TMF Group recently launched its Global Business Complexity Index (HR and Payroll) report to analyse the key HR and payroll practices and trends across 76 jurisdictions worldwide.
Statistically-weighted data and qualitative research by local market experts were used to develop said analysis, resulting in convincing evidence that suggests that workforce management is growing increasingly complex globally. This issue is occurring at every stage of the employee lifecycle; from hiring to firing.
Hiring a Skilled Workforce
When setting up in a new jurisdiction, most businesses seek to build a workforce as quickly as possible, so they can become operational and start generating revenue. However, this first phase of the employee lifecycle is one of the biggest challenges they face.
In many jurisdictions across the world, it is difficult to bring in staff before a company is established as a legal entity. Post-legal establishment, complexity depends on the type of skills needed. According to the index, hiring complexity within the APAC region is slightly above the global average.
However, from the standpoint of hiring talent from overseas, APAC is slightly less complex than the global average. Considering that employment laws tend to make it more difficult to hire staff from overseas, being less complex in foreign hiring practices makes it appealing for talent. This complexity could be made much simpler via supranational agreements.
In terms of hiring locally, the APAC region is comparatively low in complexity when it comes to hiring permanent staff and subcontractors. Although overall, the hiring of subcontractors is still a bit more complex than hiring permanent staff. This is due to the gig economy being less regulated. However, the freelance market is coming under pressure as governments seek to protect workers from exploitation and tackle income inequality.
Compensating Employees
The workforce is crucial to the success of a company. Having the optimal workforce will maximise efficiency and thus lead to a better bottom line. In today’s business environment, the new generation of workers possess all the necessary skills for digital transformation. Unfortunately, they are also one of the most temperamental generation of workers yet. As such, retaining the best employees is becoming increasingly difficult and complex.
While offering higher wages is certainly still one of the best ways to retain talent, companies are now granting generous benefits beyond financial compensation to keep workers happy. Additionally, governments are adopting policies that favour workers and prospective employees are demanding greater rewards.
The actual benefits offered by companies can actually vary from sector to sector. Government reforms to protect workers can sometimes add complexity for employers. For example, Spain’s government passed a law in May 2019 that limits overtime hours to 80 a year. If employees exceed this number, it must be reported to the social security department. APAC currently leads the way in terms of pension provisions with about 79 per cent of its jurisdictions requiring a fund to be offered. However only 33 per cent of jurisdictions in APAC offer shared parental leave as a legal requirement.
Managing Payroll
As business expand to new jurisdictions, they must adapt to local payroll practices. While setting up new employees on payroll systems is a rather straightforward procedure in most jurisdictions, it becomes much more complex when legislations are subject to frequent change.
In a global context, about 45 per cent of jurisdictions face frequent changes in payroll legislation. Comparatively, the APAC region is significantly less complex, with only about 36 per cent of jurisdictions facing frequent legislation changes.
Certain jurisdictions require the frequent reporting of employer and employee data, which can be very time-consuming. Globally, governments require companies to submit payroll data at least once a month in 76 per cent of jurisdictions. APAC on the other hand only requires 57 per cent of jurisdictions to send monthly data. The introduction of electronic systems to automate and standardise reporting procedures can reduce the reporting burden.
Underperforming Employees
Managing underperforming members of the workforce is a challenge for many businesses – and comes with numerous potential pitfalls. However, terminating the contract of individuals whose work is substandard can be vital to protect a business’s productivity and finances, as well as the morale of other staff.
This is where we see the most dramatic variation per region. Laws governing disciplinary processes and firing employees are heavily affected by work and traditional culture of a region.
Globally, one in five jurisdictions allow companies to fire an underperforming employee within a day. This statistic is skewed greatly by the Americas, where same-day firing is permitted in 52 per cent of jurisdictions. Furthermore, employers are required to cite a reason for the termination in only 46 per cent of jurisdictions in the Americas – compared to two thirds globally.
In areas with greater employee protection laws, companies are required to provide valid reasoning and ample of warning before being able to dismiss an employee. Research in the index indicates that the APAC and EMEA regions tend to favour employee rights; with APAC being the most complicated region to manage the termination process.
We are entering an era of ‘social compliance’ as regulators become more powerful on the local and global scale. We see a clear trend towards businesses being compelled to report more granular employee data, more frequently. While automation may boost reporting efficiency in the long term, there is likely to be a short-term upswing in complexity while these processes are implemented.
