Paying employees sounds straightforward, but it is not unusual for businesses of any size to make mistakes in managing their payroll. These errors can have serious consequences, ranging from damaging employee morale to significant financial losses, and SARS penalties for late or incorrect employees tax payments and submissions.
Tax regulations are constantly changing, the rules are complex and technical, and there is a significant volume of data to process and manage. As such, it is easy for things to go wrong when a business does not have robust payroll processes and systems in place.
Here are some of the biggest mistakes we see in client payroll processing.
Common Payroll Mistakes
Overpaying or underpaying employees by mistake
Paying employees the incorrect amount can cause serious headaches for your business. Underpaying employees can affect staff morale and cause workplace distress, while overpaying is a financial risk to the business. Even small discrepancies can challenge monthly reconciliations and annual audits.
Some reasons that these errors can creep in include:
- Using incorrect SARS tax codes
- Failing to accurately track an employee’s overtime, commissions, bonuses, unpaid leave, or leave pay
- Errors in processing expense claims, travel allowances, and other disbursements
- Mistakes in data capture
Not planning for public holidays
Public holidays can disrupt operations in numerous ways. Failing to account for public holidays may result in not paying employees the correct hourly wages for working on these days. Another potential issue is that employees might only be paid the next working day if the normal day of the payroll run falls on a weekend or public holiday.
Failing to process the payroll on time
Delayed payroll processing can lead to disgruntled employees and potential legal consequences.
Not staying up to date with payroll legislation and regulations
South Africa’s tax laws and regulations are in constant flux, with the finance minister and Treasury announcing new tax rules and tables in the budget each February. Companies must ensure they comply with the latest labour laws and tax regulations to stay on the right side of SARS and the Department of Labour.
Incorrect gross and net calculations
Incorrectly calculating gross and net remuneration can result in discrepancies in tax deductions. This can lead to problems with SARS.
Not maintaining detailed payroll records
According to South Africa’s Basic Conditions of Employment Act, companies must keep the following records for at least five years:- Employment contracts
- Time sheets
- Pay slips
- SARs and UIF submissions
Incorrectly identifying employees or contractors
Under South Africa’s tax and labour laws, independent contractors are treated differently from employees. True independent employees who invoice the business for services rendered or goods supplied should not be added to the payroll. There are several complex tests of whether a worker is an employee or a contractor, but South Africa’s laws will regard a colleague as an employee if:
- They provide their services at the premises of the person by whom they are paid, and
- They are subject to the control or supervision of a company representative regarding how they perform their duties.
The same employee may be regarded as an employee for tax but not under labour law. If a contractor is an employee for PAYE purposes and is paid remuneration, the company will need to withhold PAYE and contribute to the Skills Development Levy, but not UIF. If SARS determines that these taxes should have withheld for a worker, it will claim the money from the employer.
The Case for Outsourcing Payroll
Payroll management is a critical function that demands precision and up-to-date knowledge of complex regulations. The consequences of payroll errors are too severe to ignore, from financial losses to legal repercussions and damaged employee relations.
Outsourcing payroll is the best decision to mitigate these risks and ensure compliance with all payroll regulations. By outsourcing to professionals, you can:
Avoid costly mistakes that could lead to financial penalties and damage employee morale.
Save time and resources that can be better spent on core business activities.
Gain peace of mind knowing that experts are handling your payroll with the latest technology and compliance knowledge.
Ready to eliminate payroll errors? Contact MMS Group outsourced payroll services now and streamline your payroll process.