The challenges that small businesses in South Africa face are unique and often complex. South African Payroll Association (SAPA) Executive, Arlene Leggat, says there are several things that small business owners should keep in mind regarding their payroll system, and their obligations to ensure they comply with the law, and set their businesses up for success as they grow and expand.
 
“Many times, a small business’ payroll evolves organically. When a company starts out, its payroll may consist of just a handful of employees. Only after the first person resigns or an employee gets dismissed do problematic pitfalls in a small and haphazard payroll system lead to major problems,” says Leggat.
 
Responsibility towards employees and SARS
A small business needs to register their business with SARS and all the relevant legislative bodies even if it is not yet paying tax. It may seem more efficient to simply pay employees from the company’s bank account without having to deal with all the administration involved with printing pay slips and deducting UIF, but this approach can lead to run-ins with the law.
 
“All employees are required by law to receive a payslip, and to contribute to UIF. This may be an onerous task that seems unnecessary in the beginning, but if a dismissed, retrenched or disgruntled employee tries to claim UIF and can’t, there are serious repercussions for the business owner. Business owners who neglect to do this can be served with penalties and fines,” says Leggat.
 
Small business owners also need to make sure that whatever deductions are made to employees’ salaries are paid over to SARS. It can happen that a new or growing company runs into cashflow issues and neglects to pay the tax that has been deducted from workers to the revenue authority.
 
“Ignorance will not protect you against the law and neglecting to pay an employee’s tax to SARS constitutes fraudulent activity,” says Leggat.
 
When to consider outsourcing
While she doesn’t believe that outsourcing payroll and accounting duties is a sustainable solution for all businesses, Leggat believes it does make sense for many small companies who are either just starting out or growing.
 
“If your business is still new, then outsourcing your payroll needs to an accredited and experienced professional is advisable. This way, you have the peace of mind that comes with knowing someone is dealing with the authorities on your behalf, making sure your employees’ tax certificates are completed and submitted on time, and that a knowledgeable person is staying on top of everything for you,” says Leggat.
 
Instead of entrusting your payroll to a friend or acquaintance who only has limited knowledge of payroll systems and accounting, rather enlist in a course to upskill yourself on what your responsibilities are as a new business owner.
 
“There are many one-day courses offered by government institutions that are aimed at empowering entrepreneurs with the knowledge they need to set up their businesses and comply with South African legislation. Payroll and accounting may not be your core competencies, but your business is your responsibility and you need to be driving your payroll strategy correctly from the very beginning,” concludes Leggat.
 
ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, [email protected], 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

Author: Lavine Haripersad, director, South African Payroll Association
 
It may be necessary for the South African Revenue Service (SARS) to review some of the binding conditions related to the Employment Tax Incentive (ETI) that it introduced in January 2014 to stimulate employment for work seekers with little work experience and in the age bracket of 18 to 29 Years.
 
This would aid in reducing the administrative burden associated with ETI for the extended period to 28th February 2019.
 
Through the ETI employers are incentivised by way of a reduction in PAYE according to the prescribed ETI guidelines, provided that the employer is fully compliant for all registered taxes. Supporting the ETI program is a no brainer as our youth unemployment is in the range of 52% and there is an urgency to change this situation.
 
It’s good, but…
In so much as the effect has been partially positive in seeming to boost employment for young work seekers and providing them with a platform to launch their careers, it lacked administration consideration for payroll departments.  It seems that it has been manipulated by some employers who are claiming the incentive for workers they would have employed in any case, without creating new jobs.
 
The payroll department has to contend with multiple issues resulting from a set of prescribed guidelines in the Act which do not appear to take the actual work and business environment realities into account, as well as payroll systems’ inflexibility to have robust programming to accommodate the ETI prescribed rules. This has been a major reason that has made business shun away from implementing ETI. Ultimately the noncompliance resulting from this becomes payrolls’ accountability.
 
The difficulty experienced with lack of clarity about implementation of the new (and changing rules) and the slow rate of some payroll systems to program the complex rules has resulted in noncompliance as well as additional manual intervention by the payroll department to verify the calculations.
 
Some of the issues
It is known that companies have had problems with the payroll system programing where it is unable to manage the exclusion of non-qualifying employees when they turn 29.11 years, resulting in claims being made for employees who do not qualify.
 
The value of the remuneration must be based on 160 ordinary hours per month, excluding overtime and unpaid hours. This means that if less than 160 hours is worked, the system must gross up the remuneration to 160 hours per month to calculate the value of the ETI which must then be grossed down on the same basis. This means that hours worked must be recorded and tracked for the correct claim calculation to be made. The calculation needs to be rules based to avoid manual intervention. This adds complexity with system programming and as a result is often managed manually.
 
Employers must ensure that they adhere to the qualifying period of 24 months claim for each individual. The 24 months need not be consecutive. Here again it is critical to have systems in place to manage this as non-adherence will be penalized.
 
In addition, one of the ETI requirements is that an employer must remain tax compliant for all registered taxes to be able to claim the tax incentive. If at any stage the Employer is found to be non-compliant, all ETI previously claimed may be subject to reversal. The implications are that interest and penalties are imposed on arrear taxes. To rectify the process can take up to 21 working days as there is no ETI dedicated contact at SARS.  This becomes administratively burdensome.
 
To avoid this situation, the payroll department must be proactive and add an additional control function in their already busy schedules. A monthly statement of account must be requested from SARS (or can be obtained from e-filing through the person who is accountable for this in the Company). This must be reviewed and any abnormal item reflected must immediately be raised as a query with SARS and rectified to ensure that the ETI claim is processed by SARS.
 
SARS have issued a Draft Binding General Ruling on the ETI Act 28 of 2013 for which comments must be submitted by the 24 July 2017. This clarifies the definition of remuneration which states that overtime is excluded from the calculation of remuneration for the 160 hours in the month. Previously variable pay that was paid was included in the calculation of remuneration. Although welcome, the question is when implemented, do we recalculate the history based on the new ruling?  The South African Payroll Association welcomes input from business, so that ideas regarding the General Ruling can be submitted.
 
Given all of the above employers are still required to be fully compliant and to ensure incentives are claimed correctly as SARS applies strict measures for the utilization of the incentive by employers.
 
ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, [email protected], 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

What it means to be a third-party agent for SARS

Few employers or employees truly understand what it means when you are nominated by The South African Revenue Service (SARS) as a third-party agent, which often results in a matter that could be resolved speedily lingering unnecessarily and impacting both parties.
 
In this instance a Payroll professional is in a prime position to help manage the process.
 
“Your company’s Payroll administrator performs many services that can alleviate a company’s administrative burden,” says Arlene Leggat, a director at the South African Payroll Association (SAPA).
 
How it works
If a taxpayer fails to submit their returns, or to pay their income tax, SARS will apply penalties every month until their returns are received and all amounts owed are settled.
 
However, if a penalty is outstanding for over two months, the Tax Administration Act allows SARS to appoint any person, including an employer, to hold money for that taxpayer as SARS’ agent. If nominated as such an agent, that person/organisation will be sent an AA88 Notice showing an amount to be withheld from the employee’s income, which is to be paid to SARS by the due date shown on the form.
 
It’s important to understand that when you, as an employer, receive an AA88 Notice, you become legally accountable for the payments. Penalties against an employee with unpaid tax will stop, but for outstanding returns penalties will be applied until the forms are submitted. Failure to adhere to the AA88 instruction will result in the agent being penalised for late payment.
 
A separate penalty will be incurred for each month that the employee fails to submit their tax return. Every three months SARS will accumulate this debt and issue an AA88 to the Employer (Agent).  SARS will also regularly send the agent an AA88 Reconciliation Statement showing any paid, cancelled or outstanding amounts for all employees against which an AA88 has been issued.

What Payroll should do
Any Payroll department should be familiar with the entire AA88 system, how to process payments and how to resolve issues of all kinds.
 
If you’re unable to make deductions, as will be the case if the taxpayer has left your employment, Payroll should inform SARS of this situation immediately, via the @EasyFile system.  On receipt of an AA88, Payroll should inform the employee that deductions will be made, ensure they understand their obligation, and assist them with settling their debt promptly.
 
If the AA88 is for outstanding taxes, Payroll must ensure the employee knows why the deductions are being made to avoid that a sudden cut in pay might be perceived as trickery on the employer’s part and the worker becoming demotivated and unproductive.
 
If the employee hasn’t submitted their return, Payroll should inform them that penalties will accrue until they’ve done so and explain the process to be followed. If possible Payroll may even offer assistance in completing and submitting such returns. They would require one of their Payroll team to be a registered Tax practitioner in order to do so.
 
An employee who earns under R350 000 for the tax year isn’t required to submit a tax return. However, mistakes can creep in and penalties are applied in error. If Payroll receives an AA88 Notice that appears to be penalties for late submission (usually increments of R250), they must encourage the employee to take it up this with SARS to resolve as soon as possible
 
If the deduction will cause the employee financial distress, Payroll should inform the employee that they can reduce the deductions by proving to SARS they cannot afford it. The employee must gather information about their expenses and submit this to SARS. If SARS deems the case valid, it may split the payments into more manageable monthly installments.
 
Payroll should also keep the employee updated on deductions, especially in the case where unsubmitted returns yield new penalties every month. In this way, the employee can see the dynamics and that their employer is not withholding pay unfairly.
 
In addition, if any refunds are due to the employee because of double payments, Payroll can inform them of the process to be followed apply for a refund. And if the employee leaves the company or dies, Payroll should apply for cancellation of further AA88s and refunds for any payments made afterwards.

Education
It would be greatly beneficial for any company to send Payroll personnel that are not acquainted with processing AA88s to SARS’ free workshops to ensure they have the latest information and requirements at their disposal.

​Value-added service
“Make sure your Payroll department isn’t only processing AA88 claims endlessly, but providing a value-added service that keeps your workers happy, motivated and productive,” says Leggat. “They should always strive to help employees protect their income and reduce the administrative burden on your company.”

ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, [email protected], 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