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Payroll General Questions
This page deals with general payroll questions
SHOULD ALL REMUNERATION PAYMENTS BE DONE THROUGH THE PAYROLL SYSTEM ?
- There is no law that says that remuneration payments must be processed through a payroll system.
+ Take a very small business, which will probably just pay it's employees in cash, and leave it up to the Bookkeeper to sort out at the end of the month.... when various Returns and payments to SARS are due.
+ A not so very small business may show such payments in their Cashbook, and still only sort things out at the end of the month.
+ A better organised medium size business will probably create a seperate journal through which the various remuneration calculations are done, and then only write the final results to the various accounts in a General Ledger (the basics of a proper accounting system). Such a seperate journal / system could simply be a book, sheets of paper in a file, a spreadsheet program and printouts, or a proper payroll program.
+ So, there are many reasons to run your payroll through a seperate system, because apart from consisting of rather complex calculations, do you also need to calculate and keep totals of Income, as well as PAYE, UIF and SDL.
- Another question that comes up, is whether all payments must be done through the payroll system? Likewise, the answer is No, but ....
+if you want to sidestep the taxes due, dont even consider it, because it will only be a matter of time before you are caught, with resulting penalties.
+if you think of doing it for practical reasons, think again, because you will be complication things more than simplifying them. The reason being that most remuneration payments have one or more taxes associated with it, and if it is not done through your payroll system, will you have to manually add them on at the end of the month, when the various Returns and payments have to be made. For instance ....
* if PAYE is not deducted, will the employee at assessment have to pay in. But worse still, could the Employer be penalised if the correct PAYE had not been deducted. Even if the employee is below the income at which tax must be paid, must his/her income still be declared, and will it have to be manually added to whatever totals have been generated by your payroll system.
* UIF is not payable above a certain ceiling, and if this monthly ceiling had already been exceeded, will there be no further UIF implications.
* SDL is payable as a percentage of Remuneration, and any income not taken into account will result in under-payment of SDL.
Moral of the story is, to pay all Remuneration through the payroll system. Whatever time you think you save by not doing it, will take you many more hours to manually add on at the end of the month when your monthly Return is due, as well as at the end of the year for your Annual Return ... not to mention the recent additional requirement by SARS of Bi-annual / Mid-year Returns.
PS. Compenstion to employees that are out-and-out non-taxable and need not be declared to SARS, may for practical reasons not be routed through your payroll system. Such payments are ...
+ Compensation for business related expenses incurred by the employee.
+ Relocation costs, within the guidelines specified by SARS.
SALARY OF A BUSINESS OWNER
How to handle the salary of a business owner who might draw a different salary every month depending on availability of cash, varying needs, etc.?
-Draw a basic (possibly small) salary every month that is processed through the payroll system, which is properly recorded and taxes paid on.
-Additional salary may then when required also be drawn through the payroll system, or money may simply be drawn against the owner's loan account. Bear in mind when money is drawn against a loan account, are no taxes incurred, but whenever the loan account is replenished, will taxes be incurred. Replenishing of the loan account may be done in the following ways ...
+Process a salary through the payroll system which will raise the various taxes (Income-PAYE, UIF and SDL), and deposit the money back into the business against the owner's loan account, or simply assign the payment of such salary directly to the loan account.
+Declare a dividend which will incur STC (Dividend Tax) at 10%, and book the amount to the owner's loan account.
BY STRUCTURING YOUR INCOME BETWEEN DRAWING AS A SALARY AND DIVIDENDS, IS THERE A POINT AT WHICH YOU CAN MINIMIZE YOUR INCOME TAX .... TO FIND OUT MORE ABOUT REDUCING YOUR TAX IN THIS WAY, PLEASE CONTACT US.
Pierre Leon Myburgh