When you run a business, maintaining compliance with all governmental rules and regulations including taxation, worker safety, and environmental measures is key to ongoing viability. Failure to maintain compliance can result in costly lawsuits, penalties and even the closure of your doors. How can busy leaders ensure their teams remain abreast of all necessary compliance matters?
Technology plays a role, as does proactive communication among team members. The biggest hurdles to compliance remain cost and the cooperation of personnel. Here’s how you can evaluate and modify your current practices to ensure a higher level of compliance and a decrease in risk.
What Is Regulatory Compliance?
Compliance issues often arise from changes in adherence to applicable laws, regulations and guidelines specific to business practices. It forms the basis of many complaints about governmental interference in private business operations. However, leaders must realize the rules exist for a reason, in many cases to increase parity and promote public health and safety.
Regulatory compliance involves paying the business’s tax liabilities as owed, adhering to OSHA guidelines and more. It also refers to the legal language required for the foundation of valid contracts. It’s easy to see how overlooking compliance matters can impact an organization’s bottom line negatively.
Penalties for failure to comply with sales tax average nearly 18%, and this does not account for interest and late fees. The IRS assesses multiple penalties, including those for failure to file and failure to pay. While the IRS does allow exceptions, they are difficult to attain.
The Changing Legal Landscape of Compliance
Compliance issues often arise from changes in law and regulations. Depending upon the industry sector, seemingly minor changes can result in the need for organization-wide overhauls in processes.
For example, the recent Supreme Court case of South Dakota v. Wayfair changed the definition of sales tax nexus. While previously entities only needed to register with the state if they maintained a physical presence in the region, to avoid future legal woes, any company that conducts business must register — wherever they are located. Otherwise, the retailer may face penalties and interest.
The ruling sets off a ripple effect not only for the retail giant, but also for smaller entities conducting online sales. Such small organizations that run as sole proprietorships often lack the time to keep current with all regulations. They also don’t have the requisite funds to hire legal consultants. Fortunately, technology offers solutions in the form of automated compliance tools.
Technology and Risk Compliance
In recent years, a host of technology companies switched to specializing in helping business owners manage compliance issues. Depending upon an organization’s jurisdiction, any number of integrated technology solutions can keep entities current with requirements. While some still focus on particular areas, such as tax, others offer a broad range of contract management software as well.
When evaluating a technological tool for compliance purposes, asking the right questions is key. How will any software used integrate with programs the business already has, such as Salesforce? How effectively does it merge data across multiple applications and servers? Does it also offer additional features, such as tools to predict client behavior based upon certain metrics?
Evaluating your organizational needs is the best place to start updating compliance solutions. If a firm experienced fines or other penalties in the past, how can it avoid them in the future? What language and processes require streamlining? Where in the financial timeline did previous errors occur, and how can the business prevent them going forward?
The Importance of Communication
Once an entity establishes a compliance strategy, clearly communicate with all staff the importance of following procedures carefully. Utilize continuing education seminars to emphasize the importance of maintaining regulatory compliance. Provide specific guidance to struggling employees as to how to improve their practices.
Because regulatory compliance is crucial to business success, utilize positive reinforcement to reward employees who go above and beyond to improve adherence to the rules. Companies need to terminate employees who commit egregious violations, but creating an atmosphere of fear hinders productivity and innovation. Reward works better than punishment when it comes to improving employee commitment to compliance matters.
Protecting Your Business
Enacting solid regulatory compliance measures saves businesses costly penalties and fines. Obeying the laws regarding worker safety, taxation and more determines whether or not an entity remains viable. By updating said practices regularly and utilizing technology and communication in the workplace, organizations can ensure ongoing compliance and profitability.