Government Budget Updates: Role of Change Management in BAU Payroll

Discover the crucial role of change management in BAU of payroll, especially in the context of external factors like government budget releases.

Change is a constant in the world of payroll, even after a new system is implemented. Effective change management is crucial not only during the initial transition but also in the ongoing Business As Usual (BAU) stage.

This two-part series will highlight the importance of change management during BAU of payroll. In this blog, we will discuss the impact of change management on payroll compliance. External factors like government budget releases can significantly impact payroll processes. To ensure accurate payroll calculations and avoid compliance issues, change management must ensure organizations stay updated on regulatory changes and adapt their payroll systems accordingly

External changes - Compliance

Did you know that even without changing your payroll system or vendor, routine business activities—like a country’s budget release—can result in change management in payroll? Changes in income tax and social security contributions are often part of these updates and can directly affect the final take-home salary of your employees. To stay ahead, organizations must ensure that their payroll systems are updated to reflect any new rules. Fortunately, governments announce these changes well in advance, giving you the time to prepare and adapt accordingly.

Depending on your payroll processing model, your level of involvement may vary. If you’ve licensed payroll software and are handling payroll in-house, it’s a good idea to test the output after any changes and before processing payroll to understand the changes better. If your payroll is outsourced, then managing these updates entirely falls under the responsibility of the organization processing your payroll. Typically, whether you use a licensed payroll software or a payroll provider, they offer a compliance portal and provide a detailed compliance guide. This resource is invaluable for ensuring you're always up-to-date with the latest regulations.

Tax Changes

Adjustments in income tax, payroll taxes, or other regulations often require payroll calculations and reporting changes. For instance, when the government updates tax slabs in a budget, change management must communicate these changes to employees well in advance. Take the Indian Union Budget for the Financial Year 2024-25, where the standard deduction for employees under the New Tax Regime increased from ₹50,000 to ₹75,000. This means employees could see an increase in their take-home pay due to reduced taxable income.

For payroll systems, these changes need to be implemented before the new payroll cycle begins. A detailed guide can be invaluable, helping both employees and payroll processors understand these updates and ensuring a smooth transition..

Social Security Changes

The release of a country’s budget can also impact social security contributions for both employees and employers. For instance, the Indian Union Budget 2024-25 provided for an increase in private employers’ contribution to the National Pension Scheme (NPS) or Atal Pension Yojana (APY), as specified under section 80CCD(2) of the Income Tax Act, for up to 14% of employee’s salary (from 10% the previous year). Though this is voluntary, it can impact the salary structure of employees and only benefit employees who have opted for the New Tax Regime as they can claim a deduction for higher employer contributions.

In this scenario, payroll software providers face increased complexity, needing to test thoroughly for both the Old and New Tax Regimes. Employees must be informed about these changes, and the query management team should be prepared for an influx of inquiries. This might involve expanding team capacity or updating chatbots to handle and consult on these queries effectively. Change management plays a crucial role in ensuring testing, delivery, and query handling are all well-coordinated and executed smoothly.

Digitalization/Change in Existing Method

When social security and income tax authorities transition from manual to digital submission methods, it impacts the methods, people, processes, and technology involved. Even a shift from one digital method to another requires effective change management. For example, when Australia moved from STP 1 to STP 2 filing, the ATO released detailed guidance, and all Australian payroll systems had to undergo significant changes, calling for effective change management.

Conclusion

Effective change management in payroll is not a one-time effort but an ongoing necessity. External factors like government budget changes and updates to tax and social security laws can significantly impact payroll processes.

Organizations must have change management to continuously monitor regulatory changes, update their payroll systems, and communicate these updates to employees.

However, when you outsource your payroll or procure payroll software from a well-established organization, change management is taken care of. Companies like Ramco Systems have a methodology, as demonstrated below, to ensure all external changes are timely monitored, updated to the payroll system, and communicated with the parties concerned.

Effective change management in payroll is not a one-time effort but an ongoing necessity. External factors like government budget changes and updates to tax and social security laws can significantly impact payroll processes. Organizations must have change management to continuously monitor regulatory changes, update their payroll systems, and communicate these updates to employees. However, when you outsource your payroll or procure payroll software from a well-established organization, change management is taken care of. Companies like Ramco Systems have a methodology, as demonstrated below, to ensure all external changes are timely monitored, updated to the payroll system, and communicated with the parties concerned.

In the next blog post, we will explore the role of change management in helping organizations navigate internal changes, such as updates in HR systems or the addition of new pay elements, without disrupting payroll processes.