By Nicolette Nicholson, Director, South African Payroll Association (SAPA) South African companies— as well as many global multinationals—are increasingly seeing the rest of the continent as an attractive growth target. No matter what particular business model they adopt in the target country, they are likely to find themselves seconding specialist staff to their in-country operations. In general, these expatriates would remain on the payroll of the South African or parent company. Making salary payments to an employee working in another country raises a whole set of inter-related issues that payroll professionals need to consider carefully. While not exhaustive, the following are some of the key areas to think about: Draft a cross-border remuneration policy Chances are there will be more than one employee affected, so it is critical that the company has a policy in place that sets out the principles relating to how the company deals with employees working across borders. The policy should protect the interests both of the company and its employees. Many of the subsequent points would be integrated in the policy, as well as in the individual employee contracts. A payroll professional would be best suited to advise business owners on what this policy should look like. Ensure that the employee is not disadvantaged by his or her secondment One important principle is that the employee should not be financially or otherwise disadvantaged by the requirement to work in a foreign country. At a practical level, this means considering carefully what the tax rules in the host country are—tax rates might be higher or tax compliance more complex—as well as the terms of the double taxation agreement between South Africa and the host country (if there is one). An added consideration here would be to consider how much time is expected to be spent outside of the Republic, and the impact this would have on tax. For example, it might be that the package is structured based on the fact that the employee is expected to be exempt from paying tax in South Africa because he or she is out of the country for more than 183 days in aggregate, 60 of which are continuous, in a 12 month period. Thought needs to be given to the impact of the employee forfeiting this tax exemption by having to make an unplanned trip home, either for business or personal reasons. If deemed a South African resident by SARS, an individual would be liable for normal taxes, including PAYE, and this could be hugely negative if the exemption condition is not met. How to handle such unexpected events should be covered in the policy. These kinds of complexities, and the fact that the unexpected could happen, means that many companies actually opt for simply paying a home nett salary and taking care of the employee’s tax themselves on behalf of the employee. Although this approach has the virtue of simplicity, it must also be recognised that SARS will treat this payment of employee PAYE as a payment of the employee’s debt. This is seen as a taxable benefit in the hands of the employee and thus increases the employer’s the cost of the employee. Structure the reward package carefully for tax compliance While ensuring that the employee is not disadvantaged, it is equally important that his or her cross-border package complies with the tax regimes in both countries. In practice, employees on secondment are usually paid a premium in the form of a hardship allowance or similar subsistence allowance, and this should be structured in a way that is beneficial to the employee while remaining tax-compliant in both countries. Both employee and employer need to fulfill their tax obligations to the host and home countries, and tax evasion should be avoided as it is a criminal offence. Give thought to medical aid and evacuation While an individual is on secondment in a foreign country, he or she would need to continue paying South African medical aid in order to avoid late joiner penalties. Late Joiner Penalties may be imposed on members over the age of 35 if they have not belonged to a medical aid before, or if they have had a break of more than 90 days from a medical aid. Depending on the number of years that they have not belonged to a medical aid, a late joiner penalty will be added to the member’s monthly contribution and worked out as a percentage of the contribution based on the total number of years a member has not been on a medical aid since the age of 35 years. But he or she would also need medical cover in the foreign country. Who pays for this, and what are the arrangements if urgent repatriation for medical or other reasons is indicated? Does the employee’s death benefit cover cross border deaths? Death is normally not a topic that forms part of general discussions, but an employer needs to make sure that the policy in place to cover death covers cross border eventualities. An employer might find themselves in trouble if such an event occurs and the employee was not covered outside the borders of South Africa. Ensure that proper precautions are in place as this can also result in an increase to the cost to the company. In conclusion, it should be apparent that this a complex area, and the payroll policy needs to be robust in order to copy with different eventualities. My advice would be for business owners to work closely with a payroll practitioner that specialises in cross border remuneration structuring to understand the issues fully, and to structure the company policy and individual employment contracts. One might find that the cost to the company is much higher than budgeted for as the secondment could result in unanticipated costs if not thought through thoroughly before drafting both the business contract and the employee contract. ENDS MEDIA CONTACT: Cathlen Fourie, 082 222 9198, cathlen@thatpoint.co.za, www.atthatpoint.co.za For more information on SAPA please visit: Website: http://www.sapayroll.co.za/ Twitter: @SAPayroll LinkedIn: The South African Payroll Association
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Despite the prevalent gender bias in the South African payroll industry towards women, change is under way says Val Forrest, Executive Director and Administrator of the South African Payroll Association (SAPA). “Payroll has a high level of discipline and routine and women handle routine well, others just fall into the job because they are good at figures and can build good relationships,” Forrest adds. The gender imbalance is also evident in SAPA’s membership, which is currently sitting at 50% female that are white and Indian, with the remainder being divided between black women and men. “However, it is enormously exciting to see the number of men that are coming into payroll and they have a definite layer of sophistication to them,” Forrest says. “In this profession, if you are good, no business wants to lose you and those who come into the profession today are well aware of this.” She further notes that she would like to see change around equal pay for equal work and more recognition as to the important role the payroll professional plays in the success of any business. Evolution of payroll Focussing on other changing trends in payroll, Forrest mentions that in the 60’s, the payroll practitioner inhabited an entirely different world to the one in which they currently practice. It was, to be precise, a hard slog. “Sometimes I wonder how we managed back then,” says Forrest, who has been in the payroll industry for the past 50 years. “We did the calculations for payroll in an enormous ledger that was so big, I had to stand up to complete the top lines when I started a new page.” Wages and salaries were manually calculated and checked by the accountant, before being drawn in cash from the bank. The pay envelopes were painstakingly handwritten, carefully filled and recipients signed for their money in a ledger. Then came the Kalamazoo payroll systems, which automated some of the manual processes. Transformative technology The advent of the personal computer brought Turbo Cash accounting software, which allowed records to be pulled up in seconds rather than laborious physical hunting for files. Payroll was transformed. “However, payroll became more complex, vast volumes of legislation were passed and we became project managers, counsellors, guardians of information, diplomats and accountants,” says Forrest. “Now the payroll practitioner is a true professional who knows how important the role is.” “I have been at SAPA for 14 years and watched the association grow,” adds Forrest. “We have SAQA (South African Qualifications Authority) recognised qualifications, have become a professional body in South Africa and added inordinate value to the payroll profession. But there are still some inequalities that need to be addressed, changes which need to be made.” “Organisations need to give as much attention to the development and training of professional payroll personnel as they do to the rest of the people they employ,” says Forrest. “And they need to introduce the concept of payroll as an attractive choice for young people to build a career.” Forrest will be concluding her successful payroll career and involvement with SAPA at the association’s conference in September this year. For more information, visit http://www.sapayroll.co.za/Events/Conference.aspx. ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on SAPA please visit: Website: http://www.sapayroll.co.za/ Twitter: @SAPayroll LinkedIn: The South African Payroll Association The growing complexity of the payroll function is creating pressure on those managing and working in payroll departments to improve their skills and adhere to common standards. “Globally, payroll is increasingly becoming a professional discipline,” says Lavine Haripersad, Vice Chairman of the South Africa Payroll Association (SAPA). “This means that everybody who works in payroll will need to ensure they have the right qualifications and skills to do the job. In line with other professions, belonging to a professional organisation like SAPA, which offers continuous professional development and sets standards, makes very good sense.” Haripersad adds that employers will progressively be attracted to payroll professionals who are members of their professional organisation, as this is an indication that they are committed to the organisation’s code of conduct. SAPA’s code of conduct commits its members to principles that include integrity, confidentiality, collegiality, engagement and collaboration, trustworthiness, competency, reliability, compliance, fairness and passion. Increased compliance burden Payroll has become much more than just paying employees accurately and timeously, though, of course, that remains a core function. The growing body of regulation relating to employment and financial management means a greatly increased compliance burden, and thus a significant risk for companies. In addition, benefits administration is both critical and complex. Payroll data is also, of course, highly confidential, so data security is of particular concern in the age of digital business processes and cybercrime. In light of this, the soon-to-be-enacted Protection of Personal Information Act will be of particular relevance to payroll administrators. In line with governance best practice, it has become necessary for payroll managers to adopt a systems approach to minimise organisational risk, and put the necessary policies and procedures infrastructure in place. Payroll managers are increasingly being drawn away from pure administration to interact at a more strategic level with the CFO and other senior role-players within the organisation. Get qualified “At the management level, a degree is becoming a must,” says Haripersad. “People are no longer simply finding themselves in payroll, as frequently used to be the case—now it’s a job one has to train for; one needs the broad skills and understanding to think and act strategically, and to create solutions. The same principle is true for those working in the payroll department, where a diploma is becoming necessary.” Haripersad adds that those wishing to pursue a career in payroll should be sure to use institutions that are approved by SAPA. Diploma and certificate courses are offered at various service providers, including The Da Vinci Institute, which is associated with Accsys People Management Solutions, that introduced a B Com (Business Management) Applied to Payroll Employees degree in 2015. It is also important to ensure that courses are accredited by the South African Qualifications Authority (SAQA). “As the industry becomes more professional, those in it have the obligation to uphold its standards and ensure they themselves keep up to date with latest developments,” concludes Haripersad. “SAPA provides the framework to help individuals achieve their goals, and to hold them to the same professional standards.” ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on SAPA please visit: Website: http://www.sapayroll.co.za/ Twitter: @SAPayroll LinkedIn: The South African Payroll Association The South African Payroll Association (SAPA) says that the proposed amendments to the Magistrates’ Court Act 32 of 1944, aimed at curbing unconstitutional practices relating to garnishee orders, are to be welcomed. The Association has urged Parliament to press ahead with tabling the bill now that the local government elections are complete. “The new bill is an excellent piece of legislation that corrects some of the glaring faults in the existing law, which have greatly prejudiced large numbers of vulnerable workers,” says Nicolette Nicholson, director at SAPA. “Because the current Magistrates Act sets no cap on garnishee orders, and the Basic Conditions of Employment Act cap personal deductions only, employees can find themselves with no pay to take home, clearly something that is not sustainable either for the individual or the company.” Proposed Amendments In terms of the proposed amendments, says Nicholson, a maximum of 25 percent of a person’s salary will be able to be garnished—it’s not clear yet whether of gross or nett salary. Under the new bill, garnishee orders will have to be filed in the court whose jurisdiction covers the area where the debtor resides. Whereas the present law allows garnishee orders to be issued by any magistrate’s court, making it easy for companies to approach courts anywhere in the country that are known to grant orders easily—or, indeed, where they may have a corrupt relationship with a specific court official. The new bill also tightens up on the issuing process to force magistrates to investigate thoroughly the debtor’s financial position in order to ensure orders are just and equitable. Furthermore, the new bill gives employers the responsibility of ensuring that salary deductions are made timeously (or risk becoming liable for any interest on arrears), and of stopping deductions when the amount stipulated in the judgement is paid in full. “These are all very good moves to protect employees,” says Nicholson. “However, one concern is the extra burden this places on payroll departments. My advice would be for companies with large workforces to engage the services of a reputable third-party service provider to manage the garnishee orders.” The proposed amendments have been approved by Cabinet and are now due to be considered by the Portfolio Committee on Justice and Correctional Services, although the date has not yet been set. In the meantime, says Nicholson, irrespective of the law, employees need to take responsibility for their own actions. Take responsibility However, the onus still falls on consumers to take responsibility for their spending. “Every citizen is responsible for conducting his or her financial affairs responsibly—that’s the bottom line,” says Nicholson. “If one lives above one’s means, then there will be consequences. In particular, employees must avoid relying on their variable income to fund their lifestyles—bonuses, overtime and the like are not part of the salary package and will vary in line with company performance. For example, many people find themselves receiving a garnishee order because they are relying on a bonus to pay for something, and then the bonus doesn’t materialise.” If employees run into trouble, she concludes, they should definitely turn to their employers for help. Although there is no legal obligation to provide financial or debt counselling, many companies do so, or would be prepared to refer an employee to someone who could help. In addition, most of the big retirement funds offer financial well-being services. “Help is definitely available—look for it,” she advises. “A problem with debt compounds quickly, so the earlier one begins with a solution, the better.” ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on SAPA please visit: Website: http://www.sapayroll.co.za/ Twitter: @SAPayroll LinkedIn: The South African Payroll Association When changing jobs or retiring, it is very important to ensure that the correct tax treatment is applied—or both employer and employee could find themselves at risk. Author: Lavine Haripersad, Vice Chairman, South African Payroll Association When employees leave a company, whether to move to another job or to retire, it is important to ensure that the payroll department applies the correct tax treatment. Typically, the reason for the employee leaving determines the way the final payments are treated by the taxman. Failure to apply the correct principles could make the company vulnerable to penalties from SARS, and the employee could find him- or herself having to make arrangements to pay back some money to SARS on assessment Reasons for leaving If one looks at the most common reasons for people leaving their current employer, it becomes easier to understand the type of tax regime that should be applied. Employees should make it their business to understand the broad principles and raise any queries, in order to avoid having to make unexpected repayments later. Reasons for departure include: • Resignation. When an employee resigns, his or her final payment will typically include a pay-out for any untaken leave, pro rata bonuses and notice pay, if applicable. These payments are subject to normal income tax, and the payroll department does not need to obtain a tax directive. • Operational requirements. This covers both retrenchment and redundancy, both of which result from the operating conditions in which the company finds itself. In the case of redundancy and retrenchment, HR has to apply the rules prescribed in the Labour Relations Act, 66 of 1995, which requires the employer to make a severance payment of (a minimum of) one week’s pay for every completed year of service. For tax purposes, this redundancy lump sum payment must be treated as a retirement lump sum payment. A portion of this lump sum is free of tax (although this will be affected by any previous lump sum benefits obtained). In order to obtain this highly desirable benefit, the employer must first obtain a tax directive from SARS. The tax regime in respect of these severance pay-outs is that the first R500 000 is not subject to tax, the next R200 000 is taxed at 18 percent, the subsequent R350 000 at 27 percent, and all amounts above R1 050 000 at 36 percent. As already noted, these figures have to take into account any previous benefits claimed during prior redundancies. Most importantly, it must be remembered that notice pay, leave pay and pro rata bonuses that are also paid at the time of termination are not part of the severance benefit, and are subject to normal tax. • Mutually agreed separation. When the relationship between employer and employee breaks down, the parties might agree to an amicable parting of the ways to avoid legal disputes. In such cases, a gratuity or final settlement payment is usually made. It will usually be determined following the guidelines for retrenchment packages in Section 41 of the Basic Conditions of Employment Act. The critical point to note here is that because this payment is not made on the basis of operational requirements, it does not constitute a severance benefit. Thus, a portion of this payment may not be treated as a tax-free pay-out, as in the case of a severance for operational requirements. This means that the mutual separation gratuity will be treated as part of the employee’s normal remuneration, and will thus be taxed as such. What can you do? In conclusion, let us stress two points. The first is the one already made, namely that the reason for the termination of the employment relationship will determine how the final payment will be taxed. While the onus is on the employer to ensure that the correct tax regime is followed, if the employee has insufficient tax deducted, he or she will still be liable for the unpaid tax to be paid to SARS—even if the discrepancy only comes to light after some time has elapsed. If employees are unsure, they should first discuss the matter with the payroll department and, if necessary, consult an independent tax practitioner. The second point to emphasise is that to prevent mistakes happening, the traditional communications gap between HR and Payroll needs to be closed. Both parties should make active efforts to improve this situation because if HR makes the reasons for the termination absolutely clear, it is easier for Payroll to apply the correct tax regime. In the end, everybody will benefit, including the employees. ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on SAPA please visit: Website: http://www.sapayroll.co.za/ Twitter: @SAPayroll LinkedIn: The South African Payroll Association Why you should avoid misusing sick leave When it comes to the issue of leave, one of the biggest challenges facing both employer and employee is the misuse of sick leave. A recent study by Occupational Care South Africa and Statistics South Africa found that an average of 15% of employees are absent on any given day, and that only one in three of those absent are actually sick. This is costing the South African economy an estimated R16-billion a year. “The pressure on the organisation isn’t letting up and employees need to remember that they have a job because their employer needs them to fulfil a function,” says Cathie Webb, Director, South African Payroll Association. “If you aren’t there, someone else has to stand in for you so it is important to take your employer into consideration when using your leave, especially sick leave. Some people see their sick leave allowance as a target, rather than something to be taken when absolutely essential.” Not only does the abuse of sick leave cost the organisation in terms of productivity, but the employee will have to use their annual leave should they suddenly need extended leave to recover from an operation, for example. Once that is used up, they will then be on unpaid leave, which will affect them financially. “Employers are much more likely to be approachable in terms of alternative ideas in an emergency if an employee doesn’t have a history of abusing leave,” says Webb, adding that the wisest course of action is for employees to remain within the rules around sick leave. Also important to note is that companies are not legally required to offer the benefits of additional leave elements, such as study or religious leave. On the contrary, many companies are reducing leave allowances due to the current poor economic climate. Employee Responsibility While some companies do not stipulate leave in their contracts, others have very precise regulations and it is up to the employee to know how their company handles the issue of leave. “It is common practise, and legally required, for companies to detail the number of leave days to which an employee is entitled in their employment contract,” says Webb. “While it is good practice to reflect the leave balance due to an employee on payslips, this is not a legal requirement.” In cases where a company does not provide leave information in their contract, the Basic Conditions of Employment Act applies. This is broken down into three distinct categories namely, annual, sick and family responsibility. Employees are entitled to 15 working days per year for annual leave, 30 working days over a three-year period for sick leave and three days per year for family responsibility leave, if they work a 5-day week. A six day working week accrues accordingly. Webb conclude that as an employee of a company the onus thus falls on you to understand exactly what your rights are when it comes to leave. Know what you are entitled to, how it is structured and the rules which dictate it. ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on SAPA please visit: Website: http://www.sapayroll.co.za/ Twitter: @SAPayroll LinkedIn: The South African Payroll Association To reap the benefits of employee satisfaction, productivity and profit, South Africa should adopt global practices when it comes to the function of payroll in businesses. While payroll professionals are internationally recognised as valuable contributors to management, strategy and finance, often sitting on the board of large companies, this is unfortunately not the case in South Africa. “The South African organisation needs to break old habits and look to new ways of redefining payroll,” says James McKerrell, CEO, South African Payroll Association. “Stop relying heavily on technology or simply appointing a data capturer to work the system, neither of these solutions can provide the business with the insight and support it really needs. Internationally, payroll is more proactive, advising employees on how to structure their pay packages for greater benefit and liaising with management in terms of overtime spend, staffing and productivity targets.” This means that payroll departments in companies abroad has inordinate value and businesses are benefitting in terms of bottom line and employee morale. Save or spend “In the UK organisations typically use two people to do the job of payroll, which has the additional benefits of no burnout, no overwork and a work-life balance,” says McKerrell. “In SA, there remain historical skill gaps and dissimilarities in work ethic steeped in cultural differences. The result is that technology, an excellent resource with impressive functionality in SA, is picking up the slack. However, technology can’t advise on roles, employment numbers and employee benefits and cannot solve all payroll problems.” Therefore, if the local business sector rethinks its model and invest in the role of payroll, despite it being 1.5 times higher than current salaries, they will undoubtedly experience significant overall savings. “Internationally, payroll professionals are not as busy and they have more time for manual processes,” adds McKerrell. “In South Africa, they are overworked. This is where technology can now step in, doing the transactional elements while allowing for the payroll professional to take on a more strategic and advisory role.” Planning ahead The steps towards an inclusive and dynamic payroll role is to blend technology with humanity, allowing for the former to support the latter rather than take on the role in its entirety. “Payroll, when integrated and not overworked, will deliver insight, strategy and a more holistic view of the business,” concludes McKerrell. “Internationally payroll training has followed this model for years, South Africa is only just getting started. Now is the time to invest in the right training and to enable payroll people to act with confidence and the difference will soon be felt.” ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on SAPA please visit: Website: http://www.sapayroll.co.za/ Twitter: @SAPayroll LinkedIn: The South African Payroll Association |
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