What can payroll teams learn from an NFL payroll mishap?

No organization is safe from the impact of payroll errors and mistakes, whether you’re a small business, a global enterprise – or even a professional sports team.

On March 18 2024, it emerged that the San Francisco 49ers – last season’s National Football League Super Bowl runners-up – had been punished by the NFL for making payroll accounting errors for the 2022/23 season. Like many major pro sports leagues, the NFL has strict cost and salary cap regulations, where NFL teams can only spend so much on player wages each year, as part of an effort to keep the league fair and competitive for all 32 teams.

It turned out that the 49ers hadn’t actually breached the NFL salary cap, nor had they made any deliberate attempt to break the rules. However, due to what the 49ers described in a statement as a “clerical payroll error”, and what NFL spokesman Brian McCarthy called “a misreporting of the club’s cumulative player compensation”, the team was non-compliant with the NFL’s regulations. And as in many other walks of life, non-compliance is still punished even if there is no intent behind it. 

In the case of the 49ers, they have been penalized in the form of their picks at the NFL Draft, the crucial annual selection process where teams pick the most promising talents from the American college football system. The Californian franchise has been pushed to the back of the queue in the fourth round of this year’s Draft, and won’t be allowed to make any draft picks in the fifth round of the 2025 Draft.

Why compliance can often be easier said than done 

American football isn’t the only sport grappling with payroll and accounting compliance right now. In English soccer’s Premier League, two teams (Everton and Nottingham Forest) have been docked points this season for breaching the maximum permitted loss of £105 million over a three-year period. As the vast majority of any soccer club’s expenditure is on player wages and transfers, all Premier League clubs’ payroll teams have to tread very carefully around who is paid what and when, in order to comply with the ‘Financial Fair Play’ regulations.

But the 49ers case is a good example of how easy and accidental non-compliance can be, and the scale of the impact and consequences when it does happen. For global businesses, compliance involves simultaneously staying on the right side of tax laws, employment regulations, and statutory payments in every country they operate in. 

This can be a complex and time-consuming endeavor, especially given just how much these rules vary from one territory to another. As an example of how varied these rules can be:

• Many South American and south-east Asian countries require the payment of 13th-month and 14th-month bonuses to employees. However, the times of year for these vary, with many Asian countries mandating the payment around the time of the Chinese New Year
• Switzerland has different rules across each of its 26 cantons, and often different rules for different communes within each canton. This makes for a bewildering array of requirements across working hours, minimum wage rates, tax, social security contributions, maternity leave, public holidays and more
• China mandates that all firms who employ staff for over a month without a written employment contract to pay double wages; if this situation persists for over a year, the employee cannot be fired and has guaranteed employment with the company until they retire

Avoiding costly consequences with payroll best practice

The ramifications of payroll non-compliance can be long-lasting and severe. They can be legal, through the levying of fines, penalties or other action as punishment; operational, as non-compliant processes can lead to disruption, errors or delays in payroll runs; cultural, as any impact on employees affects their experience and financial wellbeing; and reputational, as a business can be perceived as unprofessional, unethical, and untrustworthy with sensitive data.

Over the years, having worked with countless businesses in more than 130 countries, we’ve picked up a few handy hints and tips for achieving and maintaining multi-country compliance:

• Obtain tax IDs: register as an employer with governments in every country you operate in, and make sure you obtain the relevant tax and payroll ID numbers
• Read up on the local tax code: it’s vital that a payroll team understands the laws around tax withholding from salary, remitting to the authorities, and accurate reporting
• Understand benefits: similar to the previous point, payroll teams should understand the ins and outs of social security, pension provisions and employee benefit schemes for each country
• Check for auto-enrolment: some countries require automatic enrolment into retirement savings accounts (such as the ‘workplace pension’ in the United Kingdom)
• Adopt robust payroll solutions and software: keeping track of all requirements can be tricky, especially with globally distributed workforces. A good payroll partner and associated software will enable you to handle all currencies and exchange rates; make error-free tax calculations in each country; get automatic updates as laws and regulations change; and generate comprehensive compliance reports at local or global levels as required

If you feel you need help on your global payroll compliance journey, CloudPay has the expertise and solutions to cut the complexity and stress. Find out more about our compliance services here.