28 February 2022

How to speak payroll and be understood

Whenever I travel to a new country where I don’t speak the language, I try to learn a few words and phrases to help me get by. I can’t overstate how useful “Help,” “I’m lost,” and “Where’s the bathroom” can be when traveling.

Payroll might not be a foreign country, but new small business owners should nonetheless familiarize themselves with these standard payroll terms and abbreviations.

Here are the top-line payroll terms you’ll hear as a small business owner.

A. Gross pay

Gross pay is the total amount an employee earns before payroll deductions. It’s the amount an employee sees on an offer of employment.

For example, say you hire Julie and say you’ll pay her a R 50,000 salary. Her gross pay is R50,000 annually/monthly .

B. Net pay

Net pay is the amount an employee takes home after taxes and other payroll deductions. An employee’s net pay for the year is the sum of his or her payslips for that period. This is the amount paid into the employee’s bank account

C. Cost to company

Cost to company refers to the cost of having that employee employed by the company.  It includes the employee’s Gross pay plus any additional benefits the employer may give. Example pension or medical assistance.

D. Payslip

Payslips are issued to employees for working. This payslip is a record of what is being paid for the month (all earnings), all deductions, and of course the net pay which is been paid into the bank..

E. Payroll

Payroll is the process of compensating employees. Businesses can run payroll internally or outsourced to payroll software or an accounting firm.

An essential part of the process is holding a portion of each employee’s earnings and making tax payments on their behalf. In addition, employers are responsible for employer taxes, paid using business funds separate from employee compensation.

F. Pay period

Pay periods refer to how frequently a business processes payroll  This is normally weekly, bi-weekly or monthly.

– Written by Ian Hurst –

Payroll taxes
You can’t talk about payroll without talking about taxes.
Here’s what you need to know.

1. PAYE

PAYE  refers to the money an employer keeps, or withholds, from an employee’s paycheck to remit for paying to SARS. The company then sends a summary of these deductions to SARS every month.

Unlike payroll taxes, employers never contribute to paying their employees’ federal or state income taxes.

2. UIF

Unemployment insurance fund. This is deducted and paid to SARS who collect the money. A record of these deductions are also sent to the Department of Labour.

B. Compensation

Compensation is an overarching term that encompasses all the types of payments an employee earns.

Examples of compensation include:

• Salary
• Hourly wages
• Bonuses
• Fringe benefits
• Shares

C. Fringe Benefits

Fringe benefits also called imputed income, are the perks that businesses offer aside from regular wages. Some fringe benefits are taxable, and others aren’t.

Fringe benefits include:

• Subsidized health insurance plans
• retirement plans
• company cars/travel allowances 
• Gym memberships

D. Garnishment

Wage garnishment is a legal process that requires employers to withhold a specified amount of money from an employee’s paycheck and remit it to a third party. Garnishment is a tool that courts use to get people to repay debts, whether they’re unpaid child support or credit card bills.

E. Independent contractor vs. employee

Independent contractors and employees are two categories of workers. Independent contractors are self-employed people or businesses hired to complete specific tasks and most often receive project-based compensation. Companies hire employees to perform services and are salaried or paid hourly.

F. Paid time off

Paid time off encompasses all the time an employee is not working while being compensated.

Examples of paid time off include:

• Annual leave
• Sick time
• Maternity/Paternal leave
• Holidays

G. Employee self-service (ESS)

Employee self-service (ESS) portals, provided by payroll software, are where employees can log in using an email address, username, or employee ID number (EEID) to access their digital payslips and tax forms. Employees may edit their addresses and submit updated income tax withholdings forms through the portal. Some portals also offer automated leave processing.

Need to understand more.  Talk to us.

– Written by Ian Hurst –