The four most common payroll errors and how to avoid them are:
This is the top of our list of payroll errors because the vast majority of payroll issues are avoidable if an automated payroll system is in place. Manual payroll systems using software such as Excel are extremely risky because these do not incorporate the functionality to ensure correct PAYE rates, etc. Cloud-based systems available at pricing per payslips generated monthly, are designed particularly for small business owners requiring payroll support and are extremely well priced. Alternatively, many accounting firms render outsourced payroll services for business owners that require this kind of support.
Once the payroll is finalized for any given month, the salary payments and 3rd party payments should be processed, and this should be the responsibility of an individual segregated from the payroll function, preferably a finance individual. Payment errors in both value and incorrect payee are not uncommon, and it is important that the business has protocols in place to eliminate errors of this nature. Modern payroll systems are designed to render batch files uploadable into most banking systems to ensure that such errors do not occur.
Where your workforce is upward of 20 individuals, it is easy to lose track of leave days approved versus taken, which easily results in employees taking leave without proper authorization and therefore overstated leave liabilities. An automated system ensures that leave taken must be approved and ensures that the number of leave days outstanding is accurate.
This is an area that is often misunderstood and prone to errors. A travel allowance is an amount paid by the employer to the employee monthly as part of their remuneration, in compensation for business travel using the employee’s own vehicle. These travel allowances are taxed at either 80% (in cases of low business travel) or 20% (in cases of high business travel), while the employee is responsible for maintaining a logbook as proof of business km travelled. This logbook information serves as final input to the actual amount of PAYE due to SARS, in respect of the travel allowance fringe benefit.
In the case of reimbursements, however, the employee claims a refund from the employer based on actual km travelled for business purposes, at the rate per km approved by the employer. Provided the employer uses the reimbursement rate per km approved by SARS, there is no income tax implication on the reimbursement. SARS has different IRP5 codes and reporting requirements for travel allowances, reimbursements at rates per km above their approved rate and similarly for reimbursements at the SARS approved rate per km. To manually keep track of these rates is extremely onerous, but an automated system will solve your business exposure to incorrect PAYE rates being applied in the case of reimbursements.
The financial implication of payroll errors is justification alone to ensure that your payroll processes are robust enough and suffice to eliminate the risk of such errors. We offer outsourced payroll solutions to eliminate this risk for your business and also offer a cloud payroll solution should you prefer to run your own payroll. Contact our payroll team at https://www.mmsgroup.co.za/payroll/ or our Cloud Accounting team (on https://www.mmscloudaccounting.co.za/payroll/) for a cloud solution that fits your needs.