New directors tax legislation demands payroll systems update

Private companies and close corporations need to ensure that their payroll systems are updated in terms of new tax legislation that came into effect at the beginning of March requiring them to pay monthly employees` tax on the remuneration of directors and members.

"Until now, private companies and close corporations have not been required to register as employers. With the new law, they have to take on the added burden of registering, calculating and submitting to SARS monthly payments of employees` tax as well as all other levies that apply to directors` remuneration. Some complex calculations will be required," says Terry Kier, managing director of accounting and payroll software specialist Pastel Software.

"The fact that directors` remuneration is coming into the monthly PAYE loop will also have a knock-on effect on monthly RSC levies, skills development levies, Unemployment Fund contributions and Workman`s Compensation. The annual IRP5 certificates and other formalities will also have to be submitted to SARS."

Pastel has issued software patches incorporating the requirements of the legislation changes and the knock-on effects of those changes, to users of its accounting and payroll solutions.

"The notional amount on which the employees` tax is calculated has to be determined in accordance with a set formula that refers to the previous tax year`s remuneration paid to the director or member or, if that amount is not available, from the tax year before. Complicated calculations will have to be performed each month to ensure that the correct amounts are paid to SARS."

Kier adds that the changed formulae and calculation methods are already inherent in Pastel`s accounting and payroll software programs.

Pastel`s new, soon-to-be-launched Web-browser payroll application software, Pastel Payroll Online, is totally compliant with the new legislation. Hosted on Pastel`s Internet servers, the software will provide users who sign on in return for a monthly fee with access to the application through their Web-browser so that they can conduct all of their payroll activities online.