When it comes to payroll, your company has multiple choices available for completing the tasks at hand. You can either have an outside company generate your payroll checks or do the work in-house, but one should note that it is a complex process prone to many errors if not done correctly.
Studies show that homegrown payroll solutions have twice as many payroll errors as those provided by outside parties, which highlights how easy it is to miss a step or two when running your own payroll. For example, payroll staff must file tax documents correctly and on time, or your company risks fines and penalties for missing important deadlines.
This article explores common payroll mistakes and how they can affect your company. We will also discuss effective measures you can leverage to prevent payroll errors and solve them when they arise.
If you are searching for a more hands-on approach to your payroll woes, MASA is here to help. Our payroll division processes over 12,000 worldwide payroll transactions each month, administered by our in-house specialists. Contact us now to learn more about our payroll solutions.
Are you making these payroll mistakes?
Receiving the correct pay is one of an employee’s most basic expectations throughout their work life. However, various internal or external factors may prevent accurate paychecks, tax returns, and other related payroll reports from getting done.
So, let’s take a closer look at two of the most common payroll errors and what solutions you can use to combat them.
1. Misclassifying employees
This one may seem an obvious error to catch, but you will be surprised by how easy it is to classify your employees incorrectly. Companies that don’t have proper systems for managing their employees will often find themselves recording them into different payment plans, which could affect how much you have to pay them and how they get paid.
For example, you could end up paying an employee overtime when you weren’t supposed to, underpay them, or even pay them on the wrong date, all because they were classified incorrectly.
Having proper processes in place to make sure your employees are correctly classified not only reduces your risk of exposure but can also reduce payroll costs and incorrect payments.
Some methods that can help with avoiding these errors include:
- Using accounting software that ensures the correct time and dates an employee is put into a payment plan
- Make sure all payroll documentation is appropriately updated and maintained
- Setting up a process to make sure that new hires are correctly classified on their start date
- Having the right people review your payroll information
The goal is to set up a system where employee information stays well-maintained and is reviewed regularly so you can promptly correct mistakes that could impact your employees’ payroll tasks.
2. Incorrect Tax Declarations
Employee payments and deductions are a crucial part of payroll where companies make mistakes, but it does not stop there. Employers must also be aware of their obligations regarding hiring employees and the responsibilities that follow from paying them remuneration.
Various mandatory tax declarations must be submitted and paid to ensure that a business complies with the law, such as:
- Pay As You Earn (PAYE)
- Skills Development Levy
- Unemployment Insurance Fund (UIF) Contributions
- Return of Earnings (ROE)
Employers that fill in the wrong information or fail to complete and submit certain forms can end up with serious legal issues.
When it comes to your accounting staff preparing VAT returns:
- Inform your clients of the abovementioned requirements, and request copies of supplier invoices when you prepare the VAT schedules and workings.
- Check that the invoices meet the Section 20(4) requirements of the VAT Act before you submit the VAT returns.
When it comes to your audit staff:
- Train your staff to identify when a tax invoice does not comply with the VAT Act.
- When performing detailed substantive tests, include steps to verify that the tax invoices in your sample meet the requirements of a valid tax invoice.
- Report any non-compliant invoices to management by supplier name.
The last thing your company wants is to incur hefty penalties for incorrect tax filings. Therefore, you must review the relevant tax filing documents and ensure they are correctly filled out.
Further tips for nailing your payroll
Develop clear policies and records for payroll
Keep a record outlining every aspect of your payroll operations, including when you have made payroll exceptions and changes to your payroll process. You should also write a policy for managing and keeping records. By doing this, you can comply with legal obligations much more efficiently, which also helps you in the case of an audit or when you have to discuss payroll with someone in compliance or HR.
Reevaluate your current payroll process and provider
By thoroughly analysing your current procedures, you can find inefficiencies and potential opportunities for improvement. You might need to consider switching payroll providers if your company has issues and needs a new strategy for managing payroll. You can choose a payroll partner who shares your objectives as you determine the corporate payroll priorities and then take care to ensure a smooth transition.
Leveraging an outsourced solution
Whether your payroll process is highly complex or relatively simple, finding the right payroll solution can save you valuable time and resources by taking on a portion of the workload.
Outsourcing your payroll is a powerful way to limit the risks associated with this area’s complex and ever-changing rules. Also, companies that keep things in-house may find that they are not adequately covered if anything goes wrong.
If you’re looking for a company that can provide world-class payroll services in South Africa, you’ve come to the right place. MASA is one of the leading payroll providers in the country, delivering the highest level of labour outsourcing and encompassing services like expert payroll.
Get in touch with MASA, and we’ll be happy to answer any questions you may have about our services.