The annual budget speech is usually anxiously awaited by companies and individuals hoping for tax relief. This year`s announcement has been positive with tax relief for both further bolstered by a strengthened economy and a good historical tax collection report. However, the good news provides a sobering moment for payroll administrators that need to update calculations and formulas, ensuring correct taxation of company employees. Failing to do so brings penalties and fines.
Accountability for tax is increasingly gaining attention as strict penalties can cripple companies that flagrantly disregard tax laws. Fines can escalate to thousands of rands per employee, and companies with a large employee base can incur massive costs. Considering the large percentage of an organisation`s expenditure that is payroll related, companies need to regard the South African Revenue Services (SARS) as one of their biggest stakeholders and their payroll as an area of risk.
For payroll administrators it has become imperative to update calculations quickly and accurately, and this is best done with a date-driven and rules-based system.
Tax changes or reductions are driven by a number of factors, including an expanded tax base that generates more taxable income and, to a degree, social engineering that takes cognisance of the plight of the lower income bracket.
The current tax year has seen quite a few changes introduced, including new tax implications for medical aid contributors. The purpose is to provide tax relief on less costly medical aid schemes and increase tax for more costly ones. Thresholds have been introduced that will see an excess of them being levied a `fringe benefit` tax. This might result in consumer scrutiny of medical aid schemes and spur employees to change or modify plans and schemes, creating a further burden on the payroll department.
Delays with implementing new tax calculations are often the norm for many businesses, and this is not necessarily justified. New tax calculations are effective as of 1 March and SARS ensures the calculations are available beforehand.
Having a date-driven payroll is a distinct advantage, allowing for the addition of new calculations in the system, yet only making them effective on the first month of the new tax year. This might be frustrating for companies running an in-house payroll as they are reliant on the payroll software vendor to disseminate the new tax updates timeously. It also highlights the need for a rules-based and customisable payroll that suits every business requirement.
A rules-based payroll improves accuracy and reduces the time needed to manage, whilst providing excellent financial controls. Other payroll methodologies might require manual input for changes to tax calculations, creating a broader scope for `human error`. When reliant on human intervention, chances are payroll inaccuracies will occur.
A rules-based payroll provides companies with the distinct advantage of a more automated system that also delivers a softer benefit - better utilisation of staff resources. Rules-based payroll solutions simplify the running of the payroll, freeing these resources to heighten their efficiencies.
A scalable rules-based payroll solution can reduce the need for staff resources (in a large organisation) up to 40%, allowing staff to allocate additional time to other management functions. Smaller companies also benefit by this as many of their payroll administrators are also responsible for bookkeeping, switchboard duties and the like, and these employees are then able to dedicate more time to their other duties. It is also easier for a new person to take over the responsibilities of a rules-based payroll as there is less reliance on human intervention.
It must, however, be noted that a rules-based system can be a sophisticated solution that requires suitable skills and competencies to be managed effectively and efficiently. This makes outsourcing an attractive proposition.
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