10 Most Common African Payroll Questions Answered

Young reflective payroll specialist

Payroll often comes across as a necessary evil, a hurdle that organizations, much like your own, must overcome as they strive to grow. Undoubtedly complex, disconcertingly detailed and stressful due to time constraints and the consequences of failure, payroll management truly is not for the faint-hearted. To dispel your fears and help you see clearer through the payroll process, today we will answer 10 of the most asked global payroll questions.

Are payroll taxes progressive?

With processes as complex as payroll, the answer to this question is nothing as straightforward as “No” or “Yes”, rather “It depends” would be the more accurate answer.

To begin, payroll taxes include taxes that employees and employers pay on salaries, wages, bonuses and tips. These taxes are levied on the federal, state and local levels, which means that different types of taxes apply. In some countries, payroll taxes are flat – which means that the tax is the same for everyone, regardless of income earned. In other countries, payroll taxes are progressive, which means that the tax rates change if certain conditions are met. In the island-nation of Mauritius, for example, employees earning less than 650,000 Mauritian Rupees per year are subject to a 10% income tax rate. On the other hand, employees whose earnings exceed this amount face a 15% tax rate.

In Kenya, one must consider the average and marginal tax rates. The latter is set at 31.4%, while the average tax rate is 15.8%. Any immediate new income is typically subject to this rate of marginal taxation.

Will wages increase with inflation and affect payroll?

No, not necessarily.

At first glance, it may seem to be the logical course of events, but in actuality, inflation and salary increases are motivated by different forces. Inflation is driven by the rise of product prices, such as groceries, gas and fuel. On the other hand, changes in salaries and wages are driven by spikes in supply and demand for labor as well as demographic trends. So while salaries and wages may rise slightly along with inflation, it is not likely that salaries will rise enough to fully counter the effects of inflation. Unless, that is, there are changes in supply and demand.

Why is payroll management important?

The reason why payroll management is so important has to do with the stakes at play.

On one hand, there is the employee experience. According to The Workforce Institute studies from 2017, 49% of American workers would begin a new job search if they had just two pay issues – a concerning number that does not bode well for employee retention. On the other hand, there are the consequences of poor payroll management: fines, legal troubles and a damaged employer reputation, all of which any company would be anxious to avoid. Proper payroll management is also important because of the sheer amount of data and variables involved in payroll calculations. One mistake or one oversight could cost a company dearly, whether that be in financial terms or by way of crumbling employee trust.

Are payroll taxes the same for all employees?

Not always. As mentioned previously, this depends on the country you find yourself in. But in a lot of countries, income taxes are progressive, which means that there is a certain threshold beyond which employees do pay more tax than others who do not earn as much.

Which taxes do employers typically pay?

This, of course, depends on the country your organization is in. But generally speaking, employers tend to contribute to their employees’ social security, health and pension funds or schemes. To get a better idea of the employer contributions in the African country you are interested in, feel free to get in touch with our team.

What happens when there's a mistake in your payroll?

One thing to note about payroll mistakes is that they are costly. Should one or more of your employees encounter errors in their payslips, as an employer, you have a duty to correct them as soon as possible. To do that, you will first need to identify the origin of the mistake, whether that is an incorrect overtime calculation or an omitted bonus. Failure to correct the mistake expeditiously will result in disgruntled employees who will not trust in your organization. Worse still, these employees may choose to contact the authorities if the situation is not promptly seen to.

Can payroll be reversed?

Yes, although it is a process rife with formalities.

“Payroll reversal”, as it is known, is the process of requesting a bank to cancel a deposit transaction into an employee’s bank account and retrieve the money that was first transferred. You may need to proceed with payroll reversal for different reasons such as a mistake in the amount that was transferred. If an employee is cooperative, this process may go smoothly. On the other hand, should an employee oppose the decision, the process may prove trickier and more time-consuming.

 

Such mistakes usually occur when companies use a manual payroll system, which is in and of itself error-prone. Companies that outsource their payroll management will usually not face such issues as these types of mistakes will not happen nearly as often.

What's the difference between a payroll and a payslip?

A payslip is the document issued by an employer and in which employees are informed of their earnings and deductions for a particular pay period. Payroll, on the other hand, is the process of paying employees of a business, which includes keeping track of hours worked, figuring out salaries, and sending checks or direct deposits to employees’ bank accounts.

What is a parallel payroll run?

The term may sound intimidating, but a parallel payroll is a rather simple process. It simply entails running your previous payroll application side by side with your current application and comparing the outcomes. It is a way of verifying that the new application works properly.

What is shadow payroll?

Shadow payroll, often known as “expat payroll,” is a payroll system that is primarily employed when personnel are transferred on overseas assignments. Employers can report details about foreign-sourced compensation through expat payroll. For instance, if your business is situated in the USA and you have an employee in Kenya, establishing a shadow payroll there will ensure that you are in conformity with the regional income tax regulations. This implies that you can pay the employee using payroll services situated in the USA while fulfilling your tax and social duties in Kenya.

How Africa HR Solutions can help with your payroll needs

It goes without saying that a reliable, efficient payroll partner is an absolute necessity to businesses that wish to thrive during their expansion to African countries like Kenya, Nigeria and South Africa. As a major service provider trusted by over 300 companies, Africa HR Solutions provides your organization with top-of-the-line payroll services as well as the peace of mind that your payroll management is in good hands.

To learn more about what Africa HR Solutions can offer your company, get in touch with us.

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GRANT GERAGHTY

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Originally from Mauritius, he holds bachelor’s degrees in International Business, Finance and Management from the University of Nevada, Reno.