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Employer reconciliation: bring balance to the (work) force

 

Accountants like to balance.  Everything must balance.  We also like to think that a balanced diet is a cookie in each hand. 😊

That brings me to the joy of employer reconciliation.

Do you have staff working for you?  Do you deduct UIF, SDL and PAYE from their salaries?  If you do, then you also need to do an employer reconciliation of these payments to SARS twice a year. It makes sense that SARS needs to know for which employees the UIF, SDL and PAYE are being paid over.

So how do you do this?

SARS has special software that you can download for free.  It is called e@syfile.  Click on the link to download the software.   http://downloads.sarsefiling.co.za/easyfilehome/easyfile.html

What do you need to do to get started?

  • First of all, you need to setup the company information for example the physical address, contact numbers and registration numbers
  • The second thing would be to insert all the employees’ personal information as per their employee contract

Once this information has been processed you can start by inserting the amounts pertaining to each employee. This is done via an IRP5 certificate (if the employee pays PAYE) or else an IT3 certificate (if the employee does pay UIF, but not PAYE).

There are specific codes that these amounts need to be recorded under.  You can find these on SARS’ website.  The e@syfile software also has a dropdown selection box to help you find the correct code.  But here are the main ones you should be aware of:

  • You must specify the employee’s salary for the period in question. That would be under code 3601.  If he/she earned an annual bonus that would be under code 3605.
  • If the employee contributes to a pension (4001) / provident fund (4003) the amount needs to be inserted under the specified code and his/her medical aid contribution needs to be inserted under code 4005. If the company contributes a portion of the funds, you also need to specify the fringe benefit part under the employee’s earnings.
  • You would then state the employee and the employer’s contribution of UIF paid over as one amount under code 4141. The employer’s contribution of SDL would go under code 4142.  The PAYE deducted from the employee’s salary for the period will be inserted under code 4102.

It is very important that these amounts are captured correctly, as this information goes to SARS and straight onto the individual’s income tax form.  If you feel that it is too complicated rather ask your accountant to handle the employer reconciliations on your behalf.

Once all the employees’ information and amounts have been entered you can go on to the EMP501, which is the reconciliation of all the periods in question’s PAYE, SDL and UIF paid to SARS and the totals from your IRP5s and IT3s are added up and deducted from the totals.  The differences should then be zero. You have successfully completed the employer reconciliation! Have a cookie.

A few notes:

  • UIF = employer pays 1% of earnings and employee pays 1% of earnings
  • SDL = employer pays 1% of earnings
  • PAYE = employee pays tax as per SARS’ statutory tax tables

These reconciliations need to be submitted twice a year.  The first one needs to be submitted before 31 October for the period March to August and the second need to be submitted before 31 May for the full financial year (March to February).

As I said in the beginning: accountants like to balance and reconcile, so ask your accountant to assist, or feel free to reach out to me. I will be happy to provide you with friendly and efficient service.

Until next month, have a springy October!

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Put a spring in your company’s step

Spring is in the air and it brings with promises of new beginnings and growth. It is therefore not surprising that I am seeing more requests from clients about setting up private companies.

Are you wondering whether you should keep on trading in your own name or registering a company? Or do you have a registered company and need to know what the legal requirements are?

There would be tax advantages to register a company, as a company only pays 28% income tax whereas an individual can pay up to 45% income tax. However it is important to note that a company has more legal requirements to comply with.

To help you decide and demystify the process I have put together this little guide:

Here is a list of requirements at the different institutions:

CIPC    (Companies and Intellectual Property Commission)

An annual return needs to be completed to confirm that the company is still trading.

This needs to be sent in the month of the company’s registration anniversary.

SARS   (South African Revenue Service)

INCOME TAX – a return needs to be completed once a year (IT14) to show profit or loss.  If a profit was made income tax of 28% needs to be paid on the profit.

A set of annual financial statements needs to be drawn up and reviewed by an accountant or auditor to accompany the income tax return.

PROVISIONAL TAX – returns need to be submitted twice a year and if the company is making a profit provisional tax needs to be paid on the estimated profit.

The provisional tax returns need to be submitted before end of August and end of February.  If you need more info regarding provisional tax, please see my blog on provisional tax.

VAT – the company needs to register for VAT if the turnover of the company exceeds  R1 000 000 per year (R83 000 per month).  If the company is registered for VAT the VAT return needs to be submitted on SARS e-filing every second month before the last day of the month or if the last day of the month falls on a weekend it needs to be submitted and paid the Friday before.

PAYE & UIF – Return needs to be submitted on SARS e-filing on the 7th of every month or if the 7th falls on a weekend it needs to be submitted the Friday before.

Workmens Compensation

It is compulsory for a company to register for Workmens Compensation.  This is to provide compensation when you or one of the employees gets hurt while working at a client or any other injury received while on duty.

You pay once a year before the end of March.  The Compensation Fund gives you a percentage according to the type of work that you do.  The more dangerous it is, the higher the percentage.  You will then pay this percentage on the salaries (including the directors’ salaries) you paid for the year.

These are the main legal requirements around tax and accounting that every private company has to comply with. Weighing up the benefits of registering a private company and complying with these regulations can be a tough decision. That is why we are always willing to talk to you about your concerns and give you advice based on the experience we have gained helping other small businesses just like yours.

If you decide to go ahead and registering a company, or your company needs help with any of the other requirements listed above, we are willing and able to assist you on your journey and help you grow.

Until next month then.  Have a wonderful spring!