Posts tagged: tax compliance

Part 1

What is Payroll?

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Because Payroll is the biggest expense of an organisation, attention to detail is vital. Employees deserve to be paid accurately, and on time.
To add to the pressure, the Payroll department is responsible for legislative compliance, as stipulated in the Income Tax Act (managed by the South African Revenue Service). Also, company policies must be enforced. For instance, regarding Leave rules and Onboarding Procedures. This would also include adherence to reporting requirements for payroll funds, such as Medical Aids and Retirement Annuities.

To aid the planning of payroll functions, it is essential that a company’s Payroll requirements are clearly understood. Incorrect or late payment of employees is inconsiderate and will result in an unhappy workforce. This, in turn, may lead to high staff turnover or cause a strike. The incorrect payment to employees may also result in the incorrect employee taxes being withheld, resulting in tax penalties and interest. Ultimately, the incorrect or late payment of employees may have a negative effect on the business’s bottom line.
There are various factors that impact payroll planning and processing. These include legislative requirements, company policies, and employee contracts. This is where a reputable payroll company such as Paymaster is indispensable in keeping your small business compliant.

1. The Payroll Process

The payroll process can run in a weekly, bi-weekly, or monthly payroll cycle, taking annual requirements into consideration. From employees being recruited to submitting the Annual Employer Reconciliation Declaration, each of these processes will be unpacked and explained. Here is an introduction to the process:

1.2 The Recruitment of employees

Organisations identify positions in the company that will work towards achieving the strategic goals and targets set by the decision-makers.
The recruitment department will advertise the available position on

various platforms such as LinkedIn, Facebook or on their websites, to name a few. Applications are evaluated and suitable candidates are invited for an interview.

1.2 Employment Contract

When Human Resources and the Head of the Department identify a suitable candidate employee, the prospective employee is offered an employment contract.
The Law of Contracts, Basic Conditions of the Employment Act (BCEA) and bargaining councils stipulate the minimum requirements for the employment contract.

1.3. Payroll Preparation

Planning annual, monthly, bi-weekly and weekly Payroll requirements will ensure employees are paid accurately and timeously. This should include identifying a Payroll processing closing date, which is then clearly communicated to all colleagues in the business. All payroll input documents should reach the Payroll department by the communicated date to allow sufficient time for payroll reconciliation.

1.4 Payroll Processing

The payroll processing checklist includes:

• Prepare all the input documents for Payroll processing
• Verify the Payroll processing period
• Make the applicable changes to the Payroll
• Onboard new employees
• Process financial information
• Record leave transactions
• Reconcile payroll input
• Pay Employees
• Distribute payslips
• Provide the various divisions with required payroll reports
• Instigate monthly statutory requirements
• Fulfill annual statutory requirement

1.5 Payroll Reports

The reports are printed after the payroll processing is finalised, and the payroll closed for further input. This provides the Financial and Human Resources departments with the required information to complete journals and ledgers and helps them make informed business decisions.

These reports also supply required information during internal and external audit processes. (Here information is verified and investigated.)

1.6 Third Party Payments

After employees are paid and the period-end Payroll and HR reports are printed by Paymaster, third parties should be paid and then notified of the member payment or contribution.
There are various types of third party payments that can be recorded on the payroll, such as:

• Retirement Funds
• Medical Aids
• Vitality
• ITA88 Notice (Agent
• Appointment Notification)
• Garnishee orders

1.7 Monthly Statutory Requirements

The Monthly Employer Declaration (EMP201) Report printed by Paymaster will display the Pay-As-You Earn (PAYE) amounts withheld, Unemployment Insurance Fund (UIF) withheld and contributed. Employment Tax Incentive (ETI) calculated amounts for qualifying employees employed by a qualifying employer are included on the EMP201. Skills Development Levies (SDL) contributed by employers for employees are also represented on the EMP201 Report.

The amounts are paid to the South-African Revenue Services (SARS) by the 7th of the following month and the monthly return information submitted electronically through eFiling. The UIF submission is automated on Paymaster, and the required information submitted to the Department of Labour.

1.8 Annual Statutory Requirements

Legislation requires employers to submit annual reports to government organisations such as the South African Revenue Service (SARS), Department of Labour and the Sector Education and Training Authority (SETA). Here are a few types of annual statutory reports:

• Annual and Bi-Annual Employer Reconciliation Declaration (EMP501)
• Occupational Injuries and Diseases Report (OID)
• Sector Education and Training Authority Reports (Skills Development Reports)
• Employment Equity Reports

Part 2

2. The Recruitment Process

For optimal business growth, and to achieve strategic goals,it is crucial to employ the best candidate for the available position.
Each company’s Human Resources department has a unique process that is followed to recruit employees. Download the organogram on Paymaster to indicate the positions or roles required for the business to function successfully and achieve business objectives (this is a paid extra).
Here is some of the information that is important for the applicant:

• Job Title
• Purpose of the position within the organization
• What the expected outcomes of the position are
• Minimum qualifications and experience
• The date that the position needs to be filled
• Remuneration
• Any special requirements (such as proof of qualifications) must be attached with the application, or if the position was earmarked as a BBBEE position
• Closing date for applications

2.1 The Interview process

The Human Resources division will sift through the applications, or make use of software applications, to identify the best suitable candidates to be interviewed.
The interview process varies according to the position, and company requirements. For more skilled positions the process is:

• Initial interview with Human Resources, to determine if the candidate employee will be compatible with the company’s culture. The interview can be hosted at the office, through a virtual meeting or telephonically.
• Applicants may be required to complete assessments such as:
  o Personality assessments
  o Information processing assessments
  o Assessments on the ability to learn new concepts
  o Brain profiling assessments.
• The next interview is held if the assessments indicate that the candidate employee would be a suitable fit within the organization. This interview will include the Human Resources department, Head of department, and reporting manager. For some roles the CEO will also be present in the interview.

The presence of the Human Resources department in the final, or panel interview, is to ensure questions posed to the candidate employees are fair, and that similar questions are asked of all candidate employees. The HR department will assist management to make an informed decision so that the best possible candidate is appointed.

2.2. The Offer of Employment

Once a suitable candidate employee is identified, the Human Resources department will present the candidate employee with an offer of employment. Legislation requires minimum information to be recorded in the proposed employment contract.
The candidate employee can accept, or negotiate the offer of employment. After the Human Resources department receives a signed copy of the accepted employment contract, all other candidates are informed telephonically or through email, that their application was unsuccessful. It is considered good business practice to encourage these candidates to apply again for other available positions. Providing constructive feedback to the unsuccessful candidates can also give them with the necessary guidance in future applications.

2.3. Employee On-Boarding Process

The Human Resources department may inform the successful applicant of the expected schedule for the first day, or first week. On the commencement date, after the employee is welcomed by the Human Resources team, they will receive induction training. In this training session, important information about the company is shared with the new recruit.
As part of the onboarding process, the employee will complete forms and provide information to the HR department that will impact the payroll. This will include personal employee details such as:

• Certified copy of identification
• Residential and postal address
• Emergency contact details
• Banking details
• Tax number and tax office
• Selected medical aid plan and beneficiaries
• Retirement fund contribution and beneficiaries

Part 3

3. Payroll Processing

Paymaster supports Payroll and HR departments (especially for small businesses) to process information swiftly and accurately.

Payslips

For every payment from an employer to an employee, a payslip must be provided to the employee. Employees can be paid weekly, bi-weekly or monthly.

For Example: 

The Company pays nett salaries on the 27th of the month, and commission on the 10th of the following month. The employee will receive two payslips, as two payments are made.

The Company pays their annual bonus on the 15th of December, and monthly salaries on the 27th of December. The employees will receive two payslips in December. The first payslip will be for the bonus payment and the second payslip for their salary.

Employees have an obligation to verify information printed on their payslips as specified in legislation, including the authentication of PAYE and UIF amounts.

Ignorance of the law is no excuse.

Employees can check hourly or daily payments (such as overtime) when the hourly rate and additional working hours are printed on the payslip. Printing information such as loan balances for company loans or annual leave days due, will provide information to employees and result in fewer queries to the Payroll and HR departments.

Paymaster makes payslips available electronically for employees to download and print from their Employee Self-Service Accounts. Employees always have their historical payslips available and can download the historical payslips to submit for use when applying for a loan, for instance.

Leave information that is available on Employee Self-Service:

1. Annual leave due at the beginning of the payment period
2. Annual leave allocated during the payment period
3. Annual leave taken within the payment period
4. Annual leave due at the end of the payment period

PAYMASTER PAYSLIP SLIP EXAMPLEhttps://www.paymaster.co.za/wp-content/uploads/2023/01/Presentation12-1024×576.png

Terminology

Refer to the below table for definitions and examples of Payroll terminology.

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Statutory Deduction: Pay As You Earn

Paymaster will calculate the employee PAYE accurately and as specified by the Income Tax Act. Various factors impact the tax calculation of an employee. Therefore, it is vital to record accurate details when employees are added to the payroll.

Statutory Deduction and Contribution: Unemployment Insurance Fund (UIF)

Employers must pay Unemployment Insurance Fund contributions (2% of the value of each worker’s remuneration )every month. The employer and the worker each contribute 1%.
Contributions are paid to the Unemployment Insurance Fund (UIF) or the South African Revenue Services (SARS) by the 7th of the following month.

The Unemployment Insurance Act and Unemployment The Unemployment Insurance Contributions Act applies to all employers and workers, except for:

1. Workers that work less than 24 hours a month for an employer;
2. Learners
3. Public servants;
4. Foreigners working on contract;
5. Workers who only earn commission

Paymaster calculates the amounts automatically and will exclude the applicable employees from the calculations as indicated by legislation.

Statutory Contributions: Skills Development Levies (SDL)

The SDL company contribution is imposed on companies to encourage learning and development in South Africa. The SDL contribution is only paid by the employer. Paymaster will calculate the Skills Development Levy based on the taxable remuneration of the employee.

Part 4

4. Payroll Reports

Payroll reports executed from Paymaster assists the payroll and hr division to reconcile payroll processing that contributes to accurate employee payment. Payroll and hr reports are sent to the financial division to complete journals and ledgers.

Paymaster automatically sends the reports to the required division as soon as the payroll closed. The General Ledger information can be exported from Paymaster and imported into the applicable accounting software. The import file is a time-saving utility and eliminates typing errors.

Reports are used for internal and external audit processes to compare and investigate payroll processing information.

Payroll Processing Reconciliation

Payroll reconciliation reports are used to compare payroll input for the current pay period and must be generated before employees are paid to confirm the information processed reconciles with the various input documents.

The table below indicates the types of reports that can be printed from Paymaster to assist in reconciling payroll input/values.https://www.paymaster.co.za/wp-content/uploads/2023/01/Component-Variance–1024×624.pnghttps://www.paymaster.co.za/wp-content/uploads/2023/01/Component-Report-1024×668.png

Payroll period end reports

The payroll processing reconciliation is completed with the payroll reports balance with the input documents received. After employees are paid and the payroll closes the payroll reports for the payment run are automatically emailed to the specified divisions.

Paymaster allows users to print historic reports from the current pay month, this feature is of great value during internal and external purposes. As a cloud-native payroll, the data is always available to the approved Paymaster users.

The below table includes examples of these reports:

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Should you have any questions regarding this, please feel free to get in touch at 021 712 7333, or email us at help@paymaster.co.za.