Payroll Compliance in Africa: The High Cost of Cutting Corners

What does payroll compliance mean?

In the past, payroll compliance was focused primarily on the process and was audited, controlled and managed by the ubiquitous internal audit procedure. Those of us in the payroll space are all too familiar with a group of auditors descending on our office once a year to check:

Payroll audit files
Ask for audit trails and files to ensure all instructions in the payroll followed a predefined process.
Audit the access controls and adherence to these.
Audit segregation of duties.
And of course, asking idiotic non-related questions.

Seldom are the actual tax and social security calculations back tested; probably because the internal auditors do not have the training and/or knowledge to test such calculations.

In addition to the above, there is an emphasis on annual or regular IT audits. These are invaluable to ensure that the payroll platform used to both process and transfer data are aligned to the IT risk strategy of the business and comply with the relevant data processing laws in the country.

Once again, the current audit process focuses on process, access and platform security along with adherence to a predefined process. To mitigate the cost of regular audits, payroll platforms and even employers incur the cost of subscribing to ISO27001, ISEA3402 or SOC type audits to ensure the payroll is compliant.

The above ensures the platform’s compliance but does not ensure the accuracy of the statutory calculations, withholding and reporting requirements. In the African payroll environment, this is important given that local revenue authorities have no reluctance to levy exorbitant fines on employers. And international companies are prime targets for this treatment. Many employers tend to think that choosing a credible payroll platform implies accurate statutory calculations- think again!

We are not saying that the system providers perhaps do not align the platform with the legislative requirements. They do but a payroll platform facilitates compliance – it does not guarantee compliance.

The evolution of payroll systems has meant that most are now heavily customizable and/or highly configurable to ensure they can accommodate the diverse range of needs and salary structures one observes in Africa. Payroll systems therefore must be configured correctly and amended to comply with new regulations.

Internal audit reviews will interrogate the integrity and compliance of the system but in our experience, the greatest compliance risk is incorrect taxation or calculation errors which may lead to massive financial risk. In addition, fines being levied may get into the public domain which may lead to reputational risk for the company.

To address, and ultimately mitigate this risk, Axiomatic now offers a Payroll Health Check.

The Health Check will reverse calculate the payroll for the tax year of assessment in the country, taking cognisance of the tax and social security legislations and regulations. The objective is to determine if the configuration and operation of the payroll is compliant.

Axiomatic's Payroll Health Check ensures your payroll is compliant by reverse calculating the tax year's assessment with full adherence to tax and social security regulations. Click the image below to have a conversation with us.

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