How to avoid the four payroll mistakes most companies make

Managing the payroll is one of those business basics you can’t afford to get wrong.

The potential consequences of a mistake can be serious and include harming your relationships with employees, losing money to fraud, as well as the SA Revenue Service (Sars) imposing fines and interest for late or incorrect tax payments and submissions.

The tax year-end is approaching, so now is the right time to evaluate whether your payroll systems and processes are making payroll processing as simple and frictionless as it should be.

With that in mind, Sage shares four common errors SA businesses make in managing their payrolls — and how you can avoid them:

1. Relying on manual processes and systems

Most payroll problems stem from not putting strong systems and controls in place.

An automated system makes it easy to accurately calculate employees’ salaries and deductions, compile your tax submissions, and record employee information and transactional data.

It will also help you keep on top of yearly changes to new legislation and Sars requirements that affect your payroll tax calculations and reporting.

It’s a mistake to rely on manual systems as it means your payroll team spends a lot of time and energy on paperwork and admin.

With an automated system in place, they’ll have more time to add value by analysing payroll costs, enabling better employee experiences, streamlining tax compliance, and providing strategic advice to finance and management teams.

Avoid the pitfall:

Cloud-based payroll solutions are an affordable way to automate your payroll processes. There is no big capital outlay because you will pay a monthly subscription fee, plus implementation is fast and easy.

Look for a solution that is compliant with SA tax legislation and regulations, and that can grow alongside your business. 

2. Leaving gaps for fraud

Payroll fraud is a growing risk for SA businesses, especially smaller companies that don’t have automated systems and rely on one person to manage their finances.

Too many companies don’t implement appropriate checks and balances. For example, they give one accountant or payroll manager complete access to the payroll system and company bank account.

Avoid the pitfall:

To prevent most incidences of payroll fraud, a company should enforce segregation of duties. The person who calculates pay rates and accumulated hours for the payroll, or adds and removes employees from the payroll, should not be the same person who processes the payments, for example.

If it’s a small business with only one finance person, the owner might need to take personal responsibility for checking the numbers each month. 

3. Losing track of leave days

Managing leave days can be a pain point for companies without an automated system in place.

For example, a team manager might grant leave without letting the payroll team know about it. The employee may benefit from extra paid leave or lose leave days due to errors in data capture, or their holiday leave payment could be inaccurately calculated when they leave the company. Or two essential team members may be granted leave at the same time when at least one should be in the office.

Avoid the pitfall:

An automated payroll and HR system enables you to manage leave administration, enforce company-specific leave policies, and ensure correct records.

You can also introduce employee self-service to streamline the process of leave applications and approvals for employees and managers.

4. Getting travel allowances wrong  

Reimbursements and travel allowances for employee business travel in privately-owned vehicles are complex. The rules and calculations can be tricky to keep track of, and incorrect capturing can result in employees paying too little or too much tax. The result might be that they need to pay more when they file their tax return. 

When it comes to allowances, the employer must either include 80% (low business travel) or 20% (high business travel) of this allowance into the remuneration on which PAYE is calculated. The employee keeps a logbook of business travel, submits it to Sars at the end of the tax year, and Sars does the final income tax calculation.

With reimbursements, the employee logs their business travel kilometres and submits them to the employer for reimbursement. The employer decides on the rate per kilometre to reimburse the employee. The tax rules can be complicated, but if the employer uses the Sars prescribed rate of R3.82 per kilometre for the 2021/2022 tax year, then there is no tax in the payroll and likely not on the assessment either.

Avoid the pitfall:

There are different Sars IRP5 codes and reporting rules for travel allowances (3701), reimbursement above the prescribed rate (3702 and 3722), and reimbursement at or below the prescribed rate (3703). An automated payroll solution will provide accurate reporting.

With the current tax year nearing its end, now is the perfect time for companies that use manual payroll processes or old payroll technology to implement a cloud-based business solution.

There is no reason for your payroll to be a time sink or a distraction — if you start the new tax year with an automated system in place, it will take care of the red tape for you, so you can focus on growing your business. 

Visit tax.sage.co.za for the latest expert advice, tips and support to help you stay ahead this tax year-end.

• About the author: Gerhard Hartman is vice-president: medium business for Sage Africa & Middle East.

This article was paid for by Sage.