24 | TECHNICAL
When compliance and clients collide
I n a payroll service provider environment, two core objectives underpin everything: 1. Ensuring payroll is processed compliantly, accurately and on time. 2. Building and maintaining strong, positive client relationships. However, these aims can sometimes collide. What happens when you know a client is pushing ahead with something non- compliant? Do you escalate it, refuse to act or are there other steps you can take? Clear segregation of responsibilities An essential first step is ensuring absolute clarity around where legal responsibility lies. Even when payroll is outsourced, ultimate legal responsibility sits firmly with the employer. They must: l provide true, complete and accurate data l ensure payments to employees, HM Revenue and Customs (HMRC) and pension providers are made on time l check employees are legally entitled to work l ensure employees receive statutory entitlements, such as national minimum wage (NMW), statutory sick pay (SSP) and holiday pay l manage the consequences of errors or penalties arising from incorrect information. Payroll providers, meanwhile, can be liable for errors arising from their own negligence or mistakes, so both parties must understand their respective duties. This is why it’s vital for providers to communicate responsibilities clearly during onboarding and within service agreements. Reinforcing that the provider will not process anything non-compliant helps prevent misunderstandings and encourages clients to think twice before taking risks. Payroll providers should conduct robust due diligence and ‘know your client’ or ‘KYC’ checks. These legally mandated, risk-based processes are essential for preventing money laundering, terrorist financing and fraud. This raises the question of whether a shared industry-wide register of non- compliant clients should exist, enabling
payroll providers to avoid onboarding organisations that present unacceptable risk. It also suggests a potential obligation for outgoing providers to share relevant compliance information during client handovers or provider migrations. "Ultimately, refusing to compromise on compliance reflects the ethical and professional standards that outsourced payroll teams are expected to uphold" Communication and documentation When a provider identifies non-compliant behaviour or a client instruction that will lead to errors, the first response should be constructive communication. Many payroll issues stem from misunderstanding complex rules rather than deliberate non- compliance, especially in sensitive areas like NMW. Explaining what’s incorrect, why and what the consequences could be often resolves the issue quickly. Consequences to highlight include: l financial penalties l reputational damage l enforcement action from regulatory bodies. All communication should be confirmed in writing, even if discussions happen verbally first. This ensures the provider can demonstrate that they’ve acted responsibly and exercised their duty of care. Refusing to process non-compliant instructions If communication doesn’t resolve the issue, the provider must be prepared to refuse to process payroll in a non-compliant manner. Strongly worded service agreements make
this far easier, as they allow the provider to refer to previously agreed principles. This is where the tension between compliance and client relationships can become particularly challenging. Walking away from a client is difficult, but protecting professional integrity and the provider’s reputation is more important. Losing one problematic client is often far better than risking damage to the business’s brand, credibility or regulatory standing. Ultimately, refusing to compromise on compliance reflects the ethical and professional standards that outsourced payroll teams are expected to uphold. Escalation processes Payroll bureaus should have a clearly defined escalation framework for managing non-compliant clients. This framework should set out the key actions to take and identify the internal stakeholders to involve once all reasonable efforts to ensure accurate payroll processing with the client have been exhausted. In practice, however, the parallel objective of building and sustaining strong client relationships can discourage those with ultimate responsibility from escalating matters internally or formally challenging a client’s behaviour. In such circumstances, escalation beyond the bureau may be necessary, including the submission of external reports where appropriate. External reporting There may be occasions where you feel a professional or ethical duty to report non-compliant activity externally. Payroll non-compliance affects real people’s pay, impacting their ability to meet essential living costs such as rent, mortgages and household bills. Where internal conversations fail to resolve the issue, or where the behaviour appears deliberate, several external reporting routes are available. The list below isn’t exhaustive, but it outlines some of the main avenues pay professionals can use:
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