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DRG Outsourcing HR Article: Payroll Management

Article By: Nikita Pillay


For every business owner, it is critical to understand the basics of payroll and know how to manage it efficiently. By definition, payroll is the business process of paying employees, as well as SARS and 3rd Parties, such as service providers responsible for various employee benefits.


A payroll system usually comprises of calculating and distributing salaries, following your payroll policy, keeping payroll records, preparing financial reports for stakeholders and employees with a breakdown of payments, taxes, bonuses, overtimes, or holiday pays.

Processing with intent of a clear indication on the payslip is pertinent to having happy employees.


Accuracy is vital!

Errors, whether they occur during calculations or in payroll records, can lead to wrong net pay issued to employees or failed amounts of taxes paid to SARS. Both options are totally undesirable and costly for a business. Moreover, payroll goes into your business expenses, so proper management of payroll directly affects the accuracy of your business accounting.

Though excellent payroll management looks like a pretty daunting task, you cannot skip it. Geared with the appropriate payroll system, support functions, tools and a good piece of knowledge, you can successfully facilitate handling payroll.


It is very complex for businesses to run payroll in-house, however, for whichever reason lies behind it – the intent to have better control over business processes or the lack of resources – payroll management can be a pretty time-consuming task, especially if it involves manual data entry work. Moreover, the right payroll calculations, deductions, taxes, etc. can require a significant investment of effort if you are not specializing in payroll.


Various types of payroll software can handle all of a business’s payroll processing and related tax filings and payments, linked to E-Filing and Easy-File, to name a few, however this as well comes with a cost of the annual license renewal, and other annual statutory and system updates.

There are plenty of options available on the market, so you can choose the one that can perfectly fit the bill for you, depending on your organisational needs. Proper payroll management is the key to ensuring your employees are paid on time and your legal obligations are met.


The right payroll service can help ensure your payroll is processed accurately and in a compliant and timely manner. When it comes to processing payroll, it's usually best to invest in a professional payroll service, because you avoid much of the cumbersome administrative and tax-related work.


The payroll process can be split into 3 stages: Pre-Payroll, Actual Payroll Processing and Post Payroll Activities


PRE-PAYROLL ACTIVITIES

Defining policy: In these beginning stages, it is important to establish a company’s policies such as a pay policy, leave and benefits policy and attendance policy. Ensure that these policies are well-defined and signed off by your company’s management so that standard payroll processing can be established.


Gathering input data: Interacting with multiple departments and payroll is often an integral part of the payroll process. These are the people who can give you more access to important information like attendance data. The process might be more consolidated in smaller organizations and more robust in larger companies.


Input validation: The next step in the process is checking the validity of the input data and whether it adheres to company policy. This is the time to make sure no active employee has been missed and no inactive employee has been included in salary payment.


ACTUAL PAYROLL PROCESS

Payroll calculation: This is the stage in the payroll process where input data is put into the payroll system to actually process the payroll. This process results in net pay being generated after adjusting necessary taxes and deductions. After this process is complete, it is best practice to reconcile the values and verify accuracy to avoid errors.


Payroll Audit before Payment: A double-check process needs to be in place, and an audit trial will help as another process to eliminate errors and ensure accuracy ahead of payment.


POST-PAYROLL PROCESS

Statutory Compliance: At the time of processing all statutory deductions like Employee Benefit Deductions, PAYE and UIF Deduction and other 3rd Party Payments are deducted.


Payroll Accounting: It is important that every organization keep a record of all its financial transactions for the payroll process. Salaries are one of the most vital parts of operating costs to be recorded in your book of accounts. Payroll management should always ensure that all salary and reimbursement data is accurately entered into the company’s accounting system.


Pay-out: Salaries are paid out by bank transfers. Typically, employers deposit salaries directly into an employee’s bank account. Using a proper payroll software helps generate proper employee payslips.


Reporting: After you’ve completed payroll for a particular month, the finance department or management team needs to be provided with reports on various aspects of employee costs, by gathering the data and extracting reports required. Payroll is an integral part of a company’s operations. Not only is it responsible for employees’ salary compensation but it also plays an important role in protecting a company by ensuring it is following compliance.


Other reasons payroll systems are so important:


EMPLOYEE MORALE

An important part of keeping employees happy is paying them on time. Ensuring that you have a payroll system that pays your company in a timely manner on a consistent basis will definitely impact your employee morale. Late and inaccurate payment is likely to cause your employees to question the financial stability of the company. This might affect the overall environment and culture of your company, resulting in a negative attitude from employees that could bleed into their day-to-day tasks and cause underperformance.


A company’s workforce is often the heart of a company and reliable and accurate payroll is part of what keeps that heart beating.


REPUTATION

Not only does a company have a financial obligation to their employees, but they must also ensure that its payroll activities are compliant with the country’s tax and employment legislation. Following legislative laws, efficiently meeting tax obligation, and obtaining Letters of Good Standing, establishes a company as a stable employer, and boosts the company’s reputation.

DRG Outsourcing HR Article: Payroll Management
DRG Outsourcing HR Article: Payroll Management

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