Careful, just because you aren’t aware of payroll issues, doesn’t mean they aren’t there

Careful, just because you aren’t aware of payroll issues, doesn’t mean they aren’t there

Business, Human Resources, Payroll / eTorQue

In our experience CEOs, CFOs and HRDs are largely oblivious of the payroll details within their organisations. It is not a key operational area; it is perceived as an admin process; and they largely assume that if they don’t hear anything then it must be fine. When they do get involved in payroll issues they are often confronted with the “Don’t worry, we’ve always done it this way”. The problem is that, particularly in South Africa, payroll is becoming increasingly important for several reasons:

  • If you get it wrong it can result in “downed tools” and work stoppages;
  • Employees predominantly work to be paid. If you don’t get this right then they don’t feel valued and productivity drops. It is also the primary cause for dissent within the organisation;
  • Payroll in South Africa is complex;
    • Payroll is the central hub for thirteen different pieces of legislation (often ones which tend to disagree with one another);
    • Payroll is where the money is and is the target for audits from SARS, the Department of Labour, Compensation Fund and disgruntled employees;
  • Very few payroll departments can keep up to date with all the legislative changes;
    • Payroll departments tend to lurch from one payroll deadline to another with little time in between to keep up to date with legislation and best practice;
    • Payroll departments are over reliant on payroll systems. They seldom understand how packages are put together and what the impact of changes are;
  • Payroll systems are creaking. Given the complexity and the multiple “grey” areas in legislation, payroll software developers are increasingly pushing the onus on clients to make sure they are compliant without clients realizing this is happening;

One of the biggest issues we see is inherited problems where a process worked once, but was never reviewed as systems change. Over the years 10 years of being a payroll consultant, I have encountered several instances where these inherited problems have resulted in huge penalties from SARS, significant costs to fix, and a lot of dissatisfaction from employees.

A scenario that springs to mind: An employer was processing medical insurance as a proper medical aid allowing employees to incorrectly claim for tax credits. This went on for at least two years. A seemingly small thing, but ultimately it cost the employer significant amounts of money:

  • The cost to fix:
    • Correction and resubmission of all employee tax certificates
    • Resubmission of all EMP201s and EMP501s
    • Consultation with employees to recover the tax credit benefit they received in error – not to mention the employee unhappiness and lack of trust that resulted
  • Having to foot the bill for employees who were no longer employed
  • Penalties and interest from SARS for ‘late’ declaration and payment

Whether your payroll is processed in-house or outsourced it is advisable to have regular independent reviews of your payroll and the processes to mitigate against costly scenarios like the above.

We recommend a review at the following times:

  • Annually when tax legislation and tables change;
  • When you change key payroll personnel; and
  • When you change payroll supplier or software

These reviews highlight legislative and internal processes shortfalls. We also offer review and support during the transitioning periods of new payroll personnel and when migrating to new payroll software.