Common payroll pitfalls and how to avoid them

An effective payroll management process is one of the most critical functions within a business and requires a combination of efficient payroll software and robust internal procedures to ensure accurate and cost-effective payroll management processes.

 

Payroll management is crucial in maintaining employees’ morale and confidence as employees expect to be paid promptly, regularly, and accurately. Poor payroll management procedures can result in inefficiencies in payroll processing, increasing the risk of payroll errors and non-compliance with laws and regulations.

 

Fortunately, most of the common payroll pitfalls are easily avoidable with education, proper planning, and the right tools. Read on to learn about these payroll mistakes and how to avoid them.

1.      Not setting up proper systems of checks and balances 

This is the easiest loophole for payroll fraud, which is arguably one of the most common types of corporate fraud. Payroll fraud is usually committed by an employee attempting to receive any money they are not entitled to through the payroll system.

Here is a controls checklist that your business can use:

  • Limit access to payroll records to trusted payroll specialists only
  • Randomly and regularly inspect payroll records to ensure everything is accurate
  • Create a separate bank account dedicated to payroll
  • Use password-protected security measures to avoid unauthorised access to payroll records
  • Use a modern time-sheet system
  • Ideally, the person handling calculations should not be the same person making payments so that there is a second pair of eyes to double check.

2.      Managing leave days incorrectly

Mismanagement of annual leave can have a big ripple effect on a company’s efficiency and effectiveness. CN Outsourced Finance is a leading provider of outsourced payroll management services that are designed to optimise your payroll processes, streamline your business, and boost your employee satisfaction.

 

The best way to start managing correctly is by having a leave policy in place that covers annual, family responsibility, sick, maternity, paternity, study and unpaid leave.

 

Then make sure to:

·        Encourage employees to take annual leave throughout the leave year

·        Allocate leave on a first come, first served basis

·        Set limits on the number of employees who can take leave at the same time

·        Specify any time frames where taking leave will and will not be permitted

·        Ask employees to provide notice when requesting leave

·        Evaluate requests for extended holidays carefully

·        Automate leave applications by using an employee self-service (ESS) software

 

When the above is done well, it allows ample time for planning and little room for error.

 

3.      Inaccurate reimbursement of business travel

When it comes to business travel, it can become tricky for reimbursement.

 

The right way for a business to manage this is for the employee to provide the kilometers travelled and the business will then calculate the kilometer to the Rand in order to reimburse.

 

The tricky bit comes in when you have to calculate tax. Usually, businesses follow the SARS rate and, in that case, there is no tax.

 

In addition, did you know that if an employee is using an employer petrol card they should be taxed in the same way and at the same rate as if they had a travel allowance?

 

The total reimbursed travel must also be reflected on the IRP5 certificate and the rate per kilometer is fixed by the Minister of Finance.

 

It is best to use a professional to help you pay out correctly and fairly.

 

4.      Using a non-professional payroll service provider

Going it alone or using someone other than a professional payroll service provider can easily result in unnecessary errors such as fraud, tax penalties and late or incorrect tax submissions.

 

The biggest benefit of using an outsourced payroll expert is that they will keep your business compliant with payroll tax laws and changes.

 

While you are an expert at your business, unless your business is a payroll service provider or accounting firm, you probably do not have the time to become a payroll tax expert. Not to mention the cost and time savings you will realise, which is nothing short of music to the ears of SME owners.

 

Managing your payroll might sound easy but for SMEs, it is more complex than you think.

 

March is the first month of the tax year making it easier to switch to service providers aligned with your business’s financial objectives.

 

Chwayita Deliwe, Director at CN Outsourced Finance

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