The payroll process consists of the collation of payroll information for the processing of determined amounts in order to perform the calculations for total earnings, deductions, company contributions and benefits. These amounts are then used to calculate the monthly Pay as you Earn, Unemployment Insurance Fund contribution, Skills Development levy and the net pay due to the employee. The final step is the issuing of payslips and making the required payments to employees and SARS.
The payroll tax year begins on the 1st of March and ends on the last day of February the following year.
To prepare for this you will need to consider the following:
Reviewing and updating employee records
It is important to keep accurate and up to date employee records. This should include the employee’s basic information, most which is collected during the hiring process.
- Full Names
- Physical and postal addresses
- Tax number
- Bank account details
- Start date with the company
- Pay period (weekly, semi-monthly, monthly)
- Payroll deductions
Any changes of these details should be updated immediately when informed.
Verify and reconciling payroll data
Your payroll should be reviewed and analysed each and every pay period. Employee benefits such as medical aid, retirement contributions or reimbursements can change and therefore should be reconciled to the monthly statements of the service providers.
Comparing your final payroll data, including components such as salaries, commissions, overtimes, and bonuses to supporting documentation is also critical.
It could occur that adjustments are done once a payroll period has been closed. These adjustments need to be noted and accounted for in the reconciling process to avoid discrepancies which could result in tax consequences.
Always store all payroll records securely and in compliance with legal requirements. This includes all employee earning schedules, EMP201 forms, leave balance schedules, which can have a huge impact when considering the aspect of leave pay should an employee decide to leave the company, and any other payroll-related documents. It is advised to keep a constant backup of this information as well.
Make the necessary submissions through-out the year
SARS requires a monthly EMP201 declaring the employers PAYE, SDL and UIF. Payment is to be made on or before the 7th of the following month to avoid penalties and interest being levied.
The EMP501 reconciliation are thereafter submitted twice per payroll year.
UIF live files are also submitted no later than the 7th of each month for the preceding month.
Generating Employee Tax Certificates
An employer must issue an employee with an IRP5 which discloses the total employment remuneration earned by the employee for the year of assessment and the total amount of the tax deducted or withheld. It is advised to familiarise yourself with any updates or changes relating to the tax codes during this process.
Compliance with authorities and regulations
It is compulsory that the employer must comply with the local tax regulations as their duty is to ensure that all the necessary taxes such as income tax are handled properly and paid over to the relevant tax authorities. To check whether the employer complies you can visits the SARS eFiling site and view your “My Compliance Profile.”
Compliance with the Workman’s Compensation is mandatory as well. You will need to have a valid Letter of Good Standing to attest to the fact that all returns have been submitted and all payments made for the payroll year. To check for compliance, you will need to enter your certificate number on the Department of Labour portal to view whether you comply. The letter of good standing also has an expiry date as it is only valid for one year since annual submissions are required.
Update payroll system and planning for the new year
This can be easily done on the back end of the payroll system to give effect as the new payroll year is entered into. The purpose of this is to align the payroll system with the changes that have been declared by the government, including changes to the tax rates, contribution limits, and any other payroll changes announced. It is vital to notify your employees as these changes are implemented or updated.
The are many areas in the payroll process that require knowledge of both tax legislation and labour laws, therefore it is a good idea to consult with payroll professionals to ensure compliance and accuracy.