Staff will endure many obstacles and work along with management to find solutions to serious challenges in a business. But the moment there are problems with the payroll or delays in getting paid, even the most ‘loyal’ employee will down tools.
When it comes to running an effective payroll system there are many factors to consider, from the basic remuneration calculation, tax and compliance through to the management of people’s expectations and high levels of emotion when things go wrong. And things do go wrong from time to time – after all a payroll system is only as good as the quality of the information that gets entered into it.
In this article we are going to discuss the 13 most common mistakes that lead to problems, in the hope that being aware of these problems will assist management in preventing them from happening in the first place.
1. Salary Amount Incorrectly Stated
Never state a Nett Salary on a contract of employment.
When tax tables are amended, the employee does not derive any benefit from any reduction in the Tax Tables and as a result, a lower Basic Salary must be reported to the Department of Labour for Unemployment Benefits, as the Basic Salary has to drop to keep a Nett salary in place. Make sure the intention is properly worded in the contract and fully understood by all.
(This mistake ends up with Payroll but often made by the person finalising the contract of employment or HR. Forewarn them).
2. Basic Conditions of Employment Implications not Understood
Having no understanding of how the Basic Conditions of Employment Act impacts on the Payroll is a serious mistake and can lead to many issues, especially with matters such as Unpaid Leave, Termination Leave Payouts and Severance Pay calculations. An example is often during the notice period, the four weeks’ notice pay is incorrectly calculated as one full month’s salary. Make sure the implications of the BCEA is understood.
3. Tax Incentives Incorrectly Applied
Not applying, or incorrectly applying Employment Tax Incentives to the Payroll, could have substantial tax consequences for an employer. Ensure you speak to a knowledgeable source re this application.
4. Payroll Package Reliance
Thinking that a Payroll Package will do the ‘thinking’ for you when processing payroll transactions is one of the most common mistakes in a company. A Payroll package is just a computer program with certain rules and tables built into it. It is not capable of complex human thought and problem analysis and it is therefore imperative that a skilled human being verifies the results of its calculations. Make sure the line items are understood and what results they should yield. Inadvertently you could be increasing someone’s package.
5. Incorrect Benefits
Assigning incorrect income transactions to certain job titles can cause problems. For example giving a Tea Lady a Travel Allowance may seem ludicrous to a rational human being, but may make perfect sense to a rules driven Payroll system. Ensure you check rules and its application and relevance. Critical analysis and common sense should be applied.
6. Insufficient Paper Trail
Over reliance on a computer system is a trend that is on the increase everywhere. This could lead to an HR Department not ensuring that a detailed paper trail for each payroll transaction is available on a monthly basis which will lead to audit queries. Make sure for every employee transactions there is a record to support a defendable decision.
7. Negligence related to Working Hours’ Recording
Incorrectly capturing an employee’s working hours as 40 or 45 hours per week will influence an employee’s hourly/daily rate of pay which will be an incorrect value. This will also result in the overtime calculation being incorrect. Read the contract to ensure the correct hours per day/week/month are recorded on the Payroll.
8. Fringe Benefit Tax Ignored
It is easy to misapply Fringe Benefit Tax to items such as the use of a Company Vehicle or Low/Interest Free Loans received. It is therefore of importance to understand the tax implication of different benefits and ensure these are applied consistently – especially when tax legislation is amended. Ask a knowledgeable resource to check your understanding if you are unsure.
9. VAT Returns Are Incorrect
Not adding Use of Motor Vehicle Output VAT to VAT Returns can have some serious repercussions with SARS. In fact, when a company has a company vehicle assigned to an employee – it is one of the first things SARS looks for when conducting a Payroll Audit. Ensure that this is always correctly administered.
10. Assumption regarding Independent Contractors
Automatically assuming that a person is an Independent Contractor is a recipe for disaster. Not asking the right questions to determine if an ‘Independent Contractor’ is Income Tax Fourth Schedule Independent as well as Common Law independent, or if they are simply Common Law independent can lead to many complications. Check the status of such Contractors and document up front.
11. Submission Deadlines Missed
Failure to submit SARS EMP201 forms and payments on time is a serious mistake that should be avoided at all costs. Make sure you are aware of the deadlines and plan accordingly.
12. Expenses Not Through Payroll
Not showing or disclosing re-imbursive expenses through the payroll could be tempting, but is a legal requirement and must be adhered to. Avoid falling foul of the law.
13. Negligence with the Department of Labour Requirements
Failure to complete, or the incorrect completion of, the UI-19 declarations to Department of Labour can cause many problems down the line. With the correct procedures in place this should not be a problem. If you do not understand, check on their website or ask someone. Complete the forms 100% correctly.
Bear in mind that a Payroll system is just a management tool and there needs to be human control and verification in place to oversee the running of it. For any guidance and assistance, please contact Nspire Solutions.
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