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August 20, 2015
Business-to-Government Compliance Begin to Penetrate Human Resources Processes

Steve Sprague

Author

Sovos

This blog was last updated on June 27, 2021

Recently, we’ve been examining the tidal wave of business-to-government regulations in emerging markets and their impact on business operations, including sales and procurement. Heavily involving both the accounts receivable and accounts payable teams, it’s clear that these mandates have significant implications on financial processes. However, recent legislation is adding a new operational unit to those affected by business-to-government compliance mandates: human resources.

recent legislation in Brazil and Mexico is adding a new operational unit to those affected by business-to-government compliance mandates: human resources.

Looking back 18 months at the compliance landscape in Latin America, only three countries – Mexico, Argentina and Brazil – were enforcing mandates, and these all encompassed A/P and A/R processes only.  Now 10 countries have introduced mandates, and they are entering an increasing number of busines processes.  While Brazil is typically considered the leader in compliance legislation, having the most robust, complex requirements, Mexico was actually the first to introduce HR-related mandates.  Last year, Mexico introduced Nomina Electronica – electronic payroll receipts.  Now, Brazil is testing eSocial, which collects labor, social security, tax and fiscal information related to hiring and employment practices.  

As IT and finance struggle to adapt to the pace and complexity of legislative change in this region, these additional business-to-government regulations present whole new challenges to HR departments.  Specifically, under Nomina Electronica, any company operating in Mexico paying employees a salary or wage needs to be issuing electronic payroll receipts. These payroll deductions are a critical component to the recent eAccounting legislation as you can’t deduct taxes until payroll has been submitted to the government electronically for approval and the approval codes linked to your monthly Journal Entry (Poliza Report).  

As has come to be expected of Brazil, its tax authority takes HR requirements to the next level. Under eSocial, which will go live in the next 12-18 months, employers must submit all information regarding their labor force to the government electronically. This includes labor events such as hiring, contracts, warnings, suspensions and terminations, which must be sent as soon as the event occurs, as well as payroll details, benefits, etc. This equates to up to 41 individual XML files per employee per month!

With the additions of personnel-related mandates, Mexico and Brazil are looking beyond VAT taxes and into payroll and income taxes in an increasing effort to ensure that they are receiving maximum tax revenue. We anticipate this trend continuing throughout emerging markets like Latin America as government’s attempt to stabilize and grow their economies, making it critical that companies operating in these regions begin creating proactive compliance strategies so they aren’t caught off guard.

Steve Sprague
As Chief Commercial Officer, Steve Sprague leads corporate strategy, market penetration initiatives, and field enablement for the company's global value-added tax (VAT) business. Steve's leadership style is based on his belief that for organizations to succeed, they must commit to and invest in the company's three strategic pillars: people, practices, and products.
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