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Payroll basics for small business owners

Payroll basics for small business owners

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Johannesburg – Employees will be much more invested in their jobs and the company they work for if they feel valued by their employer, and an efficient payroll system is imperative to ensure a seamless remuneration process.

As your business grows and you add new people to your team, payroll becomes one of your most important administrative processes. Payroll management is about paying employees on time and submitting the correct tax and reports to the relevant authorities.

With the South African Revenue Service (Sars) cracking down on non-compliance, businesses need to ensure their payroll is efficient and error-free.

Yolandi Esterhuizen, Director of Product Compliance, Sage Africa & Middle East and a registered tax practitioner, looks at the basics every business owner needs to know.

Payroll basics for small business owners
Yolandi Esterhuizen, Director of Product Compliance, Sage Africa & Middle East Picture: Supplied

What is PAYE?

Pay as You Earn (PAYE) is a personal income tax system for employees, where the employer deducts tax from employees' remuneration monthly and pays it to Sars on the employee’s behalf. PAYE allows Sars to collect personal income tax revenue on a monthly basis.

Without PAYE, all employed individuals would have to complete their own annual tax returns and make a once-off tax lump sum payment to Sars at the end of the tax year. This would give governments less regular income and creates the potential for human error and fraud.

Each month, your business must calculate the exact amount of tax each employee should pay based on the individual’s remuneration value and the Sars personal income tax brackets.

These tax brackets are adjusted in February each year when the Finance Minister presents the budget speech, effective for the tax year starting in March. Employees are taxed based on their remuneration value and include items such as salary, overtime, bonuses, commission, allowances, and fringe benefits, minus allowable tax deductions, such as retirement fund contributions and certain donations.

The PAYE payable is reduced with medical scheme fees tax credits if the employee or employer contributes towards a registered medical aid.

Employees younger than 65 years old who earn above R91 250 are liable to pay tax. The tax rate levied on an individual is set on a sliding scale, which increases the tax as taxable income increases. The marginal tax rate ranges from 18% for people earning R91 251 to R226 000, up to 45% for those earning more than R1 731 601 a year.

What's the deal with payslips?

It is a legal requirement to provide your employees with a payslip. Not only do payslips help employees understand their salary and deductions, but they also need them when applying for credit. A payslip should contain at least the following information:

  • The employer's name and address.
  • The employee's name and job description.
  • The period for which the payment is made.
  • The employee’s remuneration in money, such as salary, overtime, commission, etc.
  • All deductions are made, including voluntary amounts like loan repayments and union fees and statutory deductions like UIF and PAYE. Depending on company policy, deductions like a pension fund, medical aid, and life insurance may be voluntary or compulsory and should be indicated if deducted.
  • If relevant to the employee, the employee’s overtime rate, the number of ordinary and overtime hours, and the number of hours worked on a Sunday or public holiday during the payment period.
  • Net pay, which is what the employee takes home after all deductions.

Do you need a payroll management system?

Small businesses and start-ups may be able to get by running payroll through spreadsheets and manually producing their employees' payslips. However, this is very time-consuming, and as a business grows, it's more effective to use an automated system that can do most of the calculations for you. Immediate benefits include:

  • Significantly reduced risk of data entry errors.
  • Rapid processing of payments.
  • Automatic calculations of relevant deductions.
  • Frequent updates to make sure you comply with the latest legislation.
  • Easy-to-use and secure software.
  • Digital payslips.

If your company is growing, a modern payroll solution can make the process of paying staff and tax authorities less painful. Today, there are flexible and affordable online payroll solutions that even the smallest business can save hours of effort while helping to remain compliant with tax regulations.

vusi.adonis@inl.co.za

IOL Business

Original Article

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