Overtime, commission, and bonuses: what your payroll team needs to know

Setting up a payroll structure is a critical component of the payroll function to ensure that your employees are paid the correct salary in addition to overtime, commissions and bonuses.

Payroll managers must understand the fundamental principles of additional compensation to provide informed advice when developing policies and to ensure employees are correctly compensated or rewarded.

Here, Sage, a leading provider of finance, HR and payroll software and solutions, walks you through the definitions of overtime, commission and bonuses, how to calculate them, and the impact they have on tax codes.

Calculating overtime

Overtime pay is money earned outside regular working hours or during hours other than the standard shift.

SA’s Basic Conditions of Employment Act limits overtime to 10 hours a week. Employees earning less than the threshold must be paid 1.5 times their standard wage rate for overtime worked, except on Sundays, which must be paid at twice the standard rate. Alternatively, you could offer paid time off for overtime worked.

The conditions and amount of overtime compensation must be stipulated in your employees’ contracts, together with the specifics of their salary or wage earnings.

Overtime compensation should be controlled and calculated correctly, in addition to other remuneration. It is best practice to pay overtime compensation at the same time as normal employee salaries and wages.

Earnings for overtime hours, as well as the amount of overtime hours, must clearly be indicated on the employee payslip for easy identification.

Calculating bonuses

Though not all companies offer bonuses, it is a proven motivator in the workplace.

The criteria for earning a bonus must be established ahead of time as part of the employment contract and/or based on company policy.

Because bonuses are considered as remuneration, the company must subtract employee tax from the bonus payment and pay it over to the SA Revenue Service (Sars).

The bonus must be declared to Sars. If an employer provides another type of benefit to the employee, instead of a cash bonus, the employer is still obligated to report the benefit on the employee tax certificate.

These could include:

• Vouchers: If a voucher is granted to the employee, it is fully taxable (subject to certain exceptions).
• Other non-cash benefits: The tax reporting regulations for benefits depend on what the benefit is.

Sars provides a helpful set of guidelines on fringe benefits and calculating their worth.

Calculating commission

A commission-based income is permissible only if the employment contract stipulates the applicable minimum wage. The terms for paying commission, such as how much and how often commission is earned, should also be included.

Employees must pay, deduct and record commission compensation in the same way as they would salary or hourly payments.

Download Sage's “Quick Guide to Payroll Compliance”.

The impact of overtime, commissions and bonuses on tax codes

Overtime, commissions and bonuses are all taxed. They affect how much income tax an employee must pay and are factored into remuneration.

Managing these numbers is time-consuming, even for a small team and especially if you use spreadsheets to keep track of everything. Manual payroll management may have worked in the past, but it isn’t good enough today.

The automation incorporated into cloud-based payroll software, such as that provided by Sage, handles the heavy lifting for you, reducing mistakes and ensuring payroll runs on time.

Cloud-based payroll software can help you in a variety of ways, including:

• Ensuring data accuracy: Automation lets you calculate your employees’ salaries and deductions quickly. A thorough validation procedure reveals any errors or inaccurate information. You can configure your software to pay your employees the correct amount based on the minimum wage band to which they belong.
• Payroll data reporting to Sars: You can submit payroll information to Sars easily during the midyear and annual employer reconciliation period.
• Generate and manage payslips: You can either print or email payslips directly from the software and reprint them for individual employees when necessary. You can also opt for online payslips.
• Compliance: The software automatically updates legislative changes, which helps you stay compliant.

Accurately handling overtime, commissions and bonuses is crucial, but it doesn’t have to be complicated.

A payroll software solution provides payroll administrators with 24/7 access to payroll data, allowing them to detect issues, make adjustments, and provide help as needed.

This article was paid for by Sage and was originally published on the company's blog.