Business complexity in payroll and human resources

This article focuses on the third and final key areas of business administration: payroll and human resources. We take a closer look at some of the findings from this year’s Global Business Complexity Index (GBCI), along with commentary from our subject matter experts.

Minor movements on progressive benefits

The top benefits legally required for all permanent employees remain consistent around the world. Minimum wage and paid vacation are mandated in over 90% of jurisdictions, while paid maternity leave and paid sick days have stayed at a consistently high rate year on year since 2020. As core benefits such as minimum wage and paid time off are so universally accepted, they don’t necessarily raise complexity in the same sense as the other areas, however, they do require businesses to understand the differences in the policies and adapt to each one.

Since 2020, severance/redundancy pay has seen a steady rise as a legal requirement, increasing from 84% in 2020 to 88% in 2023. During recent challenges such as Covid-19 and the global inflation crisis, jurisdictions have been bringing in greater support for employees facing redundancy. For instance, in Portugal, employees are now eligible for greater redundancy compensation. This increases security for workers but adds to employers’ financial commitment.

An income agreement was signed between the government, employer confederations and trade unions, which foresees the increase of compensation for collective dismissal and individual redundancy of permanent employees from 12 to 14 days’ salary per year of employment.

Progressive benefits such as housing and social care contributions are also becoming more common. In 2020, this was legally required in 13% of jurisdictions, increasing to 23% in 2023. It can be complex for organisations having to meet these growing or more diverse demands.

Childcare contributions have also become an increasingly common requirement, increasing from 16% in 2020 to 29% this year. Newer and more progressive benefits reflect an increasing focus on supporting and protecting employees. Cost and complexity for employers, however, can be balanced by making the work environment more attractive and helping with talent retention.

Social legislation is constantly evolving, with different joint committees by sector applying different sets of rules, including complex holiday pay, overtime, benefits calculations and specific reporting obligations.

South America takes a more protective stance for employees

Jurisdictions in South America are the most consistent for mandating benefits for permanent employees.

Certain benefits in South American jurisdictions are baked into the working culture. For instance, 13th month salaries or bonuses are in place in 80% of jurisdictions. While it may be more complex for foreign businesses to enter some jurisdictions due to such benefits, they are embedded into the business culture in those locations so are generally stable and easier to plan.

A good understanding, or good advice, must be obtained in order to comply with all employer requirements, before starting business operations.

Increased global focus and transparency on reporting

In addition to an increase in benefits globally since 2020, there has been a rise in reporting requirements that aim to increase transparency and equality within businesses.

The biggest reporting requirement increase is in employee demographics, growing from 28% in 2020 to 49% in 2023. Reporting requirements have also increased for factors such as the gender pay gap or people with disabilities. In 2020, this was mandated in 9% of jurisdictions, rising to 23% in 2023. These increases demonstrate a growing focus on diversity, equity and inclusion (DE&I), with governments increasingly trying to ensure employers are accountable for creating a workforce that is representative of society as a whole.

This focus on employee equality is positive for workers, but it can be time consuming for businesses who are faced with the extra reporting burden. However, it can often be in the interest of business: more and more organisations are finding that requests for proposal (RFPs) ask for information on DE&I commitments, so, although reporting can create some complexity, it can also keep organisations ahead of the curve and competitive while striving for fairer societies.

Employee rights and support increasing year on year

The increasing focus on workers’ rights is also reflected when it comes to the end of employment. Since 2020, governments have mandated greater protection when employees are facing redundancy or termination.

Now, almost half (47%) of jurisdictions mandate that organisations must give underperforming employees at least one month’s notice when terminating their employment, increasing from just 39% in 2020. There are now also more factors when terminating an underperforming employee. For instance, in 2020, for just 38% of jurisdictions seniority was a factor in the redundancy period of underperforming employees, growing to 49% in 2023.

It's increasingly challenging to terminate an employee without a reason. In 2020, 29% of jurisdictions allowed the termination of employees without a reason, decreasing to 23% in 2023. This is particularly driven by North America, where in 2020 it was possible in 64% of North American jurisdictions to fire an employee without reason, dropping to 36% in 2023.

This increased protection supports employees but can be challenging for businesses, being both time consuming and costly. However, it also serves to increase worker satisfaction and therefore retention. With businesses facing skills shortages worldwide, keeping employees happy is more important than ever.

South Africa’s labour laws emphasise the protection of employee rights and advancement of equitable representation in the workplace. This introduces additional compliance requirements through the Equity Employment Act and an increased risk of employee related disputes.

 For instance, in New Zealand it can be more challenging to attract and retain international talent due to immigration checks and procedures. This adds complexity for employers as they need to submit particular documents for migrant workers, but it enables such workers to apply for permanent residency more easily, offering them greater protection and security. This can make New Zealand attractive for foreign workers overall.

Although employee support can create complexity, improved benefits can help businesses to combat resource shortages and talent retention challenges. Adequately supporting and protecting employees can create a happier, healthier workforce, which can make organisations more efficient and successful.

The Global Business Complexity Index 2023

This article is an extract from TMF Group’s latest report: The Global Business Complexity Index 2023.

Explore the GBCI rankings, analysis and global trends, to help you cut through the layers of corporate compliance complexity – download the report in full here.

To find out more about the drivers of business complexity in the jurisdictions that matter to you, why not explore our Complexity Insights Dashboard?