The hidden dangers of payroll — how payroll can cost you a lot of money in penalties

Author: Ian Hurst — Managing Director, Paymaster People Solutions

Payroll people are attention-to-detail people. They do everything by the book. They will never do anything that will deliberately break the law or  cost you money — naturally there are some who are dishonest, but I’m referring to the vast majority of us who have your best interest at heart.. Despite their attention-to-detail, there are areas of your payroll that remain at risk and susceptible to danger — hidden dangers that, if not implemented correctly, could potentially cost you a lot of money.

Hidden dangers

Let’s take a look at a few of these hidden dangers:

The biggest danger is the current Employment Tax Incentive (ETI) scheme. You should also be aware of approved and unapproved life and disability schemes. Further danger areas are embedded within UIF submissions, time and attendance figures, leave provision numbers, travel-claim processing, employee-payslip collection and data backup and security.

Employment Tax Incentive (ETI) scheme

SARS will strictly enforce the following clause: “If your tax affairs are not in order then SARS may disallow your ETI claim.” Consequently, even if there’s a minor breach of the law with your tax affairs, it could lead to your annual ETI claim being disallowed. This could be expensive.

Two additional areas of ETI you should  check-up on are:

1. The age of employees — you may only claim for employees under the age of 30 and you may not claim ETI for the month in which they turn 30. SARS will disallow this and might even disallow your entire claim for that particular employee. Be absolutely certain that you check the exact age of all your staff.
2. The hours that employees work — be sure that you track the hours worked and understand the calculation for minimum and maximum earnings, especially where employees are paid by the hour. For more in-depth information on ETI read this article.

Approved and unapproved life and disability schemes

There is a lot of confusion in what to include in the 27,5 tax relied granted for retirement funding.

The broad principle upon which to base your decision is as follows: if life, disability and death are included in the retirement scheme of the company and is managed under one scheme policy, then it qualifies as an approved scheme. If however, they are provided by a separate provider, then the scheme is likely to be unapproved. To be absolutely sure, please contact your broker and ask for a letter confirming whether your group life, disability and death benefits are classified as an approved or unapproved scheme.

UIF submissions

The current statutory requirement is that you are compelled to submit your UIF report to the department of labour, on a monthly basis. This allows the Department of Labour to track who has paid UIF for that month. Should you not be reliably submitting your UIF report, and one of your employees (or former employees) endeavours to process a UIF claim, you may well render your company liable for the payment of the employee’s UIF contribution. Similarly, you are almost certain to spend many tedious hours trying to resolve this UIF-administration nightmare.

Time and attendance

Paying working hours and overtime according to a manually managed time-recording system can be expensive. Such manual systems expose your organisation to intentional fraud as well as highly probable unintentional human-error. The wastage statistic for the HR-industry is that organisations still using a manual method to administer their time and attendance, results in an additional 20% being spent on the organisation’s wage bill — what a waste of money!

Leave provision

When an employee resigns, you are compelled to pay an employee for accrued leave not taken. In this regard, your leave records are the key. If your leave records happen to be in an administrative mess, you could end up paying-out excess money — a careless HR expense really. Where possible, consider automating your leave system. At very least, use your payroll system to manage your employees’ leave records.

Travel-related

When dealing with administration relating to travel allowances, company cars and travel reimbursements, make sure you get the following right:

• Check that the base value of a company car includes Value Added Tax (VAT).
• Taxable rate is 3,5% or 3.25% (if there is a full maintenance lease in place).
• Travel allowances should be taxed at 80% (unless there is proof that the employee uses the car for business purposes for more than 80% of the time), in which case you would then calculate travel allowance tax at 20%.
• You cannot reimburse and employee more than R 3.55 per km and for a total of 12 000 km a year without withholding tax.

Employee payslip collection

Please don’t run the risk of irritating your employees by not having their payslips available. In today’s modern world, there is no excuse to justify non-availability of employee payslips. Nowadays, employees should be able to collect their payslips online or have it delivered to their mobile phone. Don’t lose money due to poor productivity, particularly when this can so easily be avoided.

Data backup and security

Lastly—but certainly by no means least—this is the one danger area that can potentially cause the most damage to your organisation: loss of payroll (and company) administrative records. Be sure to backup your payroll! Make sure that your company data is always 100% safe and secure. You do not  ever want to recreate your payroll or have to balance your Emp201’s and UIF-submissions from information that you may well not have on record (because all the data was lost). Emphasis: make absolutely 100% sure that you have all you organisation’s HR and company records safely stored and secure — preferably saved, automatically, in the Cloud.

Lastly, be sure to:

• Listen to your payroll department.
• Train your payroll department.
• Invest in good HR and payroll software that keeps your company fully tax-compliant.

By doing this, you may well save yourself and your staff, colleagues and associates many sleepless nights and significant amounts of money.

Should you wish to find out more about the products and services on offer at Paymaster People Solutions, then click here for more information.

Paymaster People Solutions (Pty) Ltd is a subsidiary of Grant Thornton Advisory Services Cape (Pty) Ltd
Grant Thornton Advisory Services Cape (Pty) Ltd is a member firm of Grant Thornton International Ltd

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