By Rob Cooper, tax expert and director of Legislation at Sage

South African business and personal taxpayers are waiting with bated breath for the Finance Minister’s Budget Speech on 21 February to find out how the government plans to plug a large and growing budget deficit. 

The country is struggling to fill a R51 billion budget deficit, while finding extra funding for priorities such as free tertiary education and National Health Insurance.

Most of us have prepared ourselves for potential increases in personal income tax, VAT, fuel levies and sin taxes. In addition, every business owner and manager in South Africa can also expect the South African Revenue Service (SARS) to clamp down on non-compliance among businesses and individual taxpayers as part of its strategy to keep money flowing into government’s coffers. That means businesses must ensure that their payrolls are fully compliant with the laws and regulations around collection of PAYE. 

Largest contributor to tax

Accounting for 37% of tax revenue, personal income tax is the largest contributor to fiscal revenue. SARS has done a good job over the years of bringing employers into the tax net and catching those that don’t comply with the tax regulations and legislation. Those few companies that are not in full compliance can expect to see the tax authority take an even more robust approach to enforcing compliance.

To remain compliant, businesses must ensure that they register all employees for tax, declare the correct earnings for all employees and include correct calculations of other earnings, deductions (such as PAYE and UIF), and contributions (such as retirement funding or UIF contributions) in their payroll.  They must also make sure that annual returns are filed and submitted promptly and accurately.

The risks of getting it wrong include censure, interest or fines by authorities (SARS, department of labour, a labour court etc.), or even imprisonment in cases of fraud or extreme negligence. What’s more, compliance is complicated by annual changes in payroll legislative requirements.

Automation solves compliance challenges

Because compliance is complex and the risks of non-compliance are high, even smaller South African businesses can no longer rely on spreadsheets and other manual methods to do their payroll calculations and file returns. Automated solutions are becoming more essential for keeping reliable records and performing accurate payroll calculations.

Payroll automation software—with solutions available for businesses from start-ups to mid-sized companies and larger enterprises—takes care of calculating the complex formulas for the various deductions, generating compliance reports, and keeping accurate records. That makes it easier to perform accurate calculations, file submissions on time and generate reports and electronic payslips.

Eliminate manual paperwork

Payroll software takes the pain out of compliance, allowing businesses to focus on strategy, customers, and employee engagement rather than on red-tape. While mistakes in recordkeeping and compliance can result in punitive penalties and hurt the company’s brand, an efficient payroll system enhances staff morale, helps to reduce the risks of fraud, and boosts an organisation’s reputation. It is a worthwhile investment in the business and a foundational element of good governance and sound financial control.