How does legislation affect payroll proficiency?
Payroll is a highly regulated process. Compliance with tax, social security, labour and privacy laws is crucial, because you need to make sure that you pay 100% of your employees, 100% accurately, 100% of the time. Failure to do so can result in heavy fines, correctional costs and a damaged employer brand. Legislation is, however, inherently local and some European countries are much more complex than others. Get a sneak peek.
Scores by country
Legislation gets lowest score in all countries
Of all 6 payroll proficiency drivers, legislation is the one that impairs European companies’ the most in their efforts to manage a flawless payroll. A common trait, for example, is the pro-employee context in countries such as Belgium and France, with numerous collective bargaining agreements on national, regional, industry, company and even plant level setting the scene. This overly complex regulatory environment has prompted many HR teams to call on payroll partners for help – a tactic that seems to bear fruit.
Claudine Weyn, Director Knowledge Center International at SD Worx
Legislation in the heart of Europe
Ranked from most proficient to least proficient:
The relatively straightforward set of payroll-related laws and regulations allows for a high degree of automation. For instance, in recent years, many manual reporting procedures were digitalised. Moreover, payroll is considered a full-fledged profession, so lack of in-house legal expertise is rarely an issue. Therefore, ‘legislation’ has a rather modest impact on overall payroll proficiency in the UK. That doesn’t mean there aren’t any pitfalls. Automatic pension enrolment and minimum wages are telling examples.
Because British companies are satisfied with their current state of payroll proficiency, outsourcing isn’t a top priority. Hybrid outsourcing solutions, legal advisory services or training could, however, further increase satisfaction.
Although workforce legislation in the Netherlands tends not to weigh as much on payroll proficiency as in other European countries, there are still some points of attention. Mainly legislation on the privacy of employee data and the European General Data Protection Regulation (GDPR) are giving employers headaches. For 60% of them this is a top 5 legal hurdle. Dutch employees also tend to well-protected in other areas, such as dismissals. The trick is to stay on top of all collective bargaining agreements.
Thanks to technological leadership and help from payroll partners, Dutch companies manage to mitigate the adverse effects of the legal landscape.
In Germany, taxation and social security are highly complex domains. Local companies have to take a large number of rules and even more exceptions into account to stay compliant. To give you an idea, government has about 10 reporting procedures related to social security in place to make sure all the i’s are dotted and the t’s crossed. Consequently, of all payroll processes, the one that German companies dread most is ‘declarations, reports and communication to authorities’.
Contrary to France and Belgium, this doesn’t lead to a surge in payroll outsourcing. German companies keep their payroll in-house, but increasingly pay the price for the lack of expertise and know-how.
Don’t be fooled by the size of Belgium. The country has no less than 6 governments, each with their own responsibilities and powers. This results in a highly complex legal landscape. Adding to the complexity: strong unions and social partners that push for collective bargaining agreements on numerous topics, from educational leave to the indexation of salaries. It’s important to note that these agreements are binding for all employers in a particular sector.
Although payroll outsourcing has a long history in Belgium, guaranteed legal compliance has become one of the major advantages. It allows HR teams to focus on responsibilities with more added value.
Navigating France’s ever-growing Code du Travail is no walk in the park. Not for international companies, but also not for French companies: nearly half of them say that the legal maze is making payroll (much) more difficult. Our 2022 Payroll Proficiency Index points out that French companies particularly struggle with the speed of legal changes, the minimum wage rules, and the variety of collective bargaining agreements.
One of the consequences is that French companies wouldn’t mind handing over their entire payroll to an outsourcing partner. Over 44% feel (very) positive about full payroll outsourcing.