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Account for employee costs correctly or face heavy penalties

by , 08 July 2013
According to the Practical Accountancy Loose Leaf, the most significant group of expenses in the income statements of many companies is employee-related expenses. These include pension, provident fund contributions and personal expenses borne by the company. If you get one thing wrong when accounting for these costs, SARS will punish you severely. Ensure it doesn't. Read on to find out how to account for employee costs correctly to avoid penalties.

While the financial consequences of a simple error can be crippling, few businesses get the accounting treatment of employee perks right.

Get this wrong and SARS tax penalties will be levied on your company.

Here's how you can maintain control of your accounts for employee costs to avoid penalties.

The Practical Accountancy Loose Leaf suggests you use these steps to account for employee costs correctly

#1: Keep a control account system. To maintain control of your accounts, use control accounts in your general ledger. This means you must use a salaries journal listing gross salary, all the deductions and overtime per employee as well as a total per month or week that can be agreed to your general ledger.

#2: Create a monthly salary pay slip. Record the monthly salary on this pay slip showing gross earnings and total income. In addition, show any deductions shown on the pay slip.

#3: Record any amounts withheld by the employer. Every month, your company will withhold certain amounts to be paid over to SARS. In your salary journal, keep track of this to show exactly how much is debited from the total salary amount.

#4: Determine the cost to company. If you follow steps 1 to 3, you should have a very accurate picture of each employee's cost to the company.

Well there you have it. Maintaining control of your accounts for employee costs will ensure you avoid hefty penalties by SARS.

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