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Three things you need to know about salary structuring and payroll administration

by , 20 March 2014
Payroll is a huge component of the tax net. If you get it wrong, SARS will audit you and impose penalties. But a relatively small investment in time, thought and planning at the outset could potentially save you a world of trouble, penalties and sanctions. Your starting point is to make sure you're aware of these three things when it comes to salary structuring and payroll administration.

Want to get your salary structuring and payroll administration right? Make sure you're aware of these three things

#1: The two most important aims of payroll administration from a tax perspective are:

  1. Tax compliance, i.e. ensuring the procedural and legal provisions of the taxing statutes are strictly followed; and
  2. That you've identified all service providers that you have an obligation to withhold employees' tax from.

This means you must identify who must be taxed and how they must be taxed.

The Practical Tax Loose Leaf Service says the foolproof; failsafe rule is that you must collect employees' tax from all amounts paid or payable to employees, while payments to independent contractors will not be subject to employees' tax.


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#2: Salary structuring is the second component of payroll

Once you've identified who must be taxed, you can determine how they'll be taxed.

Paying tax on your income is unavoidable. But even SARS acknowledges that it's your right to arrange your financial affairs so you can pay the minimum amount of tax that's legally allowable. This is the aim of salary structuring.

There are various methods of salary structuring, but the most common method adopted in commercial practice today is known as 'total cost of employment' (TEC) or 'cost to company' structuring. The Loose Leaf Service recommends you use this method.

#3: SARS isn't unreasonable as most people like to believe

It recognises the right of an employee and employer to mutually agree on a remuneration package, but warns that a restructuring exercise must be implemented correctly.

So be sure to protect your salary structuring by meticulously recording the details in your letters of appointment and employment contracts.

Being aware of these three points will bring you a step closer to getting your salary structuring and payroll administration right.

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