How to calculate payroll taxes correctly

How to calculate payroll taxes blog image

With tax season in full swing, employers and payroll managers are very likely feeling the pressure. Your approach to calculating payroll taxes over the past year will impact whether your employees have problems when they submit their returns.

Many South Africans are extra nervous about this year’s tax season. SARS is under fire for tax refund delays and taxpayers are not sure when to expect payback. In addition, an update to certain e@syFile tax codes is also causing problems. Unfortunately, many payroll software providers didn’t implement the mandated changes correctly – which means they didn’t calculate employee taxes correctly and many individuals will have to resubmit their tax returns.

To help set your mind at ease, we’ve compiled a list of the four most important things to watch out for when you calculate payroll taxes. If you can tick these boxes, then you’re complying with tax regulations and giving your employees a problem-free tax season.

  1. Classify workers correctly

You can’t group all your employees into one tax bracket – different types of workers are taxed differently. The tax rules that apply to a permanent employee won’t be the same for a contractor or intern. The first step in calculating payroll taxes correctly, is to ensure your workers are classified properly.

  1. Take tax exemptions into account

There are certain employee benefits, like medical aid or a pension fund, that will be tax exempt. Similarly, if an employee gets a travel allowance, a portion of this can be tax deductible. To calculate payroll taxes correctly, you need to know what these benefits are – and what exemptions or deductions they qualify for.

Failing to take these into account upfront, will cause tax refund delays. Your employees will have to claim back for these exemptions when they file their returns which complicates the process – and means they’ll have to wait a long time to get their money back.

  1. Issue them with the correct documentation

To ensure your employees have no issues when filing their personal tax returns it’s important that you issue them with the correct tax documentation for the country in which they are working. If they have worked and earned in two countries during one tax year, make sure that they have the right breakdowns for both countries.

  1. Watch out for calculation errors

If you manage your payroll manually, you have to keep a close eye on your calculations to ensure no errors creep in. A simple mathematical mistake can cause your employees countless problems when they try to file their tax return.  However, if you use automated payroll software, the chance of such human errors occurring is significantly reduced.

There are a lot of things that can go wrong when calculating payroll taxes. However, many of the risks can be reduced simply by using the right payroll software. PaySpace, for example, can help you determine how much tax different types of employees must pay and what benefits are eligible for deductions. What’s more, the system will automatically generate the required documents, like IRP5s, and make them available to employees via a self-service portal.

Calculate payroll taxes correctly and you’ll save your company and your employees valuable time and money. To find out more, or for specialised payroll advice, contact PaySpace today.

Related Posts