The Cost of Non-Compliance: a PEO can mitigate the damage!

cost of non compliance

Africa. A continent of possibility and opportunity. However, despite being the second-largest continent, African markets have not kept pace with the economic development and growth seen throughout the world. Perhaps this is because African markets are easy for investors and organisations to overlook, with potential strategies for investment and expansion being halted due to language barriers, poor infrastructure and ‘red tape’ administrative barriers. However, organisations that do recognise the potential for growth within the 54 distinct African regions may be front-runners in innovating products to meet African countries’ demand for goods, services and new infrastructure.

One of the major obstacles to a successful expansion into Africa is the differing compliance and governance structures within the different African countries. Not only are these laws and legislations intricate, but they carry hefty consequences should organisations not comply with them. Thus, it is crucial for organisations to establish a compliance strategy prior to onboarding employees in Africa. However, this can be overwhelming, given the numerous considerations, and ever-shifting regulatory landscape.

A crucial component in taking the leap and expanding into Africa is the right partner to overcome these barriers to entry.

The importance of compliant operations in Africa

Compliance is often synonymous with the investment of time and considerable capital by organisations. Indeed, the term ‘compliance cost’ for international companies describes the total cost an organisation incurs in complying with a country’s legislation. Organisations operating in multiple, international jurisdictions must deal with a broader range of regulations, incurring considerable costs, which can cause many barriers to entry.

Given the costs of operating an international organisation, it may be tempting to ‘skip a few steps’ in practice. However, the cost of non-compliance is on the rise, and it is estimated that the cost of non-compliance is more than twice the cost of compliance.

Here are some consequences of not getting compliance right in African countries.

Area of impact

Detail

Long-term implication

Financial losses

Expansion into Africa is expensive, and there are often unforeseen costs to incorporate into the budget.  

Any tax or legal transgression an organisation commits renders organisation vulnerable to significant financial threats through penalties, fines, and even civil lawsuits, which may threaten the financial viability of a new venture.

Negative employee experience

Labour and tax legislation exists to ensure a positive employment experience and to protect both organisations and employees from malpractice.

Non-compliance may have implications for an organisation’s employees, who bear the brunt of incorrect payment, unfair labour practices or incorrect employer contributions. This may lead to lower employee productivity and job satisfaction.

Risk of employee malpractice

It is the responsibility of department heads and executives to establish compliant procedures and processes, however, it is the responsibility of the employees to align with the required behaviours.

Employees need to receive training on how to remain compliant in their everyday roles. Without such upskilling, employees may unknowingly commit infringements that threaten the organisation.

Loss of stakeholder trust and reputation damage

In an increasingly consumerist world, it is important to build a sense of trust with key stakeholders, such as customers, investors, and employees. Such a relationship is dependent on perceptions of a company in the market, as well as stakeholder experience with the organisation.

Should an organisation commit an ethical transgression, this may lead to stakeholders feeling a sense of loss of trust in the company. A lack of trust can damage a country’s reputation. Stakeholders who have doubts about the company’s strategies and practices are unlikely to remain in support of the company, which may damage their market viability and support. 

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In short, leaving compliance issues unaddressed may cost the company more than it would have spent to prevent them. Understanding the complexity of international payroll compliance should not be underestimated, particularly when expanding into different African countries.

How can Africa HR Solutions help?

Remember the adage – prevention is better than cure. Instead of spending valuable time and money retrospectively fixing compliance-related mishaps, organisations can minimize any compliance-related risks by setting up a compliant system. However, this is no easy task and requires the support and advice of experts, particularly if expanding on the African continent.

Africa HR Solutions, is a well-established and trusted advisor to many organisations that have expanded to Africa. We pride ourselves as experts in onboarding and managing payrolls for employees in 44 different African countries. In partnering with Africa HR Solutions, there is no need for organisations to be overwhelmed by the nuances in legislation and subsequent penalties for non-compliance. Rather, as a leading provider of PEO services in Africa, Africa HR Solutions can provide the right services, tools, and expertise needed to ensure operations adhere to compliance on the continent. Our team of legal and payroll consultants and our local experts ensure our clients’ compliance systems are aligned to the best ethical business practices and relevant African legislation.

Are you curious about the ways we can assist in preventing damage to your company during your expansion in Africa? Then contact us and get a quote now!

Source:

Neilsen: Global Sustainability Report

FMP Global: The Cost of Non-compliance

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