Navigating Employee Benefits in the Payroll Services Process
Employee benefits are a crucial part of the remuneration plan for companies in South Africa and a significant part of the payroll process. Many businesses outsource payroll services to mitigate the potential tax risk associated with employee benefits, ensure payroll compliance and lessen the time and resource burden of processing payroll in-house.
Some companies rely on payroll software and may fail to consider which employee benefits to run through payroll and whether they are processing the correct values.
This article breaks down the critical elements of employee benefits, such as which benefits companies must contribute to and why. We will also discuss the potential advantages of employee benefits and how employers can gain an edge in the business world by outsourcing payroll services in South Africa.
Which employee benefits to process?
In South Africa, not all businesses are required to provide their employees with a full suite of benefits. Although employers must contribute to specific funds, it is vital to note that the amount and type of benefits they must pay for will vary depending on their business and legislation. The employee benefits required by law are the following:
Unemployment Insurance Fund (UIF)
All businesses must register their workers for the UIF and make mandatory contributions. Employers must contribute 1% of an employee’s salary to the fund and employees must contribute an additional 1% of their pay each month through payroll deductions.
Skills Development Levy (SDL)
The SDL is based on an employer’s total salary spend amount and aims to encourage learning and development in South Africa. A portion of the levy amount is paid by the company and a percentage of the levies paid can be claimed back annually from the Skills Development Levy Fund by submitting a Workplace Skills Plan. The percentage paid back to the employer should be invested in continued training and education for their employees.
The employer pays this amount every month throughout each financial year, equaling 1% of the total salaries paid to all employees that month (including overtime payments, leave pay, bonuses, commissions and lump sum payments).
Compensation for Occupation Injuries and Diseases (COIDA)
Employees who sustain an injury or illness on the job may be eligible for benefits under COIDA’s guidelines. The fund will assess the industry’s risk at large and then apply a percentage rate to the declared annual earnings, which the employer must pay.
Because of the “no-fault” statute of COIDA, workers who face injury on the job or whom contract diseases related to their occupation are eligible for benefits regardless of who is at fault. Employees might be entitled to more compensation if their disability was brought on by their employer’s negligence or coworker, as compensation is based on the degree of disablement.
Additional compulsory and common employee benefits through payroll services
Employees who work overtime are entitled to overtime pay. In fact, employees can choose between taking overtime pay or taking additional paid time off (PTO).
Paid time off
Paid time off (PTO) is a statutory requirement, which means that employers must provide a minimum amount of PTO to their employees to comply with national law.
Family responsibility leave
Employers are also required to provide a type of paid leave known as family responsibility leave, which has strict use cases defined by legislation.
Sick leave is not included under PTO. Instead, companies must offer employees sick time on a three-year renewal period.
South African employees are entitled to at least four months of unpaid maternity leave. Although most employers do not pay employees on maternity leave, South Africa’s UIF government programme pays 60% of the employee’s salary for up to 121 days.
Paternity leave and parental leave
South Africa passed new laws granting parental leave rights in 2020. Employers are now required to provide at least ten unpaid days of parental leave to partners following the birth of a child and parents may apply for UIF benefits during this time.
Employers can collaborate with a benefits provider to provide a group policy to all employees, or they can provide a stipend, allowing employees to select their plans. Health insurance in South Africa can be very costly, so the best talent in the country usually only considers employers who offer additional health insurance.
Although it is not a legal requirement, it is common for businesses to give their employees a bonus at the end of the year. If your company decides to give out 13th-month bonuses, keep that money in mind when calculating employee compensation.
Retirement funds and pension schemes
Many South African employers offer employees various pension schemes or retirement contribution systems. Employers in specific industries are permitted to make participation in these programs mandatory for all employees, while the government provides pension payments on a needs-only basis to qualifying individuals.
The exact figures, timeframes and specifications of these benefits and contributions are detailed. A company’s HR team or payroll services provider is responsible for verifying the legislative requirements and deductibility of these contributions or payments in the payroll process.
In the event that a company has been experiencing multiple payroll compliance issues, tax complications and errors in the broader payroll and administration process, it may be wise to switch payroll providers.
The advantages of employee benefits for companies
While providing employee benefits may cost you more in the short term, here are a few examples of situations where the benefits outweigh the costs:
Attracting top talent
Companies serious about attracting and retaining top talent must provide their employees with more than a competitive salary or basic benefits package. Medical insurance and financial planning incentives go a long way toward reassuring high-achieving workers that their employers have their best interests at heart and are prepared to invest in them over the long term.
Increasing employee productivity
Providing employees with benefits that have a meaningful impact on their lives will increase their commitment to the company and the quality of their work. Health insurance has been shown to lower stress levels, improve employee engagement and boost overall productivity.
Contributing to the economy and industry
According to research, offering employee benefits has an impact that extends beyond the organisation’s existence and stability. Employee perks assist workers across the board to build more financial security and save successfully from a socio-economic standpoint. This has an impact on a company’s industry as well as the country’s overall economic stability.
So, what’s the bottom line? Providing perks to workers demonstrates concern for their well-being and professional development. Companies that care about their employees won’t view perks as luxuries but as tools for achieving company goals.
How to best manage employee benefits using payroll services
Employers should ensure that they handle all the statutory employee benefits and contributions required by law, especially before deciding whether to offer other optional perks. In-house HR teams or finance managers should conduct thorough benefits audits to ensure the company fulfils all legal obligations and company policies.
When determining which benefits you should provide to your employees, ask yourself the following questions:
- Is it a legally required benefit or contribution or a commonly expected perk?
- What are the legislative implications and potential tax risks?
- What are the implied costs and associated administrative tasks?
- What are the timeframes and cost specifications of each benefit?
- How can one offer this perk cost-effectively if it is an additional perk?
- Are all employee perks aligned with company policies, culture, goals and the final bottom line?
This may be an overwhelming and risk-heavy task if the company offers several benefit plans to employees or lacks the expertise to navigate complex statutory regulations. Payroll specialists like MASA are here to help. We provide comprehensive payroll services in South Africa, including human resources and administrative support for small, medium-sized and large companies.
Tailored payroll services
We understand that every business is different and offer a range of payroll services that we can tailor to meet your needs. By leveraging a custom-made solution, your company can ensure that it is getting the most efficient and effective payroll service possible.
Contact MASA to consult with a specialist and determine the most optimal path to outsource your payroll.