Payroll is the process of paying of salaries and wages to permanent and temporary employees. It can be done weekly, monthly, contractual or at irregular intervals. In order to maintain compliance with Tax and SA business practice laws and standards, it must be done according to a proscribed process.
The process of Payroll incorporates some, or all, of the following:
- Salary and wage, contract and pro-rata amounts
- Fringe benefit arrangements and accruements relating to overtime pay (paid at a different per hour rates), annual and incremental increases, bonuses, other financial incentives, commissions and profit-share arrangements
- Employee advances and loans
- Paid and unpaid annual leave, sick and compassionate leave
- Employee tax and unemployment insurance – PAYE & UIF payments and generation of IRP5s
- Employer tax contributions, skills development levy (SDL) and compensation insurance
- Other insurances – such as employer and employee contributions to health insurance
- Employer and employee retirement/pension fund contributions
How to process payroll:
With so many potential complications and margins for error involved in processing payroll, it is essential that it is done with approved Payroll software. This will also ensure:
- Proper maintenance of internal controls
- Accurate record keeping and accurate payroll-associated financial reporting
- Compliance with statutory regulations
Step-by-step payroll processing:
There are 6 steps to accurate and compliant payroll processing. Ideally, the process start several days before ‘payday’, for each payment cycle and batch of employees. For a large company, or one with more than one pay cycle and /or payment group, this process is ongoing and requires either dedicated in-house payroll expertise or payroll outsourcing.
1. Updating of employee records. Updates would include any changes in employee details, such as address. This does not impact calculations, but is require for accurate and compliant record-keeping
2. Import of time-keeping data for the pay period into the Payroll software. Time-keeping reports are then printed – for manual checking and correction of errors. Corrections are then entered into the software.
3. Entry of prorate pay, accruements and adjustments and benefits for each employee
4. Entry of deductions and calculation of tax and UIF deductions
5. Printing of reports for checks and adjustments
6. Issuing of paychecks or rollout of electronic payments, mailing proof of payments and printing of paystubs
Associated payroll tasks include:
- UIF documentation submission (including ‘movement of employees)
- Monthly PAYE returns (EMP201), and
- Bi-annual IRP reconciliations in August and February
Payroll outsourcing costs:
Comprehensive payroll services offer far more than just the process of payroll outlined above. A full suite of payroll outsourcing services includes:
- Company and employee registrations for PAYE, UIF and SDL
- Salary structuring
- Guidance on pension and insurance schemes
- Advice on Incentive schemes
- Implementation of the above, with required document and contracts
- Management of the above
- Labour law consultations and advice – including updates on changes
- Employment contracts, shares contracts and related documentation
Fees for payroll processing, consulting and implementation of other payroll related services would be charged at a per hour rate or, more usually, an average per hour rate-based monthly retainer. This rate or monthly fee would be in-line with the scale of the outsourced tasks and services. This creates a scalable billing structure to suit all size companies and their needs.
Outsourcing the full suite of payroll tasks might not cost more than outsourcing the tasks alone if they are included in a monthly retainer fee.
However, when it comes to assessing the true cost of payroll outsourcing, you should come to a negative figure on your debit balance. Payroll outsourcing should save your company money.
You’ll save on:
- The costs of employing in-house payroll expertise
- Administrative costs.
- Penalties associated with non-compliance, errors, and errors in tax filing
For many companies, the cost of payroll outsourcing vs in-house processing of payroll will work out to a greater price paid for not outsourcing.
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