With more and more nations implementing strict data protection laws, changing their taxation rules, and imposing new regulatory guidelines, 2017 will likely be a challenging year of change in the global payroll function.
Given the rapidly changing economic and political climates of many countries around the world, predicting what new requirements are coming down the pike for Payroll is next to impossible. But for three countries in particular – India, South Africa, the UK – there are major changes already in play.
The changes for each country, however, span various stages of implementation; some are imminent, some are much further out. Here’s a rundown of what’s changing in each country and how high of a priority focus these oncoming shifts will demand from the Payroll function.
India: Is a Cashless Wage Environment on the Way?
India has long had two economies – the formal (taxed) one, and the ‘informal’ (cash-based) one. According to The Economist, activity in India’s informal industries and rural areas amounts to half of the country’s economic output and over nine-tenths of its jobs – many of which are paid in cash so that employers can avoid meeting minimum wage requirements.
For the Indian government, the implications of the informal economy go well beyond tax revenue. If all cash-based activities were accounted for it, would boost India’s weak GDP and create stronger global confidence in the nation’s business environment.
With a new proposal, the Indian government is trying make that happen. A bill introduced in December 2016 would empower the Indian government to require businesses to pay wages exclusively by check or bank transfer – making payroll more trackable (and taxable) for the Indian government. The introduction of the bill follows Indian President Narendra Modi’s sudden decision to ban two highest denominations of Indian currency notes from circulation in November 2016.
Despite the large-currency ban, nearly all Indian businesses still employ at least some workers who are paid in cash. Should the bill to amend India’s Payment of Wages Act move further through the Ministry of Labour and Employment, the consequences will be wide-ranging – with one expert saying it could halve the amount of cash-paid wages in as few as six months.
Global Payroll Priority Level: Low. Certainly, multinational organizations with payroll operations in India will be affected by the country’s shift to a cashless society. Since smaller employers may struggle to meet minimum payment thresholds in a more formal and well-tracked payroll environment, it’s possible that larger organizations may engage in more acquisition activity in India following a change to cashless payments.
What that means for Payroll remains hard to predict, but payroll practitioners should be prepared for their organizations to get ahead of any potential requirements by onboarding more employees to check- and transfer-based payments. That could lead to more employee data, more sensitive bank information, and a higher volume of transactions funneling through the Indian Payroll function over the year ahead (making well-integrated systems and automated data transfers highly valuable in minimizing the amount of staff time spent on manual tasks).
South Africa: Minimum Wage Will Have Major Implications
Unlike most countries in sub-Saharan Africa, South Africa has never had a formal minimum wage. What is has had for decades, however, is a huge poverty problem. South Africa has the highest level of inequality in the world, as well as a 25 percent unemployment rate. The economic situation in South Africa is so dire that the country very narrowly avoided receiving sub-investment grade credit rankings for its foreign-currency debt in December 2016.
As a starting point to lifting an estimated 6.6 million South Africans out of poverty, President Cyril Ramaphosa announced in February 2017 that the country will introduce a national minimum wage of 3,500 rand (~$250 in U.S. dollars) per month. The move, which follows extensive negotiations between the government and labor unions, will take effect in May 2018. Currently, around 47% of working South Africans earn less than the minimum specified.
While President Ramaphosa himself has acknowledged that 3,500 rand does not amount to a living wage, studies show that the establishment of a minimum wage could significantly raise household income rates – leading to greater consumer spending.
The national minimum wage will supplement the many collective bargaining agreements (covering around 32 percent of lower-wage workers) and sector-set minimum wages (covering around 46 percent of lower-wage workers) already in play across South Africa. Legislation on the minimum wage is planned to be enacted by July 2017, with enforcement by July 2019.
Global Payroll Priority Level: Medium. As with India’s cashless proposal, there are few action items for global payroll professionals to prioritize until South Africa’s minimum wage is fully implemented. Yet given the ripple effect of pay-calculation changes that a national minimum wage can create, payroll practitioners are wise to stay informed.
If the proposal moves forward, it will result in significantly different overtime amounts for some workers (since remuneration for overtime must be 1.5 times the normal wage rate, or double for Sundays or holidays). Utilizing a payroll solution that ensures all payment amounts are calculated, input, and validated for accuracy automatically can simplify how payroll teams adapt to changing wage requirements.
The United Kingdom: New Tax is the One ‘Known’ in an Unknown Brexit Landscape
British voters’ June 2016 decision to exit the European Union put many potential policy issues in the UK at a standstill. In the Payroll community, many believed that a forthcoming taxation requirement would be one of the initiatives put on pause, but they were mistaken. Once the new ‘Apprenticeship Levy’ takes effect on April 1, 2017, businesses with payrolls valued at more than $3.67 million will need to pay a 0.5 percent payroll tax (minus a 'levy allowance' of £15,000 per year).
For employers, the payments are essentially a required an investment in professional apprenticeships: Once English companies register and begin paying on the levy, they will gain access a digital ‘apprenticeship service’ where they can use their funds to select and pay Government-approved training providers and post apprenticeship vacancies.
Broadly, the Apprenticeship Levy has been well received by the British community. But many say the Levy’s specific requirements have been communicated to employers poorly – creating widespread confusion around timing and implementation. In a September 2016 government survey, nearly 40 percent of businesses reported being unclear or unaware of the new tax.
That’s especially troubling for global payroll professionals, since the levy’s particulars place a lot of responsibility on the shoulders of the taxed entity. For example, the onus will fall on employers to notify HMRC each month as to whether they are eligible to pay, and to report how they’re allocating their 'levy allowance' (among their PAYE schemes, or among their connected companies and charities) at least once per year.
Global Payroll Priority Level: High. Even though April 1st is right around the corner, multinational organizations still have only rudimentary information to work with from the UK government. As an example, here’s an excerpt from the ‘Pay Apprenticeship Levy’ guidance on the Gov.uk website: For the first month of the tax year: 1-Divide your Apprenticeship Levy allowance by 12; 2-Subtract this figure from 0.5% of your monthly pay bill.
Without more sophisticated information, it has been difficult for UK payroll stakeholders to modify their processes (and for local payroll software providers to build the appropriate functions into their systems) in time for the tax to take effect. As a consequence, they may need to manage a higher number of manual processes than usual as their employers adjust to the new tax in April and May – making it vital for them to monitor their deadlines carefully engage in streamlined compliance tracking when possible.