The True Cost of Non-Compliance

Non-compliance costs more than twice the cost of maintaining or meeting compliance requirements. According to a study by the Ponemon Institute and Globalscape*, being compliant can actually save you money, thanks to the onerous cost of fines, business disruption and loss of revenue.

Compliance is a big business, no matter what industry you work in. As your operation begins to expand, compliance costs will too. Expanding into new markets  all over the world will incur much higher compliance costs than just operating solely in one location.

What are compliance costs?

Compliance costs encompass everything that goes into keeping a business compliant with necessary regulations.

In addition to industry regulations locally and nationally, compliance costs can be incurred as a result of international regulations. As a company begins to expand its global operations, these costs will naturally increase as the company moves into new jurisdictions.

Data security has the highest compliance costs to all businesses. However, in the vast majority of cases, the reason to invest in data security is because of laws and regulations and not a drive to improve business security.

As you expand internationally compliance can be a significant cost burden that requires dedicated professional staff  to curtail risk and allocation of legal and non-legal penalties for non-compliance.

In order to reduce potential overhead costs, more and more businesses are looking to third parties to ensure compliance on their behalf.

Cost of Non-Compliance

Non-compliance costs include fines settlements, business disruption, productivity loss, revenue loss etc. What’s more, it’s getting more expensive every year.

The average cost for organizations that experience non-compliance problems is $14.82 million, a 45% increase from 2011. While it’s easy to ascribe this increase to the high profile fines, the real cost of non-compliance is much more serious.

According to the study, the biggest cost of non-compliance is business disruption rather than any fines or penalties. When found to be non-compliant, businesses can be forced to implement compliance changes before being able to resume business.

This can have a knock-on effect on business areas that aren’t even subject to the regulations being breached, potentially paralyzing the entire business. If compliance has to come in the form of new processes being introduced, further disruption will come in the implementation and training of staff. One of the most recent examples of this is the General Data Protection Regulations (GDPR).

GDPR

Data protection regulations are increasingly complex in nature, due to the increased value and sensitivity of personal or proprietary data. As data becomes more valuable, the risk of data breaches, data loss, cyber attacks or insider threats becomes an urgent issue.

GDPR came into force on 25th May 2018 and concerns businesses that handle or store the personal data of EU citizens. The regulations require that businesses:

  • Designate a Data Protection Officer;
  • Ensures data is handled, transmitted and retained in a manner that meets the requirements of the legislation;
  • Carry out “Data Protection Impact Assessments” (DPIAs) to ensure compliance with data protection obligations and employee expectations of privacy.

The enforcement of GDPR demonstrates the new era of complex policies developed to protect data at an individual level from increasingly sophisticated cyber attacks.

Cost of in-country compliance

The worst mistake you can make is to underestimate the complexity of international payroll compliance. No matter how skilled your organization is at managing payroll in the U.S., global expansion presents new challenges that threaten your company’s ability to operate overseas.

Gambling with employment law in hopes that you are in compliance can greatly impact your organization. If you think you won’t get caught, think hard about the cost.

If your hiring misses a step, or is delayed due to fines,  your project or expansion begins to cost more money. Delays set strategic plans back, cause disruptions and can cost businesses dearly.

Studies show that maintaining in-country compliance is considerably cheaper than  taking a hit from the fines and setbacks. This is why it makes sense to have the expertise in place before you start your expansion to manage global payroll.

 

How to reduce compliance costs

1. Audit more than once a year

The Ponemon Institute and Globalscape study has revealed that organizations that conduct 5 or more internal compliance audits per year have the lowest total compliance cost. Or reduce the risk further by outsourcing tasks to an extrenal provider.

2. Establish best practices & processes

It’s important to establish best practices for the enforcement and roll out of new compliance obligations. This doesn’t just cover you for existing regulations, but futureproofs your business at the same time.

Best practices that are cost saving include corporate training programs, seeking out legal experts, integration of security and privacy functions and a fully functional incident response process.

3. Delegate your responsibilities

As a business grows, their compliance obligations grow too. That’s why it’s important to have a reliable and scalable means of managing your responsibilities. Outsourcing your international HR & payroll compliance to expert third parties can reduce costs across all compliance activity.

Many nations go through phases of increased regulation followed by deregulation to a point. That said, the general rule is that once a regulation is on the books, it gets tweaked rather than erased. Keeping up to date with every change across every market is a job all of its own and a prime candidate for scalable outsourcing.

*The True Cost of Compliance with Data Protection Regulations

At FMP Global, we specialise in ensuring global compliance for payroll and HR regulations for all our clients. We have an in-depth understanding of the requirements your business faces, as well as regional experts to address any compliance issues you may have.

If you’re interested in finding out more about our payroll and HR management, download our brochure today.