The top ten potential risks and opportunities lurking in your payroll
Salary costs are the single biggest income statement items for most companies. But often they are scrutinised far less, and less regularly than other amounts. And even a small misjudgement can translate into a hefty unforeseen tax bill if you have a lot of employees or an error occurring over a number of years. And of course, hungry tax authorities are scrutinising payroll closer than ever so this is not something you can afford to get wrong.
Today we unfurl our top ten payroll questions to identify any risks and opportunities lurking:
1. Is your payroll outsourced? Many employers have outsourced their payroll function and believe that this is sufficient to safeguard them in the event of an audit but forget that while you can outsource the doing you can never outsource the risk. If your payroll is outsourced, how secure are you that you are compliant? Remember a payroll service provider can only process information they have been provided and the responsibility and risk of undeclared benefits remain with you as the employer.
2. Have you rolled out new benefits to employees? In many cases it is not what is on the payroll that causes issues but rather what is not on the payroll. Do you have team incentives and prizes - are these disclosed? Do you offer staff bursaries - what happens when your staff drop out or fail? Many times, unintended payroll consequences arise from seemly innocent and well-intentioned initiatives.
3. Has your reward philosophy kept up with the times? There have been many tax amendments over the years impacting the valuation and reporting of employment benefits, and often benefit policies were drafted specifically to take advantage of preferable tax provisions. When is the last time you reviewed your reward structures to make sure these are not outdated - not only are you possibly applying a long defunct taxing provision but also perhaps losing out on new saving opportunities?
4. Have you renegotiated the terms of an employee group scheme? To support a proper employment arrangement and its associated taxing position, all the moving parts need to be aligned. Have you changed how you employ staff or provide a certain employment benefit? How sure are you that all elements of the consensual framework (employment contract, remuneration policies and third-party policies) are still talking to each other and are still tax efficient?
5. Do you engage with contractors and small companies? Contractor classification for payroll purposes is essential, as there are generally different rules to regulate withholding and reporting for different classes of service providers, from independent contractors, deemed employees and personal service providers. Do you have a formal process in place to document the thought process applied to classify your service providers?
6. Are you payroll-tax-compliant? When is the last time you checked your full account history with the revenue authority? Have all your monthly and annual returns and reconciliations been filed and finalised? Is it time to do a routine accounts maintenance check? Don’t get caught unaware about a late payment penalty or the passing of a journal to clear a credit on PAYE records.
7. Do you have staff working outside the borders of the country? Are you planning to employ foreign nationals or move your staff overseas? Expatriate employees, in and outbound, bring a whole set of payroll obligations, be it withholding and/or reporting. Have you optimally structured their benefits to minimise the personal tax impact? Do your staff participate in long share scheme incentives managed at a group level?
8. Are you rolling out a remote work policy? With the advent of the new working world, remote work is the new buzz word, with employers accommodating staff needs to work from anywhere. Have you considered the personal and payroll considerations? Will you be introducing new benefits to accommodate this policy, home office allowances, tech and data support – if so, do you and your employees understand what is requires to support these from a payroll and tax filing perspective?
9. Do you offer apprenticeships or internships? Have you considered whether you qualify for any incentives, for instance in South Africa, the Employment Tax Incentive has been in place since 2014 as a means to incentivise employers to employ young people and benefit with a payroll cash back incentive.
10. When was the last time you did a comprehensive payroll health check? Payroll taxes is not all about managing tax risks but also of maximising tax savings. What could you be missing?
Today’s questions to ponder have been compiled by our Employee Tax Expert, Cinzia de Risi. She has over 25 years’ experience in employees' tax and global mobility. Her passion, combined with her deep technical knowledge for advising multinational companies and their employees to optimise their mobility programmes and people tax, have been a huge benefit to both our team and clients. Cinzia also provides practical client centric and comprehensive multi-jurisdictional solutions.
Published as affiliate with Regan Van Rooy