Payroll management sounds simple, but it’s surprisingly easy for a growing business to make payroll mistakes if it doesn’t have robust processes and systems in place. In some cases, an error can have serious consequences for a business, ranging from damaging employee morale, to fraud losses, and tax penalties for late or incorrect tax payments and submissions.
Here are a few of the common errors South African businesses make in managing their payrolls:
Failing to automate
I’m putting this one right at the top of the list because poor systems and controls are the root cause of most of the other payroll mistakes I list below. If you don’t have an automated system in place, you can easily make errors in calculating employees’ salaries and deductions, compiling your tax submissions, and recording employee information and transactional data.
It can also be challenging to stay on top of the deductions, levies and tax incentives you need to cater for, for your payroll calculations, ranging from UIF and the skills development levy to the employment tax incentive. What’s more, you also need to keep track of yearly changes to SARS’s regulations that will impact on your payroll tax calculations.
Failing to automate also means that the payroll team spends all their time on compliance and admin—when they should be focusing on helping the business to understand payroll costs, identifying trends, enabling better employee experiences and providing strategic advice to finance and management teams.
What to do about it: Shop around for a cloud-based payroll solution that is 100%-compliant with South African tax legislation and regulations and that can grow alongside your business. Sage Business Cloud Payroll Professional is one example. If you opt for a cloud-based solution, you can turn it into an operational expense, Plus, you’ll be able to get up-and-running fast and benefit from automatic updates that ensure your software is up-to-date with the latest laws and regulations.
Not putting checks and balances in place
Payroll fraud is a major risk for businesses and it is often discovered by accident, only after the company has lost a vast amount of money. Many Small & Medium Businesses are vulnerable to payroll fraud because they don’t put appropriate checks in place—for example, they give one accountant or payroll manager complete access to the payroll system and company bank account.
What to do about it: The simplest way to prevent most incidences of payroll fraud is to enforce segregation of duties in the payroll department. The people who calculate pay rates and accumulated hours for the payroll should ideally not be the same people who process the payments. Different people should have responsibility for capturing payroll data and for managing access to the system as well as adding and removing employees from the payroll. Yet another person could be tasked with checking that the numbers add up.
Poor control over leave days
It can be easy to lose track of leave days if an employee takes leave without proper authorisation. The result can be that an employee benefits from extra paid leave or loses leave days due to errors in data capture, or that their holiday leave payment could be inaccurately calculated when they leave the company. Other issues could include two critical team members applying and getting leave, when at least one should be in the office.
What to do about it: An automated payroll system allows you to take the sweat out of processing leave. It enables you to manage leave administration, enforce company specific leave policies and ensure the records are correct. You can also introduce employee self-service to streamline the process of leave applications and approvals for employees and managers.
Travel allowance pitfalls
Reimbursements and allowances for employee business travel are a minefield for the unwary. A travel allowance is a regular monthly amount the employer pays an employee to compensate them for monthly travel in a privately-owned motor vehicle.
The employer must include either 80% (low business travel) or 20% (high business travel) of this allowance into the remuneration on which PAYE is calculated. The employee keeps a logbook of business travel, submits it to SARS at the end of the tax year, and SARS does the final income tax calculation.
Under reimbursement, the employee logs his or her business travel kilometres and submits it to the employer for reimbursement. The employer decides on the rate per km at which it will reimburse the employee. The tax rules can be complicated but if the employer uses the SARS prescribed rate of R3,61 per km, then there is no tax in the payroll or on assessment.
The rules and calculations can be tricky to keep track of, and incorrect capturing can result in employees paying too little or too much tax.
What to do about it: There are different SARS IRP5 codes and reporting rules for travel allowances (3701), reimbursement above the prescribed rate (3702 and 3722) and reimbursement at or below the prescribed rate (3703). Double check that you are using the right codes and withholding the right amount of tax. Persuade team members to opt for reimbursements rather than travel allowances because they are easier to understand. And, once again, an automated payroll solution will do the calculations for you and help you to capture the right data using the right categorisations.
We are only entering the second month of a new tax year, so now is the perfect time for companies that use manual payroll processes or old payroll technology to modernise with a cloud-based business solution. There is no reason today for payroll to be a headache or distraction—the right tools can take care of most of the red tape so you can focus on growth, strategy and talent development.