Payroll for any business is costly and mistakes should be minimal. Employees depend on funds to be paid on time and correctly and there is no loyalty when things go wrong.
Payroll is complex and various elements attached such as remuneration calculations, tax and compliance, benefit deductions, medical aid deductions etc. A payroll system is only as good as the quality that is input. The benefit of outsourcing this function is that payroll is done by professionals at the forefront of technology, legislation and what’s new on the market. Payroll systems and salaries can drain a company’s profits and time. Listed below are mistakes that should not occur on a payroll and if they do, it may be time to put your trust in an outsourced service provider.
Nett vs Gross
A nett salary should never be entered on a contract of employment. When various deductions and tax tables apply, the nett could look very different to what was promised. When sending an offer to a candidate, a “dummy” payslip should be attached and the contract should state the Gross salary.
Understanding the BCEA & Policies
The payroll and HR professionals should be well versed on the BCEA and various company policies. Payroll must ensure they are up to date with any legislation changes. The correct allocations of unpaid leave, termination leave pay, severance pay calculations must be put through. A common error is that the four weeks’ notice pay is incorrectly input as a full month’s salary should this be the notice required.
Tax, Tax Incentives & VAT
Payroll should be knowledgeable on taxable income, incentives and expenditure for staff. This could have a devastating impact at year end when employees need to submit their IRP5 for tax purposes. One of the first things that happens at a SARS assessment is to check if VAT was charged for the use of the company vehicle. Check what is required with a registered tax or VAT practitioner if there is not one within the business.
Payroll software
The monthly payroll is only as good as the input. Payroll software does not “do” the payroll, people do. Payroll software require human input and processing. Payroll staff should understand each line item and the implications they have if entered incorrectly.
Benefits and deductions
When uploading benefits and deductions, close attention to detail is required. Incorrect medical deductions for the year could cause the employee to have to pay in or get a refund. Travel allowance rules must be checked and applied correctly as they have tax implications. Ensure ALL expenses are put through the payroll as this is a legal requirement. UIF (UI-19) declarations and payments must be accurate as these could cause the company problems with the Department of Labour.
Audit trails
Each transaction should have a traceable paper trail such as increases, promotions, overtime, bonus amounts, etc. Any change made to the system should automatically be documented in the event of an audit or question regarding the change. Employees cannot remember every request and should that particular payroll employee leave the company, the continuity will be in place with documentation.
Working hours
Many companies rely on capturing employees working hours which tie into their salary payments. Capturing an incorrect rate of pay will result not only in normal pay but overtime calculations being incorrect. Copies of contracts should be given to payroll who must take note of any exceptions and apply these on the system.
Fringe benefits
Tax understanding is vital to these type of benefits should staff have the use of a company car or low or interest free loans. Tax legislative changes need to be adhered to and these should be checked by a tax expert.
Fixed-term contracts and independent contractors
Ensuring contractors are on-boarded and taxed correctly is critical. Extensive knowledge of the BCEA such as leave pay, can a contract be rolled and how many times, etc. Having the correct information will limit liability in the event of a Labour case.
Deadlines
Payroll has strict deadlines to adhere to such as the SARS EMP201, etc. Plan the workload around deadline dates.
George Guirguis
Director
T +27 10 599 0224