Exclusive Research - The Compliance Factor: Top 5 Challenges SMBs Face

How prepared are North American SMBs to meet compliance requirements today?

In today’s ever-changing regulatory landscape, businesses of all sizes face a wide range of compliance challenges throughout North America.

In recent years, there have been a variety of tax and regulatory changes in Canada alone, a trend especially affecting small and medium-sized business (SMBs).

The United States—which is by far the top export destination of Canadian SMBs—is also seeing many changes to employment-related compliance issues, such as those relating to minimum wage, overtime rules, medical coverage, mandatory retirement plans, interview questions and more.

Although the specific regulatory changes vary by nation, province and state, governments tend to face similar social, economic and environmental challenges around the world. The resulting rules, regulations and laws often add additional layers of complexity to small businesses.

So where does this leave HR professionals and managers of SMBs?

In too many cases, it leaves them in a state of confusion as they struggle to stay abreast of a fast-changing compliance world, according to a recent survey by Ceridian and HR.com.

The Small Business Management survey provides an in-depth look at how small- and medium-sized organizations address issues related to complex employment/labour laws, keep informed with changing tax regulations, and try to maintain payroll compliance.

Here are the top 5 findings from the survey.

1. Over a Quarter of Respondents Cite Compliance with Labour Laws as a Major Challenge

The problem is somewhat more pronounced for smaller organizations with fewer than 250 employees, than for larger ones with over 500 employees.

2. A Complex Regulatory and Legal Environment Is the Biggest Obstacle to Staying in Compliance

Complexity poses problems for any organization, but for smaller organizations the risks are often compounded by a general lack of access to critical internal expertise.

3. Only One-Fifth of Participants Strongly Agreed Their Organization Does a Good Job of Keeping Up-to-Date with Compliance Information

This suggests that, although they stay up-to-date enough to continue doing business, few organizations are highly confident that they’re staying current. This probably explains why over a quarter cite compliance as a major challenge.

Moreover, many rely on inefficient methods of staying current with employment-related laws and regulations. Nearly two-thirds of the survey participants cited websites and relevant magazines or written materials as their “go-to” source of information. The next two places to keep informed are lawyers or other experts and Internet searches.

Each of these top choices presents unique challenges for HR professionals in smaller business. To learn more about this check out our Featured Research Reports.

4. Small Businesses Are Most Concerned with the Financial Costs Associated with a Failure to Comply with Laws and Regulations

Smaller firms tend to have different priorities than larger ones when it comes to compliance failures, with potential financial costs being a bigger concern among smaller organizations.

While larger organizations are most concerned with the impact on the organization’s future, followed by reputational damage, the smaller ones are most concerned with the potential heaviness of the fine itself. A severe fine could literally put a smaller company out of business.

5. One in Three Organizations Lack a Payroll or Compliance Expert on Staff

Smaller organizations tend to have fewer internal resources and subject matter experts on-site to help keep track of changing tax legislation. Nearly two-fifths of smaller organizations do not employ a compliance or payroll expert. The same is true for only 17% of larger organizations.

Widely accepted best practices such as use of employee handbooks and employment of compliance or payroll experts do not enjoy universal use despite the fact that most HR experts agree that having a set of clear, written policies and procedures is a smart strategic action.

Moreover, one in four participants said they are not prepared for a government audit. Larger organizations are less likely to be concerned about a lack of preparedness (22%) than smaller organizations (26%).

Conclusion

Compliance is complex and requires a sustained effort.

SMBs should address regulatory compliance as a strategic HR initiative, and adopt pro-active best practices to avoid potentially damaging issues, complaints or fines.

SMBs can seek the help of experts who can lend a hand with employee handbooks. Clearly written policies and procedures provide clarity for all employees and managers, and they help alleviate the compliance problems. Moreover, regular internal audits can help organizations become more confident that they are prepared for a government audit. External experts can offer an unbiased perspective and resources that most internal HR teams lack. SMBs can also address the complexity of the compliance environment by using HR technology solution partners to enable compliance and can even implement a cloud-based tool for payroll processing and accuracy to improve the efficiency and accuracy of tax reporting, payroll deductions, and legislative and regulatory updates.