From nightmare to no problem: The trick to getting payroll right

As if navigating a sluggish economy is not enough of a challenge, there is a significant burden on small and medium-sized enterprises (SMES) to comply with regulations.

The SA Revenue Service (Sars) and other authorities take a dim view of businesses that don’t meet the deadlines for submitting tax returns or comply with regulations. For smaller businesses, many of which don’t have dedicated administrative, human resources or finance departments, meeting these deadlines can be challenging and ridden with anxiety. 

Registered tax practitioner Yolandi Esterhuizen, a director of global compliance: product management at Sage AME, says running payroll doesn’t have to be administratively taxing or a nightmare — even for SMEs without the same support resources as a large business. 

“Once the appropriate processes and systems are in place, payroll should be a breeze,” she says. “Businesses have the option of running payroll in-house or outsourcing it to a payroll specialist. A good in-house bookkeeper — or an internal finance team — is perfectly capable of running payroll which has the added benefit of providing the business with more flexibility and control.”

Esterhuizen says technology solutions mean that most of the work can be automated, which provides greater efficiency. “An automated, cloud-based payroll solution simplifies things significantly by automatically calculating any deductions, generating electronic payslips and reports, and assists with keeping accurate records.” 

Another benefit of an automated solution, she says, is that the software automatically updates when new tax tables are published, saving hours.

However, for businesses that don’t have an in-house accountant or payroll expert, outsourcing the payroll function to a specialist who can run payroll along with filing your annual financial statements and file VAT and tax returns is a good idea. The benefit of outsourcing to a specialist is that they will be able to provide advice and find any discrepancies in your records. 

More than just allowing a business to be compliant or being a hygiene factor, Esterhuizen says an automated payroll solution acts as the core of a people-focused business. “Not only does it allow employees to conveniently access their payslips, it also allows them to apply for leave and easily update their personal information. In addition, it can help businesses to manage flexible workforces, the use of freelancers and contractors as well as enabling managers to manage projects, schedule tasks and conduct performance reviews.” 

The data that a good payroll and HR system provides, she adds, is essential to helping business leaders make more informed decisions, particularly when it comes to talent management. “Things like measuring employee productivity, engagement and wellness as well as managing compensation, performance, talent retention, overtime and absenteeism are all easier when a business has an automated payroll solution in place. Ultimately, this data can be used to help attract and retain top talent by mapping career journeys, shaping remuneration and rewards policies, and even implementing wellness programmes.” 

In SA, payroll is governed by an extensive list of laws and tax regulations, all of which need to be complied with. The most important first step in terms of compliance is registering the company as an employer with Sars. This requires completing the EMP101 form within three weeks of becoming an employer. 

At the same time, employees must be registered for Pay As You Earn (PAYE). Businesses are legally required to deduct tax from their employees’ remuneration. In addition to deducting tax from their monthly salary, tax also needs to be deducted from any bonuses or commissions paid and even benefits. Refer to the annual Sars tax tables for more information. 

Businesses are also required to register for the Skills Development Levy, a 1% levy on the company’s total payroll remuneration which is earmarked for learning and development. To register for this levy, businesses must complete Sars’ EMP101 form within three weeks of employment. 

They also need to register for the Unemployment Fund (UIF) with the department of employment & labour on uFiling and with Sars. The fund, which provides short-term payments to temporarily unemployed or sick individuals, or women on maternity leave, requires that employees deduct 1% of their remuneration. Employers are then required to also contribute 1% to the fund, making the total contribution 2%.

PAYE, the Skills Development Levy and UIF must all be paid to Sars by the seventh of each month (or the last working day before the seventh if the seventh is a public holiday). 

At the end of each tax year, employers are required to issue a tax certificate — the IT3a/IRP5 — to each employee. They are also required to issue a tax certificate when the employee resigns or leaves the company. In addition, companies are required to submit an annual EMP501 reconciliation. This form reconciles a company’s tax certificate information with its monthly PAYE, Skills Development Levy and UIF payments.

With the right HR and payroll solutions in place, you can keep tax year-end submissions simple. Visit the Sage website for more information about its solutions for businesses of all sizes or click here to download Sage’s 2024/2025 Pocket Guide to Payroll Compliance. 

This article was sponsored by Sage.