As an entrepreneur, the admin and bureaucracy of running a business can take up time and effort. This is often time you’d rather be spent growing your business.
If you're reading this article, it’s likely that you’ve got a team of employee’s which you manage and need to pay on a regular basis. This article is for you if you’re trying to make sense of the options out there, and how to choose between the different solutions available.
This is going to help you understand:
- If you need payroll services for your business;
- Why it helps small business owners to have a payroll solution;
- What payroll services can offer you;
- South African business environment and tax considerations;
- Your payroll service options compared.
Why is Payroll Such a Big Deal?
In South Africa, there is no official certification for payroll processing. But in countries like the U.S. and Canada the provision of payroll services is an industry in itself, and processors have to be suitably certified. Their certification must be renewed at regular periods (usually every five years), and processors must accrue continuing professional development (CPD) points in between.
You might assume from this, that South African payroll is simple. But that's not at all the case. Several laws affect payroll in South Africa, including:
- the Tax Act,
- The Basic Conditions of Employment Act,
- The Unemployment Insurance Act,
- The Skills Development Levies Act,
- The Employment Equity Act, and
- The Compensation for Occupational Injuries and Diseases Act.
As the business owner, you are ultimately responsible for any contravention of these laws. You are also the one who must deal with the business consequences if anything goes wrong with processing.
If payroll doesn't go through, your employees may not be able to feed their families or make it to work. And disgruntled employees could even choose to strike and bring your operations to a halt.
What Does Payroll Entail?
The effort involved in payroll will depend on your number of employees. But, to a greater extent, it depends on the variety of remuneration methods used and your employees' profiles. In addition to statutory reporting requirements (covered below), here are some examples of time-consuming and complicated payroll scenarios,
Weekly, hourly, overtime or commission earners
Paying employees weekly, means running most payroll tasks four times more than for monthly paid employees. Where employees get paid by the hour or for overtime, payroll must keep track of their hours. And where employees earn commission, payroll must keep track of their sales and commission rates to make payment.
Payroll must track accumulated leave for each type of leave, whether paid leave, sick leave, unpaid leave, maternity leave, etc.
Payroll must know how to tax company benefits like bursaries, travel allowances, cell phone allowances and reimbursements (or at least what codes to use on the payroll software)
Payroll must also know how to tax and calculate employee contributions, for deductions like medical aid, union subs and retirement funding.
Loans, advances and staff purchases
Payroll must keep track of outstanding loans and staff account balances, calculating any interest or penalties due.
Where the courts have issued garnishee orders against employees, payroll must make the necessary deductions from the employees' pay and pay it over to the debt collector.
South African Revenue Services (SARS) Registration, Reporting and Payment Requirements
Businesses are required to register with SARS within 21 days of becoming an employer, and must register for;
- Pay as You Earn (PAYE) tax, unless none of your employees is subject to normal taxation,
- Skills Development Levies (SDL), unless your annual payroll for the next twelve months is less than R500 000, and
- The Unemployment Insurance Fund (UIF). Registration, reporting and payments can all be made online via efiling. Once registered, the following reporting (and payment) is required,
- Monthly – by the 7th of each month a completed EMP201 form and payment of PAYE, UIF and SDL must be submitted. If the 7th falls on a weekend or holiday, the return and payment are due by the last working day before it.
- Bi-annually – the EMP501 return reconciles the total amount of PAYE, UIF and SDL paid to the returns submitted. It is due twice a year on the 31st October for the six months March to August, and by the 31st May for the full twelve months of the tax year.
- Annually – employee IRP5s must be produced and given to employees
Department of Labour (DOL) Registration and Reporting
Employers must also register with the DOL and submit an Annual Return of Earnings to the Compensation Fund. It can be done online at http://www.labour.gov.za./, but corrections have to be requested in person. The amount due is assessed based on the employer's industry and earnings.
The annual income threshold that the fund covers changes each year. Where employers are not aware of this, they could submit returns above the threshold and overpay. If any prior year returns are missing, returns cannot be submitted online.
What Are Your Payroll Options?
Now that you know a bit more about what's involved, let's look at the payroll options for your small or medium-sized business.
Option 1: In-house Payroll Software
If you have a simple payroll and someone suitably trustworthy and detail-oriented to run it, running payroll in-house is undoubtedly possible. There are several software applications, like Sage One Payroll, that are suitable for the South African payroll environment (we cover a few below).
When selecting payroll software, your choice of vendor is critical. You want to know that they will be there to support you if you need help. It would be best if you also looked for a vendor who offers comprehensive training. Training should cover their software and keep your payroll staff up to dates with SARS and other applicable changes.
Look for software that connects automatically to the SARS efiling website to submit returns because this will cut down on errors. Be sure that the vendor can satisfy you that backups are kept securely and per SARS requirements.
Pros of In-house Payroll
- Cost-effective if you're not employing someone specially to do it
- You retain control
- You don't have to manage a vendor relationship.
Cons of In-house Payroll
- Can be a distraction
- Errors can incur costly penalties
- You’re doing work which is not directly related to your business goal.
Option 2: Full Payroll Outsourcing
Where your payroll is large or complicated, you might want to consider outsourcing your payroll services entirely. Accounting firms frequently offer payroll services to their client, and there are specialist firms set up to handle outsourced payroll. (We cover some below.)
Pros of Full Payroll Outsourcing
- Saves you employing a payroll processor
- It's useful to have a third party responsible for unpleasant communications regarding tax etc.
- You don’t have to worry about compliance
Cons of Full Payroll Outsourcing
- Keeping the vendor advised of hours, commission, and leave could still take up a lot of time and be subject to errors.
- Sensitive employee data sits outside of your company.
- A vendor won't understand your business and people the way you do
Option 3: Hybrid Payroll Outsourcing
Since the advent of cloud computing, hybrid outsourcing has become popular. You do some data entry on your side in this scenario, and the vendor offers oversight, processing and other payroll services. Hybrid solutions will often give you access to sophisticated functionality that you wouldn't be able to afford on your own. Depending on your needs, these could include remote clocking and monitoring systems, online timesheets and expense claims, leave applications etc.
Pros of Hybrid Payroll Outsourcing
- Provides you with visibility
- You control the things it makes sense for you to control
- Potentially gives you the functionality you couldn't otherwise afford
- Potential for you to take over more functionality as you grow
Cons of Hybrid Payroll Outsourcing
- Sensitive employee data is available to the vendor.
- Can get expensive
Payroll Providers Review
We've identified some of the popular vendors in the South African payroll space for your convenience.
Payslip develops payroll and HR software. The PayLite software is specifically designed for small business payroll. It's compulsory to purchase training for each user on purchase, and you can buy support by the hour or in discounted bundles.
Payslip also offers customized outsource payroll services for any size business, where you choose what you want them to do. The team includes experts in taxation, payroll administration, legislative compliance and audits, and computer software specialists.
Quick Payroll is the payroll software from Quickbooks Accounting. It is sold through a reseller channel who provide training and support. Additional modules can be added to the basic package for Bargaining Council functionality and multi-country processing. There is also an HR module available.
Sage One Payroll (previously VIP Payroll) is a cloud-based payroll system that is fully SARS compliant. It integrates with Sage Accounting software but can be used as a standalone product. Being on the cloud, it enables you to process payroll wherever you are, provided you have an internet connection. It also makes support easy as the consultants can view your system remotely.
PayDay offers payroll software, HR, time and time and attendance software. They also offer an employee self-service module where employees can request documents like payslips and IRP5s. Their software caters to all industries and all size companies. They offer a comprehensive range of training courses for payroll and HR professionals.
Osidon markets themselves as a digital accountant working off Zero cloud-based accounting and payroll software. Their services are specifically geared towards entrepreneurs and include payroll services. This could be a good solution if you are also looking for accounting services. Plus, they promise access to discounted legal advice and other business resources.
SimplePay promises their payroll software is so simple to use that you don't need any knowledge of payroll legislation, nor experience with other payroll systems. The system is cloud-based, and they even offer a 30-day free trial that has all functionality. You can literally start today for free.
TruPay is a payroll outsourcing company that offers services throughout Africa. They offer payroll services with full compliance with SARS requirements. They will send employees their payslips via email.
Accace offers a cloud-based payroll and HR outsourcing solution. Their payroll system’s online portal allows for secure data exchange, payslips distribution, onboarding and leave management or time and attendance functions. This allows for a hybrid solution where managers and employees can handle numerous tasks on their own. Accace also offers comprehensive labour law support.
Praxima is an international payroll outsourcing group, offering services in South Africa. Their solution gives employees a self-service portal and offers secure record storage and workflow that allows for different approval levels. This makes it suitable for bigger companies with disbursed workforces.
Depending on the nature of your business and profile of your workforce, payroll can range from relatively simple to extremely complex and time-consuming. After reading this article, we hope you now know where your business fits on this scale. And what solutions may make sense for you.
Above all, remember that ultimately you are responsible for any contravention of regulations. So, if you decide to outsource, make sure you're comfortable with your vendor. Be prepared to act swiftly if the relationship is not what you expected.