Currently, there are numerous payroll systems that provide for multi-country payroll processing. While some have better functionality, others are superior in their compliance and alignment to the legislation in the specific African country.
Compliance is a crucial element and in our opinion trumps functionality and indeed any other considerations.
The standard payroll approach to auditing compliance, is usually limited to ensuring that strict segregation of duties within payroll teams is adhered to. It is axiomatic that this compliance check is important; however, of greater importance than the process control, is a comprehensive review of the underlying tax and social contribution calculations embedded within the payroll system. This is aligned with all organisations’ corporate responsibility.
Any compliance audit must also include a further step. It is of significant importance that the users of the system understand how the calculations are applied. This is especially important when African payrolls are being managed, as often the lack of robustly worded legislation and interpretation notes lead to ambiguity; where the taxability of a specific remuneration component is unclear. If one understands the method of calculation, one can ensure higher degrees of accuracy and compliance.
Where the payroll department are processing payrolls in multiple jurisdictions, the problems, and the likelihood of errors, are exacerbated. This risk amplification is crucial given the dictatorial and hard-line attitude adopted by most revenue authorities and should be highlighted as “high-risk” when the compliance audit is conducted. The only method to mitigate such risk, is to complete a comprehensive review of the tax and social contributions embedded within the system. This should be done irrespective of the assurances of the services providers that the said calculations are correct and compliant. This places an onerous burden on companies who do not have the necessary tax expertise available given this is not their core competency.
Some large multinationals rely on a vast and very expensive network of advisors and auditors to mitigate these compliance issues. However, cognizance must be taken of the fact that even though delegation of the compliance has occurred, the company is still solely responsible to ensure their reputation is intact and to safeguard their status as a good corporate citizen.
One way of managing and concomitantly mitigating this risk, is to adopt the following broad process:
- Define the entire payroll process including all configuration settings; this would include a payroll blueprint. Part of the process would be to ensure the accuracy of all taxes and social security deductions; and
- Institute a change management process which prohibits any unauthorized changes being made to the system; and
- Convene a committee which authorizes any changes to the system and which is also responsible to periodically review the processes and procedures. The committee must have audit and systems acumen but more importantly, comprehensive tax and social security knowledge of the various countries being managed.
The process outlined above may be considered to be costly and overly burdensome, especially where the company has purchased a payroll system from a provider with the assurance that the taxes and social security deductions are accurate. These additional safeguards however pale in comparison when one considers the implications of non-compliance – penalties, interest charges, possible criminal proceedings and the immense reputational damage to the company’s brand in that country.
Reliance on the assurances of the payroll platform provider are not enough; rigorous supplementary procedures must be instituted. Some larger companies may have the skills and competencies internally or within their networks to fulfill this role - for those that do not, Axiomatic is one of the providers who can assist in minimizing this risk to employers.
At the very heart of the payroll function is the accurate and timely withholding of employee’s taxes. This function is imposed on employers in each jurisdiction however these taxes have a direct input into each country’s fiscal health. Therefore, the question arises - is it responsible for a business to see taxes as a cost of doing business, rather than part of a greater social contract with society? It goes beyond just the employer’s responsibility but extends to each and every individual employee of such organisations.
For more information please contact Grayson Hopkins on +27 11 305 1972 or firstname.lastname@example.org