Four ways to keep up with payroll and tax law
For any business with multiple employees, payroll management is an aspect that requires scrupulous attention to detail. No other business function has as adverse an impact on employee job satisfaction and overall business expense as the incorrect handling of payroll. This is why many businesses choose to make use of sophisticated payroll software solutions or to outsource their payroll management entirely.
Payroll management software has made it incredibly simple for just about anyone to fulfil this vital role within a business - but there are pitfalls to this approach. The following tips can be applied in your business to help you avoid setbacks.
1. Keep up to date with tax laws
The problem with outsourcing payroll or relying too heavily on payroll management software is that a payroll administrator can become merely a data capturer. This is particularly dangerous, given the shifting nature of the legislation that governs payroll. Blindly entering data into a payroll software system could potentially put your business on bad terms with SARS. Any individual handling the payroll on behalf of your business should understand the relevant sections of the Income Tax Act so that they can identify whether the applicable deductions are being made in accordance with the law. In addition, tax brackets and other figures change annually - you must be sure that you are working from the most recent data.
2. Understand salary structuring
In terms of the Income Tax Act and labour law, the definition of "employee" should be understood in order to correctly apply the various tax deductions. Furthermore, there are many ways in which salaries can be structured in order to reduce an employee's tax, for example through travel allowance or medical aid contributions. This approach is often taken by business owners in order to benefit their employees. However, choosing to rely solely on a pre-programmed software system to make these somewhat sophisticated decisions may result in incorrect calculations, which will put you, as the employer, at risk of being charged large penalties by SARS.
3. Avoid late or incorrect tax filings
Small business owners are particularly aware of the need to cut costs - and one area where this principle certainly applies is unnecessary tax bills. Poor payroll management can result in late or incorrect tax filings, and the upshot of this can be various fines or penalties. Sometimes late or incorrect returns are the result of slower manual payroll processes, but it can also be a case of the payroll administrator being unfamiliar with the tax laws that govern how employees should be paid, as well as the laws that dictate tax payments of Pay As You Earn (PAYE), Unemployment Insurance Fund (UIF), Skills Development Levy (SDL) and Workmen's Compensation Fund (WF).
4. Upgrade your payroll system
The various payroll software programs that exist can certainly do wonders for your business payroll system. Accurate financial management is essential in any business, and payroll software is usually able to factor in tax rates and deductions in a streamlined fashion. However, the need for informed payroll administrators cannot be stressed enough. Although payroll software can save you lots of time compared to manual processes, a well-informed individual should still be the guiding force behind your payroll system.
The part-time University of Cape Town Payroll and Tax Administration course is presented online throughout South Africa. Contact Amy-Jane on 021 447 7565 or visit www.getsmarter.co.za for more information about the course.
About the author
Amy Johnson is an academic officer at GetSmarter, an online education company, and creates a wide range of content for GetSmarter.