The trend of using robotics as a tool in Latin America is inevitable in payroll processing. It not only increases productivity and quality, but also provides a solution to the challenges of complexity in four key areas:
1. Local compliance
Latin America has a reputation for complex payroll compliance. The complexity is a result of frequent legislative changes, labour union agreements and multiple governmental reporting requirements. According to the World Bank, the time needed to comply with labour taxes in Brazil is 490 hours each year, compared to 55 hours per year in the United States.
Companies in Brazil must update their payroll software with at least 60 payroll legislative changes and five statutory value adjustments annually. With so many changes, it's simply impractical to reliably calculate payroll manually.
2. Frequency and depth of government audits
Adding to this complexity is a fast-approaching change that will require further automation by companies big and small in Brazil. Due to begin in 2018, eSocial is a digital initiative to promote transparency, integrate data collection via a single platform (reduce bureaucracy), reduce fraud, and make regulatory enforcement actions and audit much easier for the Brazilian government.
The eSocial platform will give the government access to employee data and allow them to cross reference information, find discrepancies and compliance errors and follow up immediately with those companies. This means companies that don't have their payroll compliance in order will be easily identified, and face fines and penalties for regulatory violations.
Taking advantage of a change in legislation, Colombia has increased sanctions to up to 200% of unpaid taxes, and is randomly auditing five years' of digital data with a robotic tool developed by the supervisory authority. Governing bodies are also making good use of the data by leveraging the information to their advantage and revenue collection.
3. Real time information requirements
In Latin America, payroll taxes are a key source of public financing and the employer is the tax agent responsible to withhold and pay. One common trend is 'just in time' payroll compliance. In Mexico, a company has the obligation to certify all payments and issue a digital payroll tax receipt called Comprobante Fiscal Digital (CFDI) de nomina for each payroll slip issued. The purpose is to reduce tax evasion and have greater control over the income received by tax payers. After every payroll there is a three day timeframe in which to issue the tax receipt in the government portal for the salary payment to be considered a deductible expense.
While Brazil's eSocial is designed to reduce bureaucracy by minimising manual processes, it will actually increase the workload of payroll professionals as they will need to comply with 314 additional fields. Also, timing is tight, as same-day reporting is required for employee-related events and this means continual fines for companies that cannot stay on top of reporting. The company will require further integration at source to pay, and interfacing with government portals.
In Colombia, changes (as of March 2017) have been made to the informational requirements for social security filings, which are a real challenge for company compliance. Companies must present to government authorities by month-end, absenteeism such as vacations, and sick leave. Operationally speaking, companies have natural lags in collection of this data, and time and attendance systems often are not closed on the last days of the month to allow for absentee justifications.
Employers in Colombia are asking for changes in the regulation as most are not prepared to adapt to this real time legislation, the risks include sanctions for non-compliance, and could affect a company's tax benefits.
4. Weak rule of law
Unstable rules and widespread discretion over rule enforcement is a reason why rule of law is weak in Latin America. The information collected by the government digitally will be used for auditing and discrepancy detection, as a way to increase tax revenues. As the laws are not always crystal clear, the authorities are interpreting in their favour. Such concepts under scrutiny in Colombia are annual bonuses and permanent travel expenses; previously considered as non-taxable, they are now being retroactively taxed. As a result there will be an increase in companies filing legal action on the discretionary rule enforcement by government institutions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
