Every day, an ambitious entrepreneur sets up a business somewhere in Kenya. Among the items on their long to-do list is hiring employees. They must set up payroll.
Employees expect to be paid. You must pay their salaries on time and ensure the KRA, NHIF, and other state agencies also get their duties. This entails maintaining accurate payroll records and complete employee information.
An up-to-date payroll minimises errors, ensures accurate salaries, and helps maintain a happy workforce. It keeps your business in good standing with the Kenya Revenue Authority (KRA).
So, how do you maintain a clean, up-to-date payroll? What information do employers need for payroll?
To set off on the same page, let's define payroll first:
Payroll is a list of a company's employees and the salaries you will pay them. It is a roll or register of the people you employ at your business and what you pay them at a given date.
The term payroll is also commonly used to mean the total amount paid as salaries per pay cycle. It's a reference to the 'payroll expense' that you include in your accounting books.
When you run or process payroll, you are calculating employees' salaries for the month or the pay cycle.
You can process payroll manually or use payroll software to automate and simplify the process. You can outsource the function to a third-party payroll company if you lack the resources to process payroll internally.
The payroll process accounts for hours worked, taxes and medical aid contributions to be withheld, and bonuses earned to determine an employee's net pay for the pay period.
As an employer, you can't avoid payroll. You have a duty to your employees to fully compensate them for their work hours.
To efficiently manage payroll, you must have systems and tools for:
If you don't have systems for these stages of the payroll process, unsavoury things can happen. You may:
The best way to avoid these payroll mishaps is to ensure you are using accurate and complete information:
A good payroll relies on good information, including employees' personal and pay information.
Personal information generally stays the same every pay cycle. Some pay information, however, varies from month to month.
Payroll information that does not change include employees':
It's essential to have accurate employee records when you first set up payroll. Organising and keeping the records up-to-date is equally important so you can easily find that information when needed.
The law requires you to maintain accurate employee information for taxes and social security purposes. The good thing is that the most critical information, like the employee name and ID number, does not change, so you only have to capture it once.
Employees, however, change banks, and you have to update your payroll every time that happens. A mistake in updating that information can mean an employee's salary is delayed or disbursed into the wrong bank account.
Every employee will have a basic salary, their most crucial pay information. Many companies pay according to grades, not position, meaning different positions can have the same pay grade.
However, one's basic salary is rarely what they take home on payday. Their net pay will usually be lower after deductions are made for:
PAYE, NHIF, and NSSF are statutory requirements that every employer must adhere to. You must record those deductions on the payroll and remit them to the responsible state bodies.
Your payroll system must deduct taxes correctly and at the correct rates. For example, people in low-income brackets may be exempted from paying taxes.
Some salary deductions are made before tax is deducted and others after, which affects the tax amounts you must remit to the KRA and can mean net pay is different between people in the same pay grade.
The government may also extend tax relief on certain deductions, like life insurance, and grant complete income tax exemptions to society groups like older people and people with disabilities.
Take-home pay can also be higher if an employee is due any of the following:
Payroll source documents provide the information you need to pay employees. They include birth certificates, bank accounts, time sheets, and pay slips.
These documents tell you who you should pay every month, for how many hours and at what rate, how much each person earned the previous month, and what salary disbursement method they want to use.
The quality of your payroll source documents determines the efficiency of your payroll system and the accuracy of your salaries. If employee records are clean, you won't struggle to find important information when needed.
So, whether you have an automated or manual payroll system, you must maintain files for every employee in your company. From this file, you should be able to establish the following:
As well as their birth certificate, you must have a form that captures all this information for easy retrieval.
Timesheets are another important payroll source document. It is from this document that you can establish how many hours you should pay an employee for.
If the hours worked exceed those in their employment contract, they will be due overtime pay. Overtime is paid at a higher rate than regular hours.
In manual payroll systems, employees sign a register when they start work and knock off for the day. Automated cloaking systems that use fingerprint readers and other biometrics can help streamline this process.
Remember that employee records contain confidential and sensitive personal information. So you must secure them and limit who has access to them.
After processing payroll, you must disburse the salaries. This is a crucial part of the payroll system that delivers salaries to employees' withdrawal methods.
After all the work it takes to process payroll, you will not want to drop the ball at the last stage, which is disbursement.
Manually depositing salaries into employees' bank accounts is an inefficient way to disburse wages.
Intasend takes the pain out of payroll disbursement by automating the process. Our platform lets you disburse salaries to up to 5,000 employees from a single request.
You don't have to travel to your bank to deposit employees' salaries. You do so online through our transfer API or your Intasend business account dashboard.
Intasend supports direct bank deposits and mobile money salary transfers to mobile networks in Kenya, including M-Pesa.
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