Presented by Sage

Tips to wrap up bonuses and year-end payroll

 ·13 Nov 2023

Year-end payroll management is approaching – bringing extra stress such as bonuses, public holidays, annual leave, and more.

It is easy to get overwhelmed at this time of year as a business owner, as you must juggle efficiency and increased workloads with compliance.

Sage has therefore crafted this guide to help you navigate this challenging period and wrap up bonuses and year-end payroll effectively.

Automation is valuable

Business owners will know that income tax is affected by many different elements – including overtime, commissions, bonuses, and more.

One of the most challenging things about being a business owner is ensuring all these elements are covered when determining an employee’s PAYE (pay-as-you-earn). This becomes more challenging when you are the one having to juggle payroll, staff, admin and all other tasks.

By using high-quality cloud HR and payroll software, this process can be automated – making payroll management much simpler.

A great cloud-based HR and payroll solution also delivers the following:

  • Data accuracy – Automation will alert you to any errors or inaccuracies.
  • Submissions – Reconciliations and payroll data are easily submitted to SARS.
  • Payslip management – Cloud-based software provides options like printing or emailing payslips.
  • Compliance – Cloud-based software is updated automatically whenever legislation and regulations change.

Taxation on bonuses

If your business offers year-end bonuses, the criteria and details must form part of either company policy or each worker’s employment contract.

This is because these bonuses form part of an employee’s taxable remuneration and must be accounted for when calculating each employee’s tax.

Even if your employees receive year-end benefits other than cash bonuses – such as vouchers and other fringe benefits – these must still be reflected on their tax certificate and be taxed accordingly.

It is advisable to view SARS’s guidelines to understand the tax applicable to benefits other than cash bonuses.

Planning for tax on bonus

Year-end bonuses are taxed in the same way as other remuneration; however, the bonus will be added to the employee’s annual remuneration before the tax is calculated. As the bonus will increase the employee’s remuneration, it may result in a spike in the tax in the month in which the bonus is paid.

As a business owner managing the payroll, you must therefore understand the possible tax effects of bonus payments and design payroll policies and remuneration packages accordingly.

It is also important for employees to understand that they may request the employer to withhold additional PAYE during the year, to provide for the tax even before the bonus is paid.

Your end-of-year payroll checklist

With the right knowledge, tools, and software at your disposal, you are now ready to tackle your end-of-year payroll.

It is a great idea to use a checklist to make sure that you cover all necessary bases – and we have you covered below.

1. Confirm employee information

If you have a cloud-based HR and payroll solution, employees can update their own details using a self-service portal.

Alternatively, you will need to verify these details with each employee.

Details to be confirmed include:

  • Names
  • ID/passport numbers
  • Bank account numbers
  • Income tax reference numbers
  • Address information and telephone numbers

2. Ensure all payments have been recorded

Salaries are the easy part, as they are relatively consistent.

Once you have processed salaries, look out for any extra payments made to your employees – like commissions and bonuses.

It is critical that these are all accounted for within your records.

3. Leave schedules

When it comes to tracking and recording leave, automated systems are a necessity.

Without an automated system, forms can get lost, data can be captured inaccurately, and much more can go wrong.

With an automated system, on the other hand, employees can submit and manage their leave through a self-service portal.

This saves your payroll department lots of time and money and reduces frustration.

Regarding leave, another great idea is to facilitate the approval process for annual leave early.

This will reduce the stress of managing leave schedules at the last moment.

4. Do your final payroll

When processing and paying out end-of-year bonuses and commissions, the way you do this can affect things like tax brackets.

Cloud-based HR and payroll software is a lifesaver in this regard, as it will use the power of automation to streamline the entire payment process.

These solutions can be tailored to your specific business needs and eliminate tedious tasks like manual data entry.

Legislative and regulatory changes will be accounted for, employees and contractors will be classified correctly, and payments will be made on time.

Let your software do the hard work – while you breathe a sigh of relief.

Click here to learn about Sage’s cloud-based HR and payroll software.

By: Yolandi Esterhuizen, Director of Global Compliance: Product Management

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