Setting up payroll is one of the most important aspects of any business. In fact, it can be a make-or-break factor.
If not set up properly, you run the risk of not paying your staff or service providers on time, and that can spell disaster for any company.
But this can be avoided with an efficient and effective payroll system. You can set this up yourself using SARS-compliant payroll software, or you can hire an accountant to do it for you.
This article offers advice on how to set up a payroll, and covers:
- The benefits of running your payroll in-house,
- Reasons to outsource payroll,
- What to look for when choosing a payroll provider,
- How to set up payroll for your business,
- Record-keeping and payments,
- Four payroll must-dos, and
- Final ideas to consider when setting up payroll.
The benefits of running your payroll inhouse
If you run a small business, it might be more practical and cost-effective for you to set up your payroll in-house. There are several other benefits to this:
- You have more control over your finances,
- You’re aware of payroll errors that may arise and you can fix them quickly,
- You can integrate your software with your other business systems, and
- You have more protection against data breaches.
While running payroll itself doesn’t take much time, the majority of the work is in the preparation that goes into getting payroll ready, such as calculating hours, absences, and bonuses for a mixture of salaried and contract staff
As your team grows, there’ll inevitably be late submissions, changes, and errors. Sage Payroll allows you to make last-minute adjustments and corrections to payroll.
Reasons to outsource payroll
You might not have the time to run your own payroll or you’d prefer an accountant to take care of it. If you’re the leader of a start-up or an SME, you only have a certain amount of time in the day, and the most important thing you should be focusing on is business development. Payroll tasks can eat into precious time, especially if it’s not something that you’re adept at doing.
An external professional will be able to assist you with the payroll tasks and make sure you’re compliant. Be sure to hire someone who is accredited, who knows the law, and who makes record-keeping a top priority.
This way, you can focus on getting new clients, and providing excellent service to your existing ones.
What to look for when choosing a payroll provider
The answer to this really depends on how big your company is, how much help you need with your payroll tasks, and who is going to be assisting you.
Remember, though, it’s your responsibility to have a record of all your employees’ most recent details. You’ll need to give these to your service provider so that they can run payroll for you.
If you need it, some payroll providers are able to assist with additional tasks, like keeping employee records, generating payslips, and making payments to SARS.
How to set up payroll for your business
If you decide to set up your payroll in-house, you must have the right payroll software so that you can report to SARS. The correct software will be able to:
- Record employee details,
- Work out employee pay and deductions,
- Report payroll information to SARS,
- Calculate how much you owe SARS, and
- Work out amounts like sick pay or maternity pay.
Here are some other things you’ll need to do if you’re setting up your payroll in-house:
Register as an employer with SARS
As soon as you start hiring people (employees or contractors), you’ll need to register as an employer with SARS. If you are the only person who works for your company, you still need to register with SARS.
Various registrations can take time to be completed so make sure you do it sooner rather than later. To register with SARS, you need to complete an EMP101 form within 14 days of becoming an employer.
It is your responsibility to deduct tax from your employees’ salaries, bonuses, commissions, additional earnings, and benefits. This is all outlined in the annual SARS tax tables. You also need to pay over any deducted PAYE by the seventh of each month, and submit this along with a completed EMP201 return.
Skills Development Levy
The Skills Development Levy (SDL) is imposed by the government on the total company payroll. The 1% levy encourages learning and development in the country. You must register for the SDL with SARS within 14 days of becoming an employer. You can do so by completing an EMP101 form.
You will be exempt from registering for the SDL if your estimated total remuneration subject to the SDL over 12 months will not exceed R500,000.
Unemployment Insurance Fund
The Unemployment Insurance Fund (UIF) was set up to support and protect workers who find themselves unemployed for a period of time. It provides short-term payments to people who cannot work because they’re on maternity leave or are ill. You have to register for UIF with the Department of Labour using the UI-8 form.
The Fund will give you a registration number, so that you can pay contributions by the seventh of each month. You also need to declare these contributions to the UIF. You can do this electronically.
Issuing tax certificates
At the end of the tax year (end of February), you have to issue your employees with tax certificates (IT3a/IRP5). You also need to fill out an EMP201 reconciliation. This reconciles all PAYE, UIF, and SDL payments, as well as EMP201 declarations and tax certificate information. In addition, you must also submit a mid-year EMP501 reconciliation for the first six months of the tax year.
You’re able to do this using an automated payroll solution. Everything must be submitted within the deadline determined by SARS, otherwise, you will incur penalties.
Record-keeping and payments
There are some other payments that you’ll need to make throughout the year, and they will need to be reported as part of your payroll.
There are also other steps that need to be taken as part of being payroll compliant. These may include:
- Sick leave and maternity leave
- Expenses and benefits (company cars, for example)
- Bonuses, commissions, and holiday pay
- Travel costs
- Student loan repayments
- Payslips (these must be given to all employees and must detail wages before deductions)
In order for your payroll to be compliant, you must be knowledgeable about labour legislation with regards to minimum wage, maternity leave, sick pay, paternity leave, holiday pay, overtime, weekend pay, etc.
Four payroll must-dos
A smooth payroll process will keep your business healthy and compliant. As mentioned earlier, it’s important that you are in the know when it comes to SARS’s rules and regulations. This way, you’ll avoid penalties, but you’ll also have happier staff.
Know the minimum wage
Ensure you know what the legal minimum wage is. On 1 January 2019, legislation was passed in South Africa detailing the country’s first-ever minimum wage, which is R20.76 per hour.
Know each employee’s status
Knowing the difference between an employee and an independent contractor is vital. It affects things like PAYE and UIF, so make sure you know the status of all your workers, and have it stipulated in their contracts.
This takes administrative legwork but keeping accurate records is a crucial part of running your business. You need to make sure your software and payroll are always up-to-date with the latest information. Remember that SARS can ask for this information at any time.
Also make sure that you are using the correct tax codes, and have a system in place that notifies you of any changes that could occur.
Don’t miss deadlines
SARS works to stringent deadlines. It’s important not to miss these, otherwise, you may be charged a penalty.
Final ideas to consider when setting up payroll
Setting up payroll for your business requires you to go through and complete numerous processes. Whether you’re doing it in-house or you’re outsourcing, it will take time, and you may feel a little anxious about it.
Choosing the right payroll software will help to alleviate your worries, and if you choose the right one, it’ll be much easier to comply.
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