HR & Payroll PAYROLL COMPLIANCE NAVIGATE COMPLIANCE MANDATES FOR BUSINESS SUCCESS. ebook

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Annice Curtis
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1 HR & Payroll PAYROLL COMPLIANCE NAVIGATE COMPLIANCE MANDATES FOR BUSINESS SUCCESS ebook

2 Introduction Compliance is one of the top challenges facing any human resources department. It s up to you to ensure that all personnel business practices follow the current laws and that you are keeping proper records to document your company s compliance. While an efficient payroll system enhances staff morale and boosts your reputation, mistakes in recordkeeping and compliance can result in punitive penalties even lawsuits. Of course, no business wants to expose itself to such financial and reputational risk. However, keeping track of tax changes and updates to The Income Tax Act and regulations is a complex task. To protect your company from costly fines and sometimes even litigation, you need to stay informed about employment laws, reporting rules, and changing workforce compliance issues. In this guide, we look at the challenges and the payroll solutions that will help your payroll department meet its compliance requirements with confidence. 2 Payroll compliance

10 tips for staying compliant By following these 10 housekeeping rules, HR and Payroll can ensure they protect themselves from the penalties of non-compliance, while keeping employees happy with pay

3 10 tips for staying compliant By following these 10 housekeeping rules, HR and Payroll can ensure they protect themselves from the penalties of non-compliance, while keeping employees happy with pay that is accurate and on time. 1 Accurate personal records This may seem obvious, but make sure you have the right personal information for each employee. It s your responsibility to maintain employee records accurately for the duration of their tenure. Personal information that affects payroll can change regularly. But every change from payment to promotion, from retirement plans to maternity leave has to be processed accurately and run like clockwork. You need to keep on top of it all. 2 Employee expectations Ensure your employees understand their obligations in terms of remaining compliant, such as adhering to your expenses policy or keeping overtime records accurate. Explain how to document expenses and overtime properly, so your employees don t leave you exposed. Create a comprehensive set of policies and practices for all issues that affect employees pay. This provides a useful guide for employees to follow when inquiring about additions or deductions to their earnings. 3 Payroll compliance

3 Enrolment plans Depending on your company s policies, you may be required to enroll your employees in a pension or healthcare benefits package.

4 3 Enrolment plans Depending on your company s policies, you may be required to enroll your employees in a pension or healthcare benefits package. Either way, you need to keep proper records of the contributions made by you and your employee. Fund rules and websites are a good place to start when it comes to checking what plans employees need to be enrolled in and the respective contributions. 4 Audit trails Audit trails are an incredibly useful tools for protecting your business and your reputation in the event of an investigation, because it enables you to link each transaction with supporting information such as invoices or purchase orders that will validate an unusual-looking payment. As well as helping to guard against fraud, audit trails ensure that corporate accounts are as accurate as possible, and give the best insight into the health of your business. In fact, audit trails are likely to be mandated by investors or creditors, so it s well worth checking that your payroll systems can provide this function. 5 Keep up with local legislation Payroll legislation is constantly changing. In South Africa, it s important to keep an eye on any changes to the Basic Conditions of Employment and Labour Relations Acts. Misclassifying employees as exempt or non-exempt from overtime payments, depending on the remuneration threshold specified in the BCEA, as well as violations for off-the-clock work, are common mistakes that put employers at risk. Certain software like time and attendance management software could be used to help better capture and track your employee labour data. 4 Payroll compliance

5 6 Understand international legislation If you operate across multiple countries you have to deal with the complexities of international payroll. Each country has its own rules and regulations regarding wages, deductions, remittances, and reporting, but it s your job to keep up-to-date with these regulations. In addition, more countries are moving towards real time filing, electronic deposit and collection of taxes. Different currencies, customs and time zones make this process even more of a challenge. 7 Ask the experts Your company accountant will have a thorough knowledge of payroll compliance and will be well versed with necessary regulations, important changes, or updates. They can help you maintain up-to-date records, remit taxes and file returns. They can also find solutions for discrepancies in records or provide valuable advice on payroll issues. If you don t have a full-time accountant, look out for accountancy firms that hold business and tax workshops in your area. Many governments also have online guides especially for small businesses so this could be a useful source for payroll information. 8 Encourage employee feedback Organizations need to monitor complaints and actively request feedback from employees about how the process can be improved. Once an issue has been identified, payroll can then conduct workflow analysis to identify bottlenecks, or areas where errors are creeping in. If employees feel comfortable about voicing their concerns, managers will be informed of problems before they get out of control. 9 Adopt a self-service model There s no reason why the payroll department should have to chase and input every single piece of data about their employees working life. Chasing timesheets or expense forms is extremely time-consuming and some workers don t recognize that their failure to submit this information makes it more difficult to get paid. Give employees more responsibility by moving towards a self-service model. This makes it much easier to review and approve employee requests as they come in, and puts the responsibility on individuals to submit their personal information freeing up valuable time for payroll administrators. 10 Don t be late Don t risk penalties for late submissions, factor in sufficient time. Payroll can be a complex beast, requiring several important considerations such as tax deadlines, shifting paydays, and monthly and annual reporting. Create a yearly calendar that outlines all the important dates such as submitting timesheets, invoices, and making payments. This will help to ensure that important tasks are not missed, but also keeps employees informed about when they will get paid, and what tasks they need to complete for payday to run smoothly. Again, taking this approach will reassure employees that you have their best interests at heart, helping to maintain a happy and committed workforce. 5 Payroll compliance

6 6 Payroll compliance

7 Compliance Payroll compliance can be complex and ignoring it can seriously damage your business. The following are some of the laws and regulations that employers must account for when processing payroll. 1 Basic Conditions of Employment Act 2 Labour Relations Act 3 Skills Development and Skills Development Levies Act 4 Unemployment Insurance Contributions Act 6 Employment Tax Incentive Act 7 Compensation for Occupational Injuries and Diseases Act 8 Protection of Personal Information Act 9 Employment Equity Act 5 Income Tax Act 7 Payroll compliance

Basic Conditions of Employment Act (BCEA) The purpose of the BCEA is to give effect to and regulate the right to fair labour practices by establishing and enforcing basic conditions of employment;

8 Basic Conditions of Employment Act (BCEA) The purpose of the BCEA is to give effect to and regulate the right to fair labour practices by establishing and enforcing basic conditions of employment; and by regulating the variation of basic conditions of employment. The BCEA deals with aspects such as leave entitlements, hours of work, resting periods, payments on termination etc. In addition to the BCEA, minimum wages which should be paid according to the different industries should also be adhered to. On 1 July 2014 (Gazette No ), the Minister of Labour published the latest earning threshold of R per annum. Employees earning above this threshold are excluded from certain chapters of the BCEA. In order to avoid employment lawsuits, it s important to keep an eye on any changes to the BCEA. The employer can have an employment contract which is more beneficial to the employee, however an employment contract stipulating less favourable conditions is null and void. Misclassifying employees as exempt from overtime payments, paying annual leave instead of granting it, as well as violations for off-the-clock work, are common mistakes that put employers at risk. Department of Labour 8 Payroll compliance

9 Labour Relations Act (LRA) The LRA regulates fair labour practices, collective bargaining and strikes and gives effect to obligations incurred as a member state of the International Labour Organisation. Recent amendments to the LRA aimed to protect three categories of non-standard employment namely labour broker employees, fixed term contract employees as well as part-time employees. The protection is provided to employees earning less than R per annum. It is important to note that after three months of employment, a labour broker employee is deemed to be the employee of the client unless the employee is genuinely temporary, for example if an employer replaces an employee for a specific period with another employee until the employee returns from maternity leave. An employee on a fixed term contract may be regarded as permanent after three months unless there is a legitimate reason for a fixed term contract as specified in the Act. Employers need to ensure that they are aware of which individuals are seen as their permanent employees and provide them with the applicable benefits and ensure equal treatment. Department of Labour Skills Development and Skills Development Levies Act The Skills Development Act is administered by the Department of Higher Education and Training and brought into being the concepts of SETAs, monthly levies and various grants to incentivise employer participation. The Skills Development Levies Act is administered by SARS, and deals only with the calculation and payment of the monthly levy by employers. The levy first became payable from 1 April 2000 at a rate of 0.5% and increased to 1% from 1 April Employers who are not exempted from paying the levy must pay 1% of the leviable amount to SARS. All employers who are registered for employee s tax purposes must register with SARS for the skills development levy, irrespective if they are exempted. Among others, employers whose total annual remuneration for the next 12 months is not expected to exceed R , does not have to contribute. Employers are able to claim grants which is a specific percentage of the levies paid, from their respective SETAs (Sector Education and Training Authorities). To claim these grants, they need to submit a workplace skills plan as well as a training report. Levies: South African Revenue Services (SARS) 9 Payroll compliance

10 Unemployment Insurance Contributions and Unemployment Insurance Act The UIF (Unemployment Insurance Fund) has been established in order to provide short term relief to workers when they become unemployed or are unable to work because of illness, maternity or adoption leave and also to provide relief to the dependants of a deceased contributor in terms of the UI Act. The types of benefits provided by the UIF are Unemployment benefits; Illness benefits; Maternity benefits; Adoption benefits and Dependants benefits Only contributors to the fund will qualify for these benefits. The contribution towards the fund is a 1% employer contribution and 1% employee contribution. These contributions are compulsory unless the employees are exempt in terms of the Act. Employers need to pay the contribution before the 7th of every month either to SARS or the UIF depending on whether they need to pay employees tax or not. A threshold is taken into account when calculating the contribution amounts this threshold is determined by the Minister of Finance by notice in the Gazette (currently R per month). If any contribution remains unpaid after the last day of payment, a penalty of 10% will be imposed of the unpaid amount. In addition to the payment, a declaration must be submitted to UIF which indicates the actual contribution amounts and employee detail. This can be done electronically. Contributions: South African Revenue Services (SARS) Benefits: Unemployment Insurance Fund (Department of Labour) 10 Payroll compliance

Income Tax Act Where an employer pays remuneration, or becomes liable to pay remuneration to an employee, an obligation exist to deduct employees tax (PAYE) from the remuneration and pay it to SARS.

11 Income Tax Act Where an employer pays remuneration, or becomes liable to pay remuneration to an employee, an obligation exist to deduct employees tax (PAYE) from the remuneration and pay it to SARS. Employers need to deduct PAYE if they provide employees with certain non-cash benefits. Employers need to issue employees with tax certificates (IRP5/IT3(a)) at the end of the tax year. If the PAYE is not paid to SARS on or before the 7th of the next month, then penalties and interest will be levied. An EMP201 return is completed to indicate the PAYE liability. An employer needs to be familiar with the tax legislation and the application thereof, especially to know whether a noncash benefit is taxable or not. SARS (South African Revenue Service) 11 Payroll compliance

12 Employment Tax Incentive Act (ETI) The ETI is a temporary tax incentive that may be claimed by eligible employers and is aimed at encouraging such employers to employ young employees between the ages of 18 and 29, and employees of any age in special economic zones and in any industry identified by the Minister by notice in the Government Gazette. Payment of the incentive is effected by eligible employers being able to reduce the employees tax due by them by the amount of the ETI that they may claim - provided of course that they meet the requirements of the ETI Act. The ETI is administered by SARS through the employees tax system that is deducted and withheld and accounted for to SARS (usually monthly) via the Pay-As-You-Earn (PAYE) system. The ETI amount is calculated as follows: Before claiming ETI, employers need to familiarize themselves with the Act to make sure they do not claim ETI in instances where they are not supposed to. For example, if an employer is not tax compliant in a specific month, then no ETI is allowed to be claimed. In some cases the employer will be able to claim the ETI once they become tax compliant again. Employers should not displace older employers and replace them with younger employees just for the purpose of claiming ETI in this case, penalties will be levied in terms of the Act. SARS (South African Revenue Service) Monthly Remuneration R0 - R1 999 First 12 Incentive Months 50% of Monthly Remuneration Next 12 Incentive Months 25% of Monthly Remuneration R R3 999 R R 500 R R5 999 Formula: R1 000 (0.5 x (Monthly Remuneration R4 000)) Formula: R500 (0.25 x (Monthly Remuneration R4 000) 12 Payroll compliance

Compensation for Occupational Injuries and Diseases Act The purpose of this Act is to provide compensation to employees who have been injured or contracted a disease, as a result of their employment.

13 Compensation for Occupational Injuries and Diseases Act The purpose of this Act is to provide compensation to employees who have been injured or contracted a disease, as a result of their employment. The Act provides a system of no fault compensation whereby employees are entitled to compensation irrespective of who caused the problem. At the same time, employees are prohibited from instituting damages claims against their employer and certain categories of fellow employees. The categories of claimants to whom benefits become payable are: employees who suffer a temporary disability employees who suffer a permanent disability dependents of employees who die as a result of occupational injuries or diseases. Employers must complete and submit the annual W.As 8 return by 31 March each year, after which they need to pay the assessment tariff. An employer must also, within 7 days after having received notice of an accident, report the accident to the Commissioner. An employer must, within days after receiving notice that an employee has contracted with a disease, report it to the Commissioner. Department of Labour: Compensation Commissioner 13 Payroll compliance

14 Protection of Personal Information Act The purpose of this Act is to safeguard personal information, to regulate the manner in which personal information may be processed(collected, stored, received, organized etc.). The eight pillars of the Act which should all be complied with, are the following: Accountability Processing: Processing must be lawful and reasonable Purpose specification: There must be a specific, defined and lawful purpose for collecting personal information Further processing limitation: Further processing must be in accordance or compatible for the purpose it was collected for Information quality: A responsible part must take steps to ensure the information is accurate, complete and not misleading Openness: The data subject (employee) must be aware of the information being collected, or if information is not collected from the data subject, the source where it is collected from, the purpose for the collection etc. unless the data subject consents to the non-compliance Employers must obtain the employees consent for personal information to be collected and used. Employees must be made aware of third parties (or other individuals) who might have access to it. The responsible party (employers) must ensure that safeguards are in place to protect the data against being used for other purposes. Employees obtaining these types of personal information of other employees should have a clause in their employment contracts dealing with confidentiality. The employer must obtain the employees consent if further processing takes place and it is not compatible with the reason it was collected for. The Act was signed into law on 26 November 2013 (Gazette Notice 37067). Once the Act is made effective by proclamation, employers will have 12 months to comply. Information Protection Regulator Security safeguards: The responsible party must ensure the integrity and confidentiality of the information in its possession 14 Payroll compliance

Employment Equity Act The purpose of the Act is to achieve equity in the workplace by: Promoting equal opportunity and fair treatment in employment through the elimination of unfair discrimination;

15 Employment Equity Act The purpose of the Act is to achieve equity in the workplace by: Promoting equal opportunity and fair treatment in employment through the elimination of unfair discrimination; and Implementing affirmative action measures to redress the disadvantages in employment experienced by designated groups, in order to ensure their equitable representation in all occupational levels in the workforce. However, the Act does not apply to members of the National Defence Force, the National Intelligence Agency, the South African Secret Service or the South African National Academy of Intelligence or to the directors and staff of Comsec. Designated employers need to prepare and implement an employment equity plan which will achieve reasonable progress towards employment equity in that employer s workforce. A designated employer must submit a report to the Director General every year on the first working day of October. If the report is submitted via the online portal, then the deadline is 15 January of the following year. A designated employer is an employer who employs 50 or more employees, or who employs fewer than 50 employees but whose annual turnover exceeds a specific amount or a municipality or an organ of state as well as an employer who is bound by a collective agreement which appoints it as a designated employer. Department of Labour 15 Payroll compliance

16 Conclusion For a business to stay productive and successful, it needs to take care of its most important asset, its people. Whether you re an enterprise, mid-size, small or even micro business, Sage can help you streamline processes, keep data and reports up to date, run accurate and on-time payroll, and meet essential compliance requirements. The result? Happier, more productive teams, and a compliant, well-performing business. Discover which Sage Payroll solution is right for you 16 Payroll compliance

17 Sage Software, Inc. All rights reserved. Sage, the Sage logos, and the Sage product and service names mentioned herein are registered trademarks or trademarks of Sage Software, Inc. or its affiliated entities. All other trademarks are the property of their respective owners. 17 Payroll compliance

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