Over the next couple of years, major US companies will be experiencing a significant shift in employee compensation reporting requirements, which will likely lead to much greater awareness of employee entitlement compliance, not only in the US, but on a global scale.
The United States Financial Accounting Standards Board (FASB) - designated by the Securities and Exchange Commission as the body responsible for setting accounting standards for US public companies - recently voted to increase the reporting requirements for key expenditures, such as inventory and employee compensation. This move aims to provide investors and other stakeholders with greater visibility into organisational operations. This article explores these changes, their implications, and their impact on the payroll compliance movement, both in Australia, and globally.
The FASB voted to mandate quarterly exposure of employee compensation among other expenditures in the footnotes of income statements. A recent article in the Wall Street Journal highlighted the following key changes:
The organisational effort involved to address the FASB stipulations should not be underestimated. Affected companies will need to carefully plan their approach to data gathering, data manipulation (to ensure compliance with the requirements), and presentation. Those companies that will seek to be early adopters in 2026 will have to be ready by late 2024 for testing throughout 2025.
Considering the global significance of the US market and the keen interest other markets, standard setters, and regulators have in such developments, it is reasonable to expect that the FASB stipulation will have a substantial ripple effect worldwide.
Anyone with a vested interest in employee entitlements will recognise that Australia has made significant legislative and regulatory advances in this area. An increasing number of Australian companies have faced reputational damage due to the need to remediate past underpayments.
It might be tempting for Australian companies to dismiss these changes as irrelevant to them. However, this would be a mistake. We anticipate that the US move will amplify scrutiny at a global advanced economy level.
In our experience, requirements for greater transparency in employee entitlements inevitably lead to increased pressure and examination from employees, unions, activists, and governments regarding pay accuracy, benchmarking, and discrepancies.
The FASB stipulation represents a critical juncture in the global payroll compliance movement and reflects growing awareness worldwide about issues with payroll non-compliance. It will likely compel markets like Australia, that often follow US standards, to enhance their payroll compliance frameworks.
US companies, and eventually those in other jurisdictions, preparing for the FASB requirement are likely to encounter several issues that suggest a risk of entitlement underpayment. Employers should consider these three questions:
1. Does the data exist to comply with the requirement?
If, during the process of compiling detailed employee entitlement information, you discover that the source data—such as relevant contracts and workplace agreements—is poorly maintained or lost, accurately and fairly representing those entitlements in your financial statements will become significantly more challenging.
2. Is the data properly auditable?
We have observed numerous cases where organisations have conducted self-audits of employee entitlements based on the previous year's calculations. This overlooks the inconvenient reality that past calculations could be incorrect, as no one has verified the underlying computational structures.
3. How repeatable is the employee entitlement calculation?
A key aspect of the FASB requirement - in time - will be the need to provide quarterly updates on the transparency of employee entitlements. While this might be straightforward in an environment with a highly praised, unified framework; such frameworks are rare. More commonly, companies rely on a cumbersome mix of outdated enterprise systems and manual calculations, often in Excel spreadsheets. These are maintained through organisational knowledge rather than repeatable processes, increasing the risk of underpayment.
We fear that as the FASB mandate is implemented, many organisations will struggle to answer these questions adequately. This will likely spark renewed interest in employee entitlement compliance and generate a new wave of case studies highlighting compliance failures.
The upcoming changes in employee compensation reporting represent a critical moment for payroll compliance. As organisations prepare for the FASB mandate, they must address key challenges to ensure accurate and transparent reporting. Failing to do so will not only lead to compliance issues but also significant reputational damage, loss of employee trust, and financial burdens due to rectification efforts. Prioritising payroll and employee entitlement compliance now is essential to navigate these changes effectively and maintain stakeholder confidence.
Marcus Zeltzer, Founder & Managing Director, Yellow Canary
Marcus Zeltzer is one of Australia's pre-eminent experts in automation technology and workforce compliance. Pursuing his passion for solving real-world business problems with technology, Marcus founded Yellow Canary to address under-serviced and widespread workforce compliance issues in Australian businesses.
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