It is not talent shortages, technology, or payroll budget management that pose the greatest challenges for HR departments today, but compliance with current regulations. According to payroll professionals, regulatory compliance is the most demanding area of payroll management and the one that generates the greatest uncertainty and concern. These findings come from the “Potential of Payroll 2026” study conducted by ADP.
As many as 75% of companies admit that keeping up with rapidly changing labor and tax regulations across different jurisdictions represents a significant operational and strategic challenge. Meanwhile, 68% of surveyed organizations report facing penalties for non-compliance once or twice a year. Seven in ten respondents are unable to precisely identify the areas in which their organization may be failing to meet regulatory requirements. In 47% of cases, legal changes themselves are cited as the most frequent source of payroll errors.
This means that many companies operate in an environment of uncertainty, often lacking full visibility into potential compliance gaps. Regulatory pressure is so intense that 69% of respondents admit they would rather overpay employees than risk the consequences of breaching regulations. This highlights the scale of both reputational and financial costs generated by payroll errors, regardless of the country in which an organization operates. The situation becomes even more complex for companies operating in multiple countries or employing workers subject to different tax systems.
Regulatory Challenges on the Horizon
A major challenge for organizations in 2026 will be the implementation of regulations stemming from the so-called Pay Transparency Directive. The directive introduces, among other requirements, mandatory reporting of the gender pay gap, greater transparency regarding remuneration and job structures, and employees’ right to obtain information about pay levels for comparable roles.
The new regulations will require companies to establish objective job evaluation systems and maintain comprehensive documentation of their compensation structures and the decisions behind them. For employers, this is not merely a legal compliance project, but a broad transformation of HR, payroll, and business processes, requiring close cooperation between legal, finance, and HR departments.
Another issue payroll and HR teams must address involves amended regulations (effective from January 27) clarifying the deadline for paying compensation for unused vacation leave. Under the new rules, such compensation should be paid on the regular payday. If that date falls before the termination or expiration of the employment contract, the employer will be required to pay the equivalent within 10 days of the termination of employment.
“The regulation is not fully comprehensive, as it clearly governs the payment deadline for unused annual leave compensation, but does not address other benefits that become due upon termination of employment, such as retirement or disability severance pay, severance related to collective redundancies, or even the final salary payment,” comments Tomasz Czerkies, Legal Counsel at ADP Poland.
Another challenge causing considerable confusion in HR departments this year concerns new rules for calculating length of service, which affect, among other things, annual leave entitlement as well as seniority bonuses and jubilee awards. From May 1, 2026, payroll teams in the private sector will be required, upon employee request, to recalculate seniority based on documents provided by the employee.
“In this case, it is crucial to precisely determine, based on applicable regulations, what types of professional activities may increase an employee’s length of service and which documents can serve as valid proof. From the employer’s perspective, it is also advisable to introduce a procedure that ensures employees receive full and transparent information in the event of a refusal to recognize a requested period of employment,” adds Tomasz Czerkies.
The full “Potential of Payroll 2026” report is available online. The document is based on a survey of 1,816 payroll professionals from 20 countries, responsible for payroll management in organizations employing at least 1,000 people.
