Running an efficient, accurate payroll is a vital administrative function in any small or medium-sized business (SMB). With the correct processes and systems in place, you’ll sleep well at night knowing that your employees get paid on time, your personnel records are accurate and up to date, and you can meet deadlines for returns and payments to the South African Revenue Service (SARS) and other authorities.
Yet coming to grips with payroll if you’re starting a new business or hiring employees for the first time can be daunting and administratively taxing. There’s a lot of work involved in complying with various tax and labour laws and regulations. You face hefty penalties, fines, and interest payments if you get it wrong. But the good news is that payroll can be a relatively painless process if you set it up correctly from the outset.
Let’s take a close look at what running the payroll involves.
Run payroll in-house or outsource it?
One of the first decisions you’ll face is whether you want to run your payroll in-house or whether you want to outsource it to a professional. If you have a good in-house bookkeeper or admin team, running your own payroll can offer you more flexibility and control. Most of the work can be automated using software, so it won’t necessarily take up too much of your time.
But if you don’t have the time or team to run your payroll, you could outsource it to a professional in the field. There’s a good chance that the accounting professional or practice you use to file your annual financial statements, company tax returns and VAT returns will offer payroll processing as a service. It’s a great option to stay focused on sales and customers rather than admin.
Know what your responsibilities are
A range of laws and tax regulations governs payroll in South Africa. These include the Basic Conditions of Employment Act; the Labour Relations Act; the Unemployment Insurance Contributions Act; the Occupational Injuries and Diseases Act; the Employment Tax Incentive Act; the Income Tax Act; the Tax Administration Act, and the Skills Development Levies Act. It’s important to comply with these legal requirements. Some of the things you’ll need to do include the following:
- Register for Pay As You Earn (PAYE): As soon as you employ anyone—your company must register as an employer with SARS, unless none of your employees are liable for tax. You must register with SARS by completing the EMP101 form within 21 business days after becoming an employer. Once registered as an employer, you must deduct tax from employees’ remuneration, such as salaries/wages and their bonuses, commissions, additional earnings, and benefits, according to the annual SARS tax tables.
- Register for Skills Development Levy: This is a 1% levy that the government imposes on the total payroll remuneration (with certain exceptions) to encourage learning and development in South Africa. You must register for SDL with SARS by completing the EMP101 form within 21 days of becoming an employer. Employers with reasonable grounds to believe they will not pay remuneration of more than R500,000 per year are not required to register or pay skills development levies.
- Register for Unemployment Insurance Fund (UIF): The UIF provides short-term payments to cover workers who are temporarily unemployed, or cannot work because they are on maternity leave, are ill and so on. You must register for UIF with the Department of Labour on uFiling, and with SARS if payments are made directly to them. Once registered, you must deduct 1% of their remuneration (subject to UIF). In addition, as an employer, you must match the employees’ 1% contribution to be a total contribution of 2%. You should declare UIF payments on the uFiling system or by submitting the electronic declaration file via email every month.
- Pay PAYE, SDL and UIF: You must pay the PAYE, SDL & UIF to SARS by the seventh of the next month, along with an EMP201 return. If the seventh falls on a public holiday or weekend, it must be submitted on the last working day before the seventh.
- Issue tax certificates at the end of each tax year: You must issue tax certificates (IT3a/IRP5) to employees after the tax year or when they leave your employment. You must also complete and submit an annual EMP501 reconciliation, reconciling your monthly PAYE, SDL and UIF payments, EMP201 declarations and tax certificate information. A mid-year EMP501 reconciliation must also be submitted to SARS, reconciling the first six months of the tax year (March to August).
You or your accountant can manage the admin related to the submission of returns on the SARS eFiling and e@syFile systems.
If you choose to run payroll yourself, an automated, cloud-based payroll solution can make your life far easier. Automated software solutions can take the pain out of keeping reliable records and performing accurate payroll calculations. The software can automatically calculate the deductions and generate statutory reports. That makes filing timely submissions and generating reports and electronic payslips easier. Plus, as the finance minister announces the new tax tables and regulations for the upcoming year, your software vendor should automatically update its software. This can save you hours of effort while helping you comply with the latest tax regulations.
Flexibility and insights
Putting the right payroll processes in place can also assist you with building a people-focused business. Having an integrated payroll and HR system can enable self-service experiences that empower your workforce.
For example, employees can use their phones or PCs to update their information, access payslips, apply for leave and more. This is especially helpful when managing a more flexible and distributed workforce in an era of hybrid work.
Data from the payroll and HR system can also help HR and business leaders make better decisions about talent. Data about absenteeism, overtime, employee attrition and retention, compensation, and performance can help you to measure employee wellness, engagement, and productivity. This, in turn, can help shape rewards, wellness programmes and career development paths that help you attract and retain the best talent.
