisations can make that claim.”
Simple changes result in large repercussions
Due to the complex nature of employment legislation, there are often
seemingly simple changes or new obligations that require substantial
changes to systems of record and reporting.
Drop into any office around the world and you’ll find a similar story.
For example, tracking legal changes and legal compliance is one of
the biggest issues for HR because the legal environment is constantly
changing, ambiguous and not predictable. Knowledge of links between
different regulations is also crucial, as change in one area may influence
regulations in others.
Payroll risks also vary across companies according to other factors
including industry sector, company background and culture, company size,
and organisation structure. In high turnover sectors such as retail, construction, catering and processing industries, for
example, payroll has to cope with a large number of hires and leavers, and complex time and absence management.
Compliance handling process
While technology has revolutionised many aspects of business over the past several decades, many organisations are
still tied to the manual compliance management processes or multiple vendor contracts put in place years ago by their
counterparts. While these processes may have once been effective, they have, in many instances, become a significant
obstacle as companies work to improve the efficiency of the compliance process. Untangling the web of spreadsheets
and paper documents, or the paths of information from various vendors, often proves to be extremely difficult internally.
The SmartCompliance 2012 survey found that 65% of CFOs believe reducing the number of touch points in compliance
processes could increase efficiency and productivity. More than 75% of finance executives had no access to real-time,
consolidated compliance data. That means low efficiency and high risks to overlook mistakes caused by the very high
frequency of changes after a new regulation has started and the very high complexity of different worker types which
need to be taken into consideration.
In difficult and highly competitive market conditions, the need for organisations to effectively manage their risk and
complianceissueshasneverbeengreater–andatthesametime,hasneverbeenmoredifficulttodointernally.Compliance
have been
fined or
penalized
in the previous
12 months.
33%
OF COMPANIES

7. Maintaining Compliance and Mitigating Future Risk | 7
Adapting quickly
to legal changes
requires skills
and knowledge.
isn’t optional – which means gaining control over and
improving the efficiency of compliance management
isn’t just critical, it’s a business imperative.
Adapting quickly to changes requires significant skills
and knowledge. Even where new laws are intended to
simplify or consolidate existing regulations, a large or
suddenchangecanbejustasdifficultfororganisations
to cope with. Changes can be so fundamental it would
not be possible for an individual company to easily
incorporate the vast specifications and alterations with the breadth of systems and compliance expertise required. The
experience of long-established in-country teams allocated exclusively to changes is vital to having an overview of all the
rules, which is the base for correct HR and payroll compliance.
For Terry Troost, HR Director for the Netherlands at SPIE (an international energy and communication services company
that employes 2,800 people locally), “compliance is never a risk as we leverage the skills and expertise of our partner
and have only 6 payroll professionals in the team. For the tax changes that came into effect on 1st January 2014 we did
not have to do anything as our partner made all the necessary changes. The system and process were automatically
upgraded and all we did was attend regular information sessions to learn about the new laws and their impact on our
employees and processes.”
Tackling Compliance and Risk
The increasing volume and complexity of regulatory changes is fuelling the demand for people with the ability to
implement and understand their impact across HR systems and processes. And shortages of these skills can only get
worse as compliance becomes more complex. The question for companies is: how are they possibly going to attract and
retain that talent to maintain their compliance?
Comprehensive skills and expertise
Companies are increasingly looking to the benefits of
maintaining co-ordination and overview skills internally. HR
managers need to have an operational overview of the HR risk
and compliance issues that their organisation faces. However,
there are areas of knowledge that no internal professional,
no matter how competent, could be expected to know. For
example, as countries change labour laws at either a local
or national level, payroll experts from outsourced service
providers are often called in to advise on the law and help
with its implementation. In the US for example, not only does
one major payroll company maintain a permanent team of
compliance experts embedded at the IRS, the IRS also has
a team embedded at the payroll provider in order to learn
from each other. Similarly in Brazil, the new eSocial system
designed to standardise labour, pension and tax information,
was drawn up over three years with the same provider as part
of its pilot group working to validate their models.
This level of expertise would require significant investment
outside of any organisation’s core business. The global war for
75%
of finance executives
have no access to
real-time, consolidated
compliance data
Line Mangers are more confident when answering employee queries.

8. 8 | Maintaining Compliance and Mitigating Future Risk
“At Bosch, costs are
very important,
but efficiency and
operational
excellence is even
more important.”
Roberto Zecchino, Vice President Human
Resources & Organisation South Europe for
Bosch Italy, is responsible for ensuring that
5,800 employees throughout Italy from the
German technology and services group are
fully compliant.
“The Italian legislative structure is very
complex. The labour laws change quite often,
and within that there are different national
and local regulations. In Italy the local laws
vary from city to city - with 19 different
locations it is very important that there is a
clear information flow between Bosch and
our payroll provider,” stresses Zecchino.
“We have a special time management
system, the Italian pension and retirement
calculation, production safety, payments
upon service rewards, calculations in case
of illness, and last but not least in Italy we
have a lot of expatriate workers who come
with a different calculation. We must have
total alignment with our provider to ensure
local laws are respected and there is flow of
information – this means we have to stay very
close and synchronised with one another.
From a compliance point of view, internal
control is crucial to Bosch. All the payroll
processes have to be according to the law but
also according to the Bosch company policies
regarding compliance and risk-management
procedures. We need to secure the necessary
level of data management visualisation so
that we can monitor all the data and in case
of any problems occurring can recover the
system quickly. This is one of the key aspects
for us.”
The benefits of working with an outsourced
provider versus in-house for Bosch “include
flexibility, cost control and agility. Greater
agility means greater flexibility. The constant
speed of new legislation and new information
means that every time something changes
from a compliance point of view, our
provider has everything we need. This is
very important especially in the complex
environment of Italian legislation. Over the
years there have been many organisational
changes on our sites, so we need to have a
clear structure and communication flow for
our HR processes so that a new manager can
easily understand the background. That also
means having a back-up solution no matter
what the movements of people or changes
are.
Ourpayrollpartnermustprovidethetechnical
knowledge and expertise. Frankly speaking,
when we are doing any outsourcing projects,
the most important factor is efficiency of
process. At Bosch, costs are very important,
but efficiency and operational excellence is
even more important. Our aim is to create a
dynamic organisation with lean structure and
efficient process.”
COMPLIANCE IN COMPLEXITY

9. Maintaining Compliance and Mitigating Future Risk | 9
talent also means that the best minds are attracted
to the global companies that specialise in their
area of expertise, working at the cutting edge of
compliance, rather than within small in-company
teams where playing catch-up often happens. It
is the core business of a provider not just to have
the technical knowledge to offer a service, but
also the level of insight to know what legislation is
coming around the corner and be ready to comply
to it before other organisations are aware of the
changes being proposed. According to research by the Loughborough School of Business and Economics, the benefits of
outsourcing “go beyond the one-time cost saving. They strongly relate to the firm’s competitive advantage and therefore
often represent the key success factors in a particular industry.” In other words, organisations unencumbered by
maintaining cost and time-consuming in-house capabilities can find it a competitive advantage to work with outsource
partners instead.
Consolidated and automated approach
One of the more efficient ways for human resources and finance executives to mitigate risk is to manage compliance
proactively. However, nearly 30 percent of senior finance executives surveyed by ADP say their approach to managing
compliance is more reactive than proactive. Having a consolidated and automated approach to managing regulatory
requirements is an effective way to proactively manage compliance risks.
According to the 2013 research report ‘Managing Talent Risk: Data Management to Ensure Workforce Compliance’ by
consultants Aberdeen Group, “Even top-performing companies
must find ways to deliver HR data to business leaders to guide
decision making, and in order to do this they must use automated
tools — instead of relying on manual processes — and find ways
to integrate their HR data and systems. Tools and technology that
help organisations consistently apply policies and rules around
leave, overtime, and other critical workforce management
activities are critical to maintaining a compliant environment.”
Michael Magotsch advises his clients that a pro-active compliance
and risk strategy requires a whole group of service providers
specialising in investigations, tax, social security, and payroll to
work together.
65%
of CFOs believe reducing
the number of touch
points in compliance
processes increase
efficiency and productivity.
is the more
efficient way to
mitigate risk
and manage
compliance.
PROACTIVITY
Employees are more engaged in their work without having to worry
about pay slips and their employer.

10. 10 | Maintaining Compliance and Mitigating Future Risk
Conclusion
In the past 20 years, the number of employees working for a subsidiary of a multinational corporation has more than
tripled. The complexity of managing payroll in multiple countries however is not only an issue for multinationals, but also
for the multitude of small and medium sized businesses who increasingly find themselves operating across international
markets.
Ernst & Young’s Global Payroll Survey in April 2013 of more
than 160 multinational organisations spanning five continents
concluded that, “85% of respondents desired improvement in their
current payroll policies and practices.” Outsourcing provides the
knowledge and infrastructure necessary for ensuring compliance.
Executives need to look beyond solutions and platforms that help
simplify compliance management, but select providers that are on
the cutting edge with the best local experts, not just to advise on
the law and help with its implementation but know what legislation
is coming and be ready to comply before other organisations are
aware of the changes.
With the heightened challenges and complexities of risk and
compliance comes a unique opportunity for human resources
and finance executives to help drive organisational change. By
finding new ways to help maintain compliance and mitigate risk,
improve business process efficiencies and, ultimately, help to drive
organisational growth, human resources and finance departments
can demonstrate the strategic value they provide to the company.
Risk and compliance
complexity provides
an opportunity to drive
outsourcing
and transformation
CEOs can manage overhead, regulatory burdens and mitigate risk so that they
can grow the business without legal distractions.

11. Maintaining Compliance and Mitigating Future Risk | 11
About
Automatic Data Processing, Inc. (NASDAQ: ADP), with more than $11 billion in revenues and approximately
600,000 clients, is one of the world’s largest providers of business outsourcing solutions. Leveraging over 60 years of
experience, ADP offers a wide range of human resource, payroll, tax and benefits administration solutions from a
single source. ADP’s easy-to-use solutions for employers provide superior value to companies of all types and
sizes. ADP is also a leading provider of integrated computing solutions to auto, truck, motorcycle, marine,
recreational vehicle, and heavy equipment dealers throughout the world.
www.adppayroll.com.au
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