When Payroll Legislation Comes With An $100,000 Price Tag For Corporates

The outlook for small- and medium-sized businesses in the U.S. remains steadily positive, with the latest employment figures showing strong jobs growth. But there is more to SMB success than employment data.

A recent report from Paychex released last week found that there are a host of regulations that small business owners are keeping their eyes on as state- and local-level policymakers initiate change. The legislation most watched by SMBs, Paychex found, ranges from payroll card rules to paid leave laws and healthcare reform.

Separate research from Reliant Funding, also released last week, found that the majority of SMBs surveyed agree their local governments promote small business growth. But that doesn’t mean these legislative efforts endure without disruption to the business community at large.

Today (Tuesday, Sept. 5), The Workforce Institute at Kronos published its latest research that aims to put a price tag on regulatory changes for the business community. According to the data, it costs companies up to $100,000 every time regulation pertaining to labor surfaces from federal, state or even local lawmakers.

The Workforce Institute at Kronos surveyed 812 human resources and payroll professionals and found that more than half said it costs between $40,000 and $100,000 for their business to prepare for any labor-related regulatory changes. The source of those charges ranges from legal counseling to new training for HR and payroll employees to broader employee communication initiatives.

Perhaps more concerning is the fact that researchers found the cost of compliance continues to rise, with more than two-thirds of the professionals surveyed  reporting that compliance has become more expensive in the last year alone.

According to Joyce Maroney, director at The Workforce Institute at Kronos, there are a host of payroll- and workforce-related regulations changing today.

“There are a variety of paid time off and minimum wage initiatives going on at the state and local levels in the U.S. at any given time,” she recently told PYMNTS. “Sick time and vacation time aren’t mandated at a federal level, but these are the types of employee and family-friendly benefits that legislators may pursue.

“Similarly,” Maroney continued, “initiatives to raise the minimum wage at the state or local level certainly put pressure on the organizations in those geographies. This may not be an imperative at the federal level, but plenty of state and local leaders have already put them in place or are considering these changes.”

The director said that cost of compliance was the most surprising finding from the report.

“When we talk about labor-related compliance issues, the focus is usually on the cost of implementation in the form of wages,” Maroney stated. “The cost of understanding how to comply (legal) and translating that to the organization (training) are clearly significant costs as well.”

The Workforce Institute at Kronos concluded that professionals at organizations of all sizes are in need of more support to help track and implement these regulatory changes. Most survey respondents said they rely on HR or payroll software providers to track legislative changes for them, while 39 percent said they also depend on updates provided by national industry associations. More than a third said they rely on their internal legal counsel, while information from regional industry associations and legal publications were also common sources of support.

Maroney noted that for smaller organizations, it’s likely this process of tracking regulatory changes can be even more burdensome.

“We know that smaller organizations are more likely to be making do with less technology and more manual processes,” she said. “This can make it more difficult for businesses to understand what the gap is between their current practices and changes required by new legislation. Recordkeeping and metrics are critical to compliance but harder to manage with manual solutions.”

The latest report from The Workforce Institute at Kronos certainly concludes that the burden on businesses is hefty when workforce-related regulatory changes are in the air. Not only must these businesses keep track of the often-fluctuating laws, but the cost of compliance and implementation are considerably high.

These regulatory changes happen quickly, too. The report found that changes can come into law as soon as 60 days, but most survey respondents agree they need more time than a couple of months to enact these changes. Smaller companies say they need at least 150 days to get ready.

This leads to the risk of noncompliance, and, unfortunately, it’s a common consequence. Most survey respondents (58 percent) said they have witnessed a colleague cut corners when it comes to compliance. Exacerbating this issue, researchers found, is that most respondents said their HR and payroll systems are outdated.

About two-thirds of professionals surveyed told The Workforce Institute at Kronos that compliance is probably going to become even more complex under the current presidential administration.

But Maroney warned that, while the cost of compliance is certainly high, the cost of noncompliance can be higher.

“When labor policies are enacted as legislation, there are generally fines associated with noncompliance,” she said. “Employees may sue over noncompliance issues, upping the ante with penalties imposed via civil lawsuits. On top of that, the employment brand can be damaged depending on how extensive the impact of the noncompliance is. Potential employees aren’t going to be interested in working for a company that isn’t operating with their benefits in mind.”