Businessmen discussing at office

The future of work: HR transformation and the payroll function of the future

Related topics People Advisory Services Tax

How do we accelerate the digitization of the HR and payroll function and enhance the employee experience?

Events over the past two years have taken an already rapidly evolving working world and simultaneously upended some trends while accelerating others. Join the conversations with Industry leaders as we discuss how the HR and payroll function must rebalance priorities and rethink the operating model, enabled by modern technology.

Topics discussed include:

  • How digital transformation and technology-enabled operating models can enhance service delivery effectiveness and the employee experience, and enable continuous innovation
  • Top findings from the Global Payroll Survey
  • Key payroll compliance risk considerations based on recent audit trends seen with Canadian tax authorities

Please note:  The transcript reflects the language spoken during the webcast.  This is an automatically generated transcript and there could be sections where the quality of the transcript is impacted.

  • Transcription

    Andrea Wolfson : [00:02:29] Hello and welcome to our next edition of EY's Thinking Ahead webcast series, where we discuss the trends and insights into the topics that are influencing and shaping the people agenda. This series is brought to you by our team of specialists from the People Advisory Services practice, some of whom are on this call today to share some data, their views and answer your questions. Over the past two years, we have witnessed a massive reset in the workforce and workplace, and this reset has been largely influenced by the events of the pandemic that forced organizations to put employees first. And now there's the opportunity to respond to the learnings that have transpired from the pandemic. We're seeing HR organizations everywhere look at how they, too, can adapt themselves to these new work models and evolving talent pressures. And deciding where they want to focus to have the right balance between efficiency and effectiveness in delivering the experiences that they're looking to prioritize for their leaders, people managers and employees. My name is Andrea Wolfson, and I will be your moderator for this webcast. I'm the national lead for our org and workforce transformation capability, and I lead our financial services practice for People Advisory Services here at EY. And I'm joined by three of my colleagues, Paul, Chris and Ed, and all three of my partners are doing some incredible work with our clients right now. And with the release of the Global Payroll survey results, we're excited to share how these are shaping their work and impacting HR organizations. They will introduce themselves and their areas of practice as we work our way through the agenda. So, there are numerous trends happening right now in the HR space, and so in terms of our agenda for today, some have been around for quite a while, and many are new and disruptive. And we can move forward to the agenda slide, please. And so, we will start with Paul and Chris, who will give us a high-level snapshot of these key trends and the impacts they have on the payroll function of the future. We also recently wrapped up our latest global payroll survey, where we heard from over 180 respondents and got tremendous insights on how large organizations globally are thinking about their payroll function. So, we'll continue to hear from Paul and Chris as they take us through some of the key insights from the survey. Next, we will hear from Ed. We'll provide some really powerful insights around payroll compliance, including some trends around payroll audits and common missteps we're seeing with our clients and ways to mitigate these risks. And finally, we also want to hear from you. And so, as for all our webcasts in our series, we do want to keep them as engaging as possible, so please send us your questions. You'll see in the bottom right of your screen there's a Q&A box. And so, you can submit your questions there and don't feel like you have to hold them until the end, where we will have a Q&A period, and we'll be keeping an eye on your questions throughout. So, without further ado, I'd like to pass it over to Paul and Chris, who will take us through some key insights around HR transformation and the payroll function of the future and insights from our global payroll survey. Over to you.

    Paul Tucker: [00:05:30] Great. Thank you, Andrea, and hello, everyone. I'm Paul Tucker. I'm with you today to talk through EY's point of view on how HR transformation and more specifically the payroll function of the future needs to change to be able to adjust to some of the disruptors and trends that we saw just pre-COVID, but really saw accelerate kind of through COVID and really give us some insights into how we think these functions need to change. And we'll be supporting some of this discussion through some of our results that we'll get to on our Goal Payroll survey. I'm a partner with EY. I lead our workforce transformation and technology practice, where we help organizations transform the way they deliver HR services and implement complex and easy technologies to help deliver those services across the hire-to-retire lifecycle. And Chris Dodge is going to join me in this first part of the discussion. So, Chris, maybe you want to introduce yourself.

    Chris Dodge: [00:06:26] Thanks, Paul. My name is Chris Dodge. I'm an associate partner at EY and the area where I specialize in is HR transformation. I've had the benefit of actually being part of industry within the HR function itself, as well as many years in consulting, helping to modernize and evolve HR organizations. The piece that I really enjoy most is actually looking at how digitization and automation helps HR organizations free up the capacity within HR to really focus on unmet human needs within the workplace. So with that, I'll toss back to you, Paul.

    Paul Tucker: [00:07:01] Great. Thanks Chris. If we can move to the next slide, we're just going to go through some context setting here to kind of prepare the foundation for the content we're going to go through. We're going to cover some work and research that EY conducted over the past two years on how we believe the HR function of the future needs to transform to be able to adjust to some of the current trends, but also new disruptors. We're going to get into some real examples of how this operating model will adjust from our perspective. And then we'll, as I said before, we'll support that through some results that we're seeing from our global payroll survey. But I think as you've all experienced at least over the past sort of 36 months and certainly in the past 18 months, a lot of the trends and a lot of the disruptors that were felt pre-COVID certainly were accelerated as we went through COVID. So, for example, initially pre-COVID organizations were trying to find the right balance of bringing technology into the workforce to help collaborate. And then almost overnight, everyone was either on Teams or Zoom working 100% virtually. But there are more trends and more disruptors that sort of came to light and took on a life of their own kind of through COVID. And some of those trends we're going to talk about today and really get into the heart of the matter on how these trends are requiring organizations to adjust. I mean, you know, having the human at the center with all transformations, looking at expanding kind of remote work, accelerating digital, putting really the people experience at the heart of technology, trying to balance regulatory changes with uncertain economic environments certainly were trends that existed before COVID and really accelerated through COVID. But as we found ourselves in the middle of COVID and coming out of the other end, there are some new disruptors that organizations are really keen to adjust to and to be able to be resilient going forward. You know, a few of those are, for example, you know, how do we ensure that we've got talent liquidity in the organization? Meaning how do we adjust talent from focusing in the particular area quickly, move them to another area of the business to help shore up where we're short on staff, for example, or we're dealing with a new challenge, you know, on the market. How do we manage kind of the extreme complexity of balancing remote work with in-person work, return to office and several different ways to deliver our work and to do our roles? Looking at how we move the people function to the future, to operate more horizontally, to allow them to deliver experience at scale, and ultimately, how do we build resiliency in our workforce? These disruptors are being felt today and will continue to be felt into the future, but we're finding the HR function is being squeezed by some of these trends and disruptors. And really forcing HR or the HR function to get focused on some imperatives and those imperatives are really around how do we operate horizontally in a more effective way? How do we accelerate our digital investments and digital deployment of services? How do we prioritize our spend across the myriad of focus areas that the HR function needs to deliver on? And ultimately, how do we deliver and enhance long-term value for the organization, not just for our workforce, but also for our operations? Whether we are a consumer is good organization manufacturing or in the public sector. So, with that, I'm going to transition over to Chris, who's going to take us through how EY sees kind of the new world of the HR function as we go forward.

    Chris Dodge: [00:10:56] Thanks, Paul. Just as Paul pointed out with the current trends plus the new disruptors, it's really causing HR organizations to really accelerate their view on how they need to modernize. And so, when we look at HR transformation as EY, we really put it into kind of three big components. One is the technology area, not all around the goal of accelerating the delivery of people services through Digital solutions. And that means being able to leverage some leading-edge technology and trusting it to actually play its role in the HR ecosystem. It's also making sure that HR professionals are really comfortable with digitization as well. The other key component is around the experience, and Paul hinted at this already, and it's a big part of what we believe is EY. So, at the center of HR are people and as a result, the focus on providing consumer-grade, high-end exceptional experience around HR is required. What that means is, a component of that is HR professionals leaning into those moments that matter, but it's also freeing up the capacity by trusting automation, good clean HR and pay-related data. So, it's the combination of the people experience, mirrored and complemented by the digital experience, and together starts to really create a new opportunity for HR to stand up really, really tall and in a way that is valued by the business and by employees because it truly is focused on the elements that matter most, and that's about making sure that people are at their best at the workplace. The third area is cost. So, a big part of this is ensuring that the HR organization can help manage risk as well as from a cost perspective, making sure that the experience that they're curating is done in a cost-effective way. So, the HR organizations are kind of looking at these three elements. And as we help clients through this, we've developed, and as we move to the next slide, it's called are People Value Chain. People Value Chain really starts with a really strong people's strategy, not only around people outcomes. Those people strategy is intimately tied, as everybody knows, to the underlying business strategy of the organization. And the focus of the people strategy, a key component of that is the experience that's provided and created through the HR organization. And what we've looked at as HR needs to be kind of more fluid and being able to kind of pivot and swarm around the areas and priorities that are the utmost importance at any given time. We've really broken it down into kind of three kind of core components of the HR ecosystem. And the first is around the digital people team. And the Digital People team is all focused on the adoption and continuous innovation of the digital properties that help make up the HR foundation. And with this, right, it's looking at every element of the digital components. So, as things like kind of the movement towards cloud, it's looking at the service layer. So, when we talk about a focus on the experience, it's all around the service layer within the technology stack. What's that curated experience look like? It's about automation and if there's any repeatable work, it's allowing automation to kick in and help support the HR function and doing its role in terms of providing its service into the organization. A big part of this is ensuring that there's a unified set of data where deep analytics and insights, both reactive and proactive, can take place. As many know, like the management of HR data, is really complex, right? And ensuring that your data pool is set up in a way so that HR, business partners, business leaders, the HR function itself can lean in and trust that data and start building new services around emerging needs and whatnot. That's the Digital People team and its role in the organization. The next is around people, consultants, and this is really around that component of providing amazing strategic advice into the organization. And a big part of this is HR Organizations need to ensure that there's agility built into the workforce. And what we're starting to see is a migration towards kind of new emerging areas. And it's things like having performance architects to architect another solution or another way to maximize the performance of individual teams in the organization. It's having organization and workforce strategies. It's about having workforce vitality engineers focused on the wellness, physical and mental health of folks within the workforce so that they can actually be themselves and be highly impactful within the workplace. It's about having experience amplifiers and really looking at the employee experience. It's never done. You're always focused on that, and you're always focused on amplifying that. So, that was the people consultants, a very, very strategic kind of role that that group plays. The last area is around virtual global business services, so often referred to classically as the shared services group. But what we're seeing is that trend of picking a center sometimes within a given country or somewhere around the world, often for cost reasons, selecting a center to do all your transaction and processing of HR and pay. And the reality is, is that there's a broad recognition that regional nuances is important, especially when you're focused on driving employee experience. So, it's the dissemination and creation of global business services centers set up around the world, but actually ensure that there's enough local nuance that around policies, procedures, regulations that are known inherently by the team, yet they're seamlessly connected through a thread and organized as one business unit itself. So together, when you look at the Digital People team, the People consultants, and the Virtual Global Business Services team, this is the new way that HR and pay are starting to show up within their organizations. Just to bring this back from a pay perspective, that Digital People team is really focused on the technology and data to support that's required by the pay organization to ensure that pay is timely and accurate. On the People Consultants, this is around looking at not only the current trends around total rewards and compensation, it's about having a foot both in today and tomorrow. So, things like team-based incentive programs are being thought up and dreamt up by people focus within that people function. So, a big part of your Total Rewards team is sitting there and your virtual GBS team. This is all about the effective processing of your payroll. So, with that, Paul, I'm going to pass back to you and we can dive a little bit deeper into the pay function itself.

    Paul Tucker: [00:18:41] Great, Wonderful. Thank you, Chris. And if you could please move to the next slide, we’re going to get into some results from our global payroll survey. We're going to tie the payroll function back to kind of the opening comments you've made around EY's point of view on how the HR function in the future really will show up in the organization. So, if you go to the next slide, just a few kind of numbers, so you put some context around what we saw across our survey. We published a survey every two years. As you can imagine, it's a big undertaking, but we get a lot of great insights into what's happening around the world. And the most recent survey we had, we had 181 respondents kind of representing about an average company size of 25,000 employees. More than half of the organizations were headquartered in the US, and the most common responders from sectors were from the technology sector and the manufacturing sector. And if we go to the next slide, we'll kind of get into some of the immediate changes that we saw from prior years into 21 and 22. And they really do tie back to some of the comments that Chris and I have been making since we kicked off this presentation. We're seeing that how payroll is delivered historically has been typically through a payroll function delivered across a number of different providers, loosely connected. And so, what we found was that organizations who are global in nature but have more than five providers providing payroll services really found kind of diminishing returns once they got up to kind of six and seven. And there was a theme throughout the survey where there's a firm belief by our respondents that there is some certainly some benefit and some consolidation. But also, we know that in a global environment, it's not possible to have one pay provider centralized at one location. This kind of goes back to what we're talking about around the virtual world business services, where we can actually provide through HR, HR and pay the support that the countries require as it relates to payroll through these virtual pods or straight through these pods are connected virtually around the globe. You know, shared services. We're seeing an increase in the adoption of shared service centers. So, this is where we take a disparate set of services for payroll spread across the organization. And it's some consolidation happening within the organization where services are brought back in-house and centralized where possible. We've seen an increase of this by 12 percentage points from the last payroll survey, and that's quite significant. We're also seeing an increase in the trend around outsourcing. And outsourcing is really, when we talk about the payroll function, either outsourcing the entire, kind of zero to net tax and deposits, to a provider or coming up with a solution where your organization will process, pay up to the pay file and then we'll essentially outsource deposits, remittances and other activities and filings that are required. And so, we're seeing a combination of that, but we're also seeing a trend where it hasn't gotten easier, that the experience is still strained. And we think there's lots of room for improvement there. And again, going back to kind of rethinking how these services are delivered to get at driving better engagement across the workforce, faster turnaround for support, but also alleviating some of the pressure that the payroll teams have on getting payroll out the door every two weeks or every week or every month, depending on your frequency, is really top of mind. Some examples that we'll get into here just on how we can get the Digital People team and some of those tools that working for us. A lot of organizations are still using a shared mailbox as their kind of primary way to deal with pay inquiries coming into the organization. We're seeing over 65% of organizations that have got low or really limited standardization of process. So, from country to country or from division to division, there's a difference in how pay is being processed and potentially how payrolls are being interpreted. And so there's room for improvement there. And then we are seeing a shift where payroll is moving under HR, and our belief there is that's really to allow HR to kind of bring the experience across the hire to retire life cycle to the workforce and provide a consistent experience on all those services that are being delivered. So, with the next slide, we'll get into a couple of more examples of how this payroll function is increasingly becoming top of mind and a recognition of the need to change. And we're quite certain this is because of the experiences coming out of COVID and the pressures that have been put on the organization. We're seeing a big change in how organizations are now prioritizing and recognizing the need to develop a formal payroll strategy and really a need to drive better technology, enhanced process and ideally reducing kind of the manual, highly transactional work that quite often comes with processing pay for organizations. And in the next slide, we'll just talk quickly here about some of the benefits, or sorry, if clients that we've polled are seeing benefits around standardizing other service delivery model. And again, we think that this number is increasing year over year. And almost two-thirds our respondents agree that some standardization or some level of standardization will bring significant benefits to the organization. And tying that back to kind of our future HR function viewpoint here is exactly in line with where we need to go and exactly how we're going to be able to provide this experience at scale and a consistent level of experience to the organization. But to get there, there's some important elements to keep in mind. And so on the next slide, we'll just talk about some of the pain points that payroll operators are seeing and having on a day-to-day basis when they're running pay. And the number one pain point here that I'll just focus on is poor data inputs from upstream and downstream systems. And that gets back to the data quality element that Chris talked about how can we leverage technology to help improve that data quality and how can we reduce the work that the payroll team has to do in getting payroll out the door? And some of those examples we'll get to in the next slide are talking about the increased focus on using artificial intelligence and some of those technologies that artificial intelligence enables and power. So, looking at chatbots as kind of the first line of defence for answering questions around pay inquiries. If we can offload some of that work to chatbots, that frees up time on the HR service delivery and virtual service delivery pods. If we can look at how we can use robotic process automation to automate some of the manual keying of data either outside of the system or within the system, that's going to free up time for our payroll delivery teams. Looking at using analytics and artificial intelligence to recognize patterns, to analyze data, to forecast out where we expect to see errors or issues with pay, and kind of get to the bottom of that before it happens. And then finally, leveraging AI to monitor pay calculations at source so we can get at those again, at those errors similar to the analytics before pay is cut. And then finally, on the next slide, we'll just talk quickly about really the change in focus we're seeing around workforce management, which is really time and attendance and scheduling and how important it is to have an enterprise time and attendance solution to collect people's time to gross up that time through payrolls that are either part of your policy or part of a unit agreements. Because if we get the workforce management solution in place, we can reduce the payroll errors by up to 90%. And again, allowing payroll to focus on earnings and deductions and getting payroll out of the door and adjusting the operating model to allow for enterprise solution, to be the first line of defence on collecting time and grossing it up and scheduling employees. And you'll see here that it was been a 25% increase in survey respondents and the focus and the need to bring enterprise workforce management into the organization to allow for payroll to be more effective. And then finally, just a few thoughts from us before I hand it over to Ed to talk about some compliance survey results. We'll just talk about how in the next slide, some of the things to consider if workforce management plays a role in your operating model and in your future strategy. You know, the one I'll just hit on here very quickly is really the configurability of the solution to meet your complex pay needs. Most of these enterprise solutions allow for configurability of payrolls, so your union agreements over time, premiums, etc. We want to make sure that we challenge vendors to really demonstrate that that difficult 10% that makes your organization unique can be accepted by that solution you're looking at. And so, I think there's a long, I mean, there's a journey here in finding the solution, but ultimately, workforce management can help be one of those digital assets that you incorporate in your operating model of the future. So, with that, I'm going to pass it back to Andrea, who will then take us on to the next part of the presentation.

    Andrea Wolfson : [00:29:09] Yeah. Thank you so much, Paul and Chris. I love the picture that you painted of how HR is evolving now with so much more sophisticated technology and opportunities to use data with the data team and those really strategic elements with the People Consultants and then of course, the changing considerations for the Global Services team and for payroll specifically. You know, I started my career actually as an HR service rep doing payroll, among other things, and really developed a deep appreciation for the breadth of impact that HR has on employee experience. And one of the ways I found a lot of purpose in my work when I was doing that was thinking of Maslow's hierarchy of needs and how that could translate to HR and HR services, and payroll is really a foundational basic need, and without that being well in place, it's really difficult to sort of move up the hierarchy for your employees and their experience. And so, I'd like to pass the mic now over to Ed, who's going to bring us some really great perspectives on payroll compliance and dig into what are things that tax authorities are paying attention to and what can you do to really mitigate the risk? So over to you, Ed.

    Edward Rajaratnam: [00:30:18] Thanks, Andrea. It is indeed a pleasure to be here as a panellist and to actually discuss this very important topic. Hi, everyone. Just a quick intro on myself. I've had the pleasure of being with EY actually for more than 20 years, and I'm based out of Toronto. I lead Central Canada's employment tax practice and spend most of my time actually helping clients manage and more importantly, mitigate their payroll compliance risks. So, what I would like to do is maybe slightly shift gears from what Paul and Chris have been talking about and to understand about payroll compliance and how this has evolved and more importantly, how have the trends that we see in the market? How has that impacted the risks involved? However, something to keep in mind is that from a fundamental point of view, the compliance rules and obligations for employers have frankly remained the same for quite some time. However, what has evolved is how organizations do business and how data is captured for payroll and how they are processed. So, moving to the next slide and before we get into the specific compliance risks, I wanted to take a step back and provide context on how our organizations identified for payroll audits. So, there are two approaches that exist. One is the traditional approach where they have a list of companies and what they do is to delegate their field teams to initiate audits every 4 to 5 years. That was the standard structure, irrelevant where there are able gaps identified or not in any previous audits, and they would do this every 4 to 5 years. The second approach is the risk-based approach, and this is the shift that we have observed over the last few years where companies are audited based on their risk profile. And the rationale behind this approach is that the tax authorities are being efficient in the way they deploy their audit teams and resources so that they focus on businesses and areas where they have increased probability to recover taxes that have not been paid. And this risk-based approach, I can tell you, does not exist just with the Canada Revenue Agency, but also Revenue Quebec, that's the MRQ, but also in other countries across all regions. So, what is a risk profile and what are the factors that need to be considered? So, risk profile is something similar to, let's say, a personal credit rating that you and I have or a history of our driving record. So, similar to our personal profile, businesses have a risk profile with the taxing agencies. So, some of the factors considered are what you see on this slide, let's say previous noncompliance findings of other audits, and most interestingly, the risk exposures of other companies in the same industry. So, let's say, for example, that you are in the mining industry and a company has been flying employees into Canada from various countries without any proper cross-border compliance, and the CRA has identified gaps and assessed payroll for noncompliance. The tax authorities are actually intelligent enough to understand that these issues are not just unique to that specific company but may be relevant to other mining companies as well. And hence they will decide to initiate audits in those other companies as well. And we have seen this on our clients base. Moving to the next slide, and based on this context, let's look at some of the areas where we observe the Canada Revenue Agency spending most of their audit efforts. So, what you see on the screen is four key topics that we see a lot of audit activity in. The first two, which is independent contractors and taxable benefits. This is something that has been a hot topic for many decades, which they are continuing to focus on since they identify that there are consistently gaps that exist within many businesses. The third and fourth item, which is cross-border travel and remote work, are some of the newer areas that they are investing audit efforts over the last few years. And one thing I forgot to mention is that even though this has been titled as payroll audit trends, that is actually just a common terminology that is used in the business community. From a CRA point of view, they generally refer to their audit as an employer compliance audit. Yes, it's called an employer compliance audit. The word payroll or employment tax is not in that title. And the reason is that they look for data and information beyond what is housed in your payroll system. So, for example, as you see, the first topic is contractors. CRA will be looking for information outside payroll to assess whether they are truly contractors, or are those individual employees that should be included in payroll. So, moving to the next slide, and this is the first one misclassification of independent contractors. Why is this topic important? And it goes back to the initial context that I had mentioned about the CRA following a risk-based framework when they approach payroll audits. As we all very familiar employees are subject to withholding obligations. However, independent contractors, from a Canadian point of view, do not have such withholding obligations. And as you can see on the slide, to make an assessment whether someone is a contractor or an employee, we need to look at the actual substance of the relationship of the individual with your business. In addition to the conditions you see on this slide, you also need to understand is the independent contractor closely ingrained in your company or are they hired to perform a specific function of support for a strict period of time? I can tell you from experience that our team performs these types of reviews for companies, and on many occasions, we actually conclude that individuals have been misclassified as contractors and changes need to be made. So, please pay attention to this topic. Moving to the next slide. The second one is on taxable benefits. I can tell you that unlike the issue with contractors, we generally feel that if an item is captured on your payroll system, that it should be, the withholding should be accurate. However, what is critical is when you go through, let's say, a system implementation or transition from one payroll provider to another, you need to review that the earnings and deduction codes in your payroll matrix has been set up accurately. And the matrix is not just for income tax or CPP or EI, but it also should be included for year-end reporting or any of the provincial tax levies as health taxes or worker's compensation. And what CRA tends to also focus is on your accounts payable and expense reimbursement, that again is managed outside payroll. As we all know, this function is generally not carried through payroll, but CRA is not concerned about that. What they are keen to understand is whether any of these expense reimbursements that have been made to employees should be captured as a taxable benefit. And if so, how is that data flowing to payroll for proper reporting, not only at year-end, but periodically when that benefit is recognized. So, moving to the next slide, and this is about cross-border travel. So, yes, this has been a topic that we have seen quite frequently in recent payroll audits. Yes, we have been through a period of COVID for two and a half years where travel was drastically reduced or even stopped. But what we have seen as a trend of business is that over the last six months, business travel has picked up, not just in Canada but across the world. So, when business travel increases, so does the risks about cross-border compliance. And usually based on our experience, if individuals are on a formal assignment and let's say seconded from one country to another, there's generally a structured process, let's say, for immigration, payroll or tax returns. But how about those that are not part of a formal plan? How are you keeping track of those individuals? And do you know that from a Canadian context, even if for one day, if you cross the border, there are obligations that may be triggered? So, these are the some of the items that CRA reviews when they target cross-border travel. The next one, and that's the last topic, is about remote work that we see an increased effort by the CRA. So yes, as we can all appreciate, this is something that has become more common over the last two and a half years due to COVID. But during that time, that was expected to be only for a temporary period of time. But as we have shared over the last few Thinking Ahead webinar series, remote work is here to stay, and it's on a permanent and long-term basis. So, you may have seen the above slide in previous webinars, and the reason it is still included here is that for you to understand that from an organization or business risk level, there are nine total risks that need to be evaluated to mitigate all types of exposures when developing a work from anywhere or remote work policy. For purposes of today's session, I just want to drill down on two of these items, and that's employment tax and Social Security. To understand the payroll obligations, what we can do is we can actually break it into three categories. First one is an employee that works remotely but within the same Canadian province. So, under that scenario, there isn't any additional risks that need to be addressed from a payroll lens. The second category is an employee working remotely in Canada but from a different province. There, you will need to be concerned whether withholding rates are based in the correct province. And is that the same rate or the same province for health and worker's compensation? Since the answer, I can tell you from experience can be different, it's based on where the employer is located and where the employee is working from if it's a different province. And the third category is if your employees are working from a different country but performing the same role as before. That raises significant risk. And how are you managing that? Not only for payroll but also the tax triggers and also the Social Security obligations that may exist in that foreign country. And what makes this third category quite complex and challenging is that every country has their own rules that need to be considered. And the CRA is also aware of the complexities involved and are starting to ask the relevant questions to ensure that Canadian payroll taxes are being calculated and remitted accurately. So, what we just shared are four key areas that we see on payroll audits. But yes, as some of you may have experienced, there are other areas that CRA right looks at. They have a whole laundry list that they send, which is significant, a lot of pages where you need to kind of respond to. So, moving to the next slide, and I think this is what is the most important from what I've shared. How do you mitigate these compliance risks? And in fact, how do you be audit ready? So firstly, it is to understand what is your role in managing payroll risks? I know we have hundreds of virtual attendees and some of you may be directly involved in the payroll function and others may not but it is important to understand that managing employees or managing these risks has to be cross-functional. Generally, we find payroll, we find your tax team, your HR team, your finance, or your mobility team. All of that is the cross-functional team that needs to be involved. And the most important item you need to reflect on is, are you confident that your payroll is being run accurately. And accurately does not merely mean employees getting their net pay, but also are the taxes and taxable benefits calculated properly and on a timely basis? And what we see as a leading practice is that organizations prefer to get an internal health check done for payroll so that if there are gaps that can be identified and rectified, it's better to do that before the Canada Revenue Agency comes in and there is extreme value in that exercise. What you also see is that we have a lot of experience with this health checks and we see that there's a lot of cost savings that you can accomplish, and you can change the future state before the CRA walks in. And it's the whole notion of being proactive about this and not be reactive. So, and on that note, I'm going to hand you back to Andrea. I'm not sure whether we have got any questions coming in from our audience, but we can definitely attempt to address, but Andrea, back to you.

    Andrea Wolfson : [00:43:59] Yes. Thank you so much Ed. And we do have questions coming in and I'll give you a moment to take a look at them, because a lot of them, I think, are directed to you. And maybe I'll start with a question for Paul and Chris. And everyone, please remember in the bottom, right, that's where you can drop your questions in for us. But Paul and Chris, I'd say so, looking for your one most important piece of advice. If we are trying to increase the strategic impact of HR and the pay function, what would that be?

    Paul Tucker: [00:44:32] So maybe. Maybe I'll start, Chris, and then I'll pass it to you. So, I think for me, the most important element here is to take a truly transformative approach, not try to solve it with just technology or with just a process change, or with just the people change. We need to include those three elements in any kind of a transformation, especially when looking at something as important and as impactful as payroll. But maybe, Chris, if you want to share your one key item.

    Chris Dodge: [00:45:01] Yeah, from my perspective, it's about HR taking a moment to be really bold and aspirational with that transformation. Really what this is, from my perspective, there's always capacity constraints within the HR team itself and the willingness to want to do great things in support of leaders and employees. And that capacity, while that tends to be there, is a real challenge for HR and the advice is to boldly think how you can leverage technology in order to free up that HR capacity to be able to do more within the workforce itself. So, it's that bold piece of leveraging tech to be able to help free up the capacity. So, Andrea, I'll pass back to you.

    Andrea Wolfson : [00:45:55] Perfect. Thank you so much. And so, Ed, a question for you. For cross-border workers, what methods do the CRA and RQ use to identify the travellers for which compliance was not undertaken?

    Edward Rajaratnam: [00:46:13] Thanks, Andrea, for that question. So, there are many methods that they will use. And one of the things that is what I covered when I spoke is about the risk-based profile. So, even though you may not have had initial exposure previously if they see one of your competitors or anybody else in the same industry with the same cross-border issues, that will be a trigger for them to approach you. And that is one of their standard questions actually on their questionnaire that says, do you have business travellers or cross-border individuals that are coming here? And sometimes this can be with your related sister company or another entity that you're doing business that is sending people here. Right? It can be a secondment, or it can be business travellers. Another example I can tell you is and I'm getting into very specific, is that sometimes we find on corporate tax there is a tax return that is done. And when a corporate tax return is done, there are questions on Schedule 91 that asks this question about do you have cross-border individuals? And I can say that based on experience. I've seen companies respond to that and give information, not understanding the implications that soon after that it's going to trigger a separate audit. Sometimes we call it a reg one or two audit, which is a little bit more specific than the overall compliance audit. But I can tell you the tax authorities share information. Andrea, they even share information not only within CRA and the MRQ, but also to the health agencies as the EHD. So, at the end of the day, the risk profile is significant, and I can tell you cross-border travel is something that they are looking into.

    Andrea Wolfson : [00:47:53] Amazing. Thank you so much Ed. And so, another question for you. Definitely a lot of interest from people attending today on this topic. And so, this one is around QCWS subsidies. Has CRA started auditing Q subsidies? Is there a statute barred period for this audit timeline?

    Edward Rajaratnam: [00:48:15] Thanks, Andrea. So, that's an interesting question. So, just to give context to everybody, that is the wage subsidy that Canada had, Qs, and what we have seen is I can tell you, yes, we have seen the CRA train all their field auditors on this very new subject, and we have seen significant audits that have been triggered in regard to this. And some of these audits are still ongoing. Some of them have been concluded, some of them last more than a year because of the resources within the CRA. But we have seen a lot of audits. So, if you are a client that is being audited for this, please reach out if you need any support. But I can also address your second part of that question about is there a statute of limitations. And one of the interesting things with Qs is that it actually states that there isn't any statute of limitations, and that is quite scary because you need to be aware to keep all your books and records for significant period of time. So, I can tell you a lot of the large companies that had huge claims are in the process of being selected, have been selected and been audited. But this is not something that will go away, I can tell you that. But a lot of audits have already started.

    Andrea Wolfson : [00:49:28] Okay, great. Thank you. Thank you so much Ed. And so another question for you. Those four trends that you talked about before, particularly like we've just been talking about business, travel, remote work, and everything. How often do we generally see our clients having a payroll compliance health check performed? And what are maybe some triggers or reasons people call?

    Edward Rajaratnam: [00:49:55] Yeah. Thanks, Andrea. That's an interesting question. So, I mean, it's recommended every few years, but I'm trying to reflect on a few client experiences that my team and I have been exposed to, and those are specific reasons I would say, that will trigger when we see a payroll health check done. Number one is, let's say if you have already found payroll errors, the question you need to ask yourself is, is your errors just limited to that or something more? Number two, we also see key personnel turnover within the payroll function. Or recently we have seen a key executive that is transitioning to oversee the payroll function. So, the issue with that is when that individual transitions over, they want to know what are they inheriting. Is the risk exposures managed or am I inheriting something and open a can of worms? So, that is another reason we see a health check done. Another reason is that it's going back to what Paul was talking about, the survey results where I spoke about shared service model. So, the issue with that, not the issue, we see the payroll processes sometimes following a shared service model and sometimes the payroll operations are held outside the country. But the question is you can definitely outsource your payroll, but you cannot outsource the obligation that is. So, the question is sometimes we find there's a lack of knowledge that exists about what are the payroll tax rules, How is it changing from year to year because it's managed from outside payroll. So, that is another reason why we see sometimes a health check to be done. Another reason I can think about, and we see a lot of M&A activity, a lot of acquisitions that are taking place in the market. And with that, when you have a target acquisition that is taking place, the question is what is the payroll due diligence done? What are you inheriting from this other entity? And sometimes it's not only an acquisition that happens within Canada, but more from global in nature. Recently, we had an experience with a client that was acquiring a company across ten countries. So, the question is, and it was significant employee population. So, it's again, what am I inheriting? What is a payroll due diligence or a health check that needs to be done to ensure that the payroll operations are handled properly before we integrate it into our system? And then last but not least, I can tell you is a new technology platform. So, if you're migrating or changing from one platform to another, that is another reason why we see a health check down. So, there are a lot of reasons, Andrea but in a nutshell, this is what we see in practice that happens.

    Andrea Wolfson : [00:52:41] Wonderful. Thank you so much. Very informative. And so I wonder now, Chris, I've got a question here for you. You know, we hear a lot right now about agility and our clients looking to become more agile and resilient. And so, in your experience, how are you seeing organizations embedding agility into HR and pay functions?

    Chris Dodge: [00:53:06] Yeah. Thanks, Andrea. So, one of the one of the biggest challenges within HR and organization is, generally speaking, there's fixed capacity with a little bit of incremental growth at times. Yet you've got increasing and unpredictable needs within the workforce. And the challenge within HR is how do you thrive in an environment like that? And the people value chain that we had walked through actually is a great way and it's built to inject that agility right into the HR and pay organization. And it starts with using the HR technology and digital capabilities to get the lift and the extra capacity built into the HR organization. But it's also more than just the technology. This is about the structures and mindset that need to be rooted deeply into the HR and pay organizations. And with that, often agility is thought of as just a technology. I think something that's relevant for technology. This is just a way of thinking and a way of working and is very, very relevant to HR and pay organizations. And when you move and start to embrace the concept of agile, you end up being brave enough and bold enough to change structure and processes and ways of working that allow for that to move forward. So, I'll pass back to you, Andrea.

    Andrea Wolfson : [00:54:31] Great. Thank you so much, Chris and Paul, we just had a really good question come in, I think, for you. And so, this question is how much does technology or process automation reduce the business case for outsourcing payroll?

    Paul Tucker: [00:54:47] Thanks, Andrea. I think it's a great question. It's one that we come across regularly with our clients. Prior to software as a service solutions, we saw outsourcing payroll took up a lot of steam because it was very complex to host and manage servers and technology and keep that up to date. And this became complex with the adoption of software as a service and regular quarterly updates to these platforms. We saw actually organizations bringing payroll back in-house for that very reason because it became manageable and in a lot of cases was an easier process to close out pay. When we bring in technologies like robotic process automation and in real-time pay engines, where a punch-in on a clock is immediately impacting the pay calculation. We're seeing really organizations not be able to make the business case to outsource unless they are truly a global organization where they've got unique in-country nuance that has centralized in-house team cannot run and that a payroll provider just can't simply provide in the countries in which you operate. But there was very much an erosion of the outsource business case when you can bring in technologies that help for automation and help for ease of use and regular and timely updates to the software.

    Andrea Wolfson : [00:56:19] That's great. Thank you so much, Paul. And look at that. I'm afraid we're running out of time, everybody. So, before we go, I would sincerely like to thank our speakers today. Paul, Chris, Ed, thank you so much for sharing your rich insights with us. And thank you to everybody who tuned in today. We covered a lot of ground on how HR and pay are changing. And we also learned that we really cannot take our eye off compliance and learned some key things to monitor from a risk mitigation standpoint for payroll. And so, your feedback is really valuable to us. There's going to be a short survey that's going to pop up momentarily, and we really would appreciate if you take a moment to complete that. A reminder as well. The next webinar in this series is going to be on November 30th, and we will continue to explore the trends and insights into the topics that are influencing and shaping the people agenda. Until next time, look out for an email from us in the next few days. We will have a recording of this session and all of our speakers' contact information, and so please reach out to them or your local EY advisors with any of your questions, who will be happy to work closely with you on your opportunities and challenges. We're here for you, so stay tuned, be safe, remain connected, and thank you all for your time.


  • Andrea Wolfson, Partner, People Advisory Services


  • Paul Tucker - Partner, People Advisory Services
  • Chris Dodge - Associate Partner, People Advisory Services
  • Edward Rajaratnam - Associate Partner, People Advisory Services


CPE credits: No

Time your local time