For every business owner, understanding the basics of payroll and knowing how to manage it efficiently is critical. By definition, payroll is the business process of paying employees, SARS, and third parties such as the service providers responsible for various employee benefits.
A payroll system usually comprises calculating and distributing salaries, following your payroll policy, keeping payroll records, preparing financial reports for stakeholders and employees with a breakdown of payments, taxes, bonuses, overtimes, or holiday pays.
Ensuring that you have a payroll system that pays your employees in a timely manner on a consistent basis will impact your employee morale. Late and inaccurate payment is likely to cause your employees to question the financial stability of the company. This might affect the overall culture of your company, resulting in a negative attitude from employees that could bleed into their day-to-day tasks and cause underperformance.
A company has a financial obligation to their employees and must ensure that payroll activities are compliant with the country’s tax and employment legislation. Following legislative laws, efficiently meeting tax obligations, and obtaining Letters of Good Standing, establishes a company as a stable
employer boosting reputation.
Accuracy is vital!
Errors, whether they occur during calculations or in payroll records, can lead to the wrong net pay issued to employees or failed amounts of taxes paid to SARS. Moreover, payroll goes into your business expenses, so proper management of payroll affects the accuracy of your business accounting.
Running a payroll in-house is very complex for businesses. However, payroll management can be a pretty time-consuming task, especially if manual data entry work is involved. Moreover, the right payroll calculations, deductions, taxes, etc. can require a significant investment of effort if you are not specialised in payroll.
Various types of payroll software can handle a business’s payroll processing and related tax filings and payments. There are plenty of options available, so you can choose the one that perfectly fits the bill for you, depending on your organisational needs. Given the complexity of the processes required, investing in a professional payroll service is best because you avoid much of the cumbersome administrative and tax-related work.
Payroll Process Stages
The payroll process can be split into three stages: pre-payroll, actual payroll processing and post payroll activities.
- Defining policy: It is important to establish a company’s policies such as pay policy, leave and benefits policy and attendance policy.
- Ensure that these policies are well-defined and signed off by your company’s management so that standard payroll processing can be established.
- Gathering input data: Interacting with multiple departments is often an integral part of the payroll process to gain access to information like attendance data.
- The process might be more consolidated in smaller organisations and more robust in larger companies.
- Input validation: The next step is checking the validity of the input data and whether it adheres to company policy. This is the time to make sure no active employee has been missed and no inactive employee has been included in salary payment.
Actual Payroll Process
- Payroll calculation: Input data is put into the payroll system to process the payroll. This results in net pay being generated after adjusting necessary taxes and deductions. After this process is complete, it is best practice to reconcile the values and verify accuracy to avoid errors.
- Payroll audit before payment: A double-check process needs to be in place, and an audit trial will help to eliminate errors and ensure accuracy ahead of payment.
- Statutory compliance: At the time of processing all statutory deductions like Employee Benefit Deductions, PAYE and UIF Deduction and other third-party payments are deducted.
- Payroll accounting: Every organisation must keep a record of all financial transactions for the payroll process. Payroll management should always ensure that all salary and reimbursement data is accurately entered into the company’s accounting system.
- Pay-out: Salaries are paid out by bank transfers. Typically, employers deposit salaries directly into an employee’s bank account. Using payroll software helps generate proper employee payslips.
- Reporting: After you’ve completed payroll for a particular month, the finance department or management team needs to be provided with reports on various aspects of employee costs, by gathering the data and extracting reports required.
DRG Outsourcing is a provider of professional payroll management services taking full responsibility for this non-core activity.
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