MIDLANDS STATE UNIVERSITY

FACULTY OF SOCIAL SCIENCES

Human Resource Department

HRM 221: PAYROLL AND BENEFITS ADMINISTRATION

MODULE OUTLINE

Lecturer: Miss Nyanhete (nyanhetet@msu.ac.zw) Office G 5A

Module aim

The payroll and benefits administration module concentrates on the fundamental functions of
payroll, administration of benefits, payroll and benefits related legislation affecting organizations
in Zimbabwe, the payroll cycle and the accounting treatment of payroll information. This module
will provide knowledge that will allow the student to perform the payroll functions within
organizations and the payroll accounting tasks for manual and computerized systems. Industry
trends and best practices related to the compensation, benefits and payroll functions within
organizations will also be analysed.

1. Payroll
 Definition of Payroll
 Functions of payroll
 Payroll systems
 The Payroll and benefits administrators’ Role
 Ethical considerations in the payroll profession.
 Responsibility for handling payroll (HR vs Accounting)
2. Benefits Administration
 Definitions
 Short term benefits
 Long term benefits
 Post employment benefits

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  Termination benefits
3. Processing payroll in Zimbabwe.
 National Employment Council (NEC)
 National Social Security Authority (NSSA) including Workmen’s compensation.
 Ministry of Labour- Manpower Development Fund (Zimdef).
 Standards Development Fund.
 Zimbabwe Revenue Authority (ZIMRA)
4. Taxation
 Definition
 Overview of payroll tax
 Employee benefits and taxation in Zimbabwe.
 Remuneration
 Exemptions
 Allowable deductions
 Tax credits

5. Payroll calculation
 Nature of statutory deductions and remittances
 Nature of compulsory and voluntary deductions
 Allowable deductions (Section 15 of the Income Tax Act)
 Calculation of NSSA
 Calculation of P.A.Y.E
 Calculation of AIDS levy
 Tax credits
 After tax deductions
 Reasons for compliance
 Calculating overtime
 Cash in lieu of leave days
 Taxing retrenchment package

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  Gratuity

6. Final deduction system (FDS)

 definition
 Statutory requirements under it.
 Employer, employee and ZIMRA obligations under FDS.
 Forecasting and averaging methods under FDS
 Advantages and disadvantages of the FDS system.
 Tax compliance benefits

7. The Payroll Cycle

 Payroll Input
 Payroll Processing
 Payroll Output

8. Controlling payroll
 Control objectives
 Threats to payroll cycle
 Payroll control systems

9. Outsourcing the payroll function

 Outsourcing
 Rationale for outsourcing
 Demerits of outsourcing
 Co- sourcing

Assignment question: Discuss the contribution made by information communication technology

(ICT) in promoting efficiency in running the payroll. (20 marks)

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Course work

 Assessment shall be continuous assessment and a written examination .

 Continuous assessment shall constitute 40% of final assessment:
 Group assignment 20
 Inclass test 20
 Presentation 10
 Total mark from coursework divided by 50 multiply by 40 equals coursework mark
 A written examination shall constitute 60% of final assessment
 To pass a candidate must score an overall of at least 50% of continuous assessment
and examination combined.

Tutorial questions

Below is the payroll information for a 60 year old employee who worked for 28 days for the
month of April 2017.

ITEM AMOUNT$ ITEM AMOUNT$

Basic salary 1000 Medical aid other 45

Vehicle benefit Loan recovery 200

Bonus Short pay 30

Funeral contribution 25 ZCTU subscription 5

T&S 150 Housing allowance 300

Cash in lieu of leave days Overtime 150

Target bonus 350 Donation to Government 50

School fees allowance 350

Domestic worker allowance 100

Medical aid 25

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1a) Determine the gross income of the above employee if in addition to the above incomes the
employee also received the following incomes and enjoyed the following benefits:

i. If the employee received 60% of the basic salary as bonus

ii. If the employee bought a company vehicle with a market value of $12000 for $8000.

iii. If for this month the employee enjoyed a seven (7) day holiday free of charge at a holiday
resort owned by the company. The daily rate for the chalet is $35 per day for guests.

iv. If the employee applied to receive cash in lieu of leave days for seven(7) days of annual
leave and the application was approved.

b) Using the payroll input above including 1a) calculate the net pay for the above employee.

c) Assuming the above employee worked on 7.5 hour shifts for 28 days and worked 13 hours
overtime, with 13 hours being normal day overtime, determine the total value of the employee’s
overtime. What amount was over or underpaid?

d) Assuming the employee has worked for this company for 25 years, calculate the minimum
retrenchment package applicable to the employee and the tax applicable on the employee’s
retrenchment package.

2. A company has a staff compliment of 4 permanent employees. The employees’ basic salary
per month is:

Employee Salary $

1 1000

2 800

3 1200

4 500

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The company is registered under NSSA and has always remitted to NSSA every month within
the stipulated deadlines except for September and October 2017.

a) State when employers are required to register with NSSA and when they should remit
contributions every month.

b) State when employees qualify to contribute to NSSA and when they can stop
contributing.

c) What measures have been put in place by NSSA to ensure compliance with the
remittance date?

d) Calculate the amount owed to NSSA by the above company inclusive of the penalty
charge for the month of September and October.

e) How much employer and employee contributions should be remitted by the company to
NSSA for the month of November 2017.

3a) Define and explain payroll tax, highlighting how the withholding tax system works.

b) Making reference to different payroll taxes explain the purpose of payroll taxation in
Zimbabwe.

4. Discuss the concerns by labour and their unions over the income tax system used in
Zimbabwe.

5. Below is the January payroll input for a 63 year old employee.

ITEM AMOUNT $ ITEM AMOUNT $

Basic salary 800 Domestic worker allowance 100
Breakages 20 Medical aid other 20
Vehicle allowance 100 DSTV allowance 32
Bonus 800 Medical aid 25
NEC levy 50 Loan recovery 200
NEC pension 50 Entertainment allowance 124

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Funeral contribution 50 Short pay 50
T&S 150 Subscription to IPMZ 100
Airtime allowance 45 Housing allowance
Target bonus 150 Overtime 180
School fees allowance 150 ZCTU subscriptions 50
Donation to 150
government

a) Calculate the housing allowance for the month if the individual was paying a subsidised
rent of $200 for a house with a market value of $500.

b) Using the payroll input above calculate the net pay.

c) Assuming the above employee had a taxable income of $700 for February and $800 for
March, calculate the average tax per month that the employee should pay for the remaining
months using the final deduction system averaging method.

e) Assuming the above employee actually worked on 7.5 hour shifts for 27 days and worked
15 hours’ overtime, with the 15 hours being holiday overtime, correct the payroll error.

6a) Determine the value of the taxable benefit on an employee’s loan if the employee was given
a 3month loan of $6000 in October 2017 by the company at an interest rate of 2%. (Make
reference to 2017 libor rates in responding to the question).

b) If the loan was of $90 would it make a difference?

c) If an employee is 65 years old, how will that affect the PAYE system and the taxable benefits
of the employee.

8a) Supporting with examples, outline and explain the basis for valuation of employee fringe
benefits for income tax purposes by ZIMRA.

b) All benefits which accrue to an employee are taxable. Discuss

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9. a) What are over and underpayments of tax?

b) What causes over and underpayments of tax?

c) What control measures can companies put in place to avoid over and underpayments of
tax.

d) What payroll costs are associated with over and underpayments of tax?

10. Evaluate the effectiveness of outsourcing in reducing the risks and costs associated with
running the payroll In-house.

Below is the payroll information for a disabled employee who worked for 28 days for the month
of April 2017.

ITEM AMOUNT$ ITEM AMOUNT$

Basic salary 2000 Medical aid other 55

Vehicle allowance 150 Loan recovery 500

Bonus Short pay 50

Funeral contribution 15 ZCTU subscription 50

T&S 500 Housing allowance

Cash in lieu of leave days Overtime 250

Target bonus 350 Donation to Government 50

School fees allowance 400

Domestic worker allowance 150

Medical aid 20

11a) Determine the gross income of the above employee if in addition to the above incomes the
employee also received the following incomes:

i. 70% of the basic salary as bonus

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ii. If the employee stays in a company house and pays a subsidized rental of $400 in a house
valued at $800 per month.

iii. If for this month the employee enjoyed a 14day holiday free of charge at a holiday resort
owned by the company. The daily rate for the chalet is $50 per day for guests.

iv. If the employee applied to receive cash in lieu of leave days for fifteen (15) days of
annual leave and the application was approved.

b) Using the payroll input above including 1a) calculate the net pay for the above employee.

c) Assuming the above employee worked on 8 hour shifts for 28 days and worked 15 hours
overtime, with 15 hours being normal day overtime, determine the total value of the employee’s
overtime. What amount was the over or underpayment.

d) Assuming the employee has worked for this company for 10 years, calculate the minimum
retrenchment package applicable to the employee and the tax applicable on the employee’s
retrenchment package upon retrenchment.

12a) Discuss two methods provided for by ZIMRA which allows for estimating provisional tax.

b) If provisional tax is calculated, what procedures should a company engage in under the Final
deduction System to ensure that the correct tax has been factored in at the end of the tax year.

13a) During a celebration ceremony for a company fun day all employees received grocery
hampers as a "thank you"for the years of service. The HR manager needs your advice on
whether the hamper is taxable or not considering there was no transfer of money to the
employees. Please advise fully and justify the basis of your advice.

b) Define and explain post-employment benefits and their relevance to benefits administration.

14a) Outline and explain the payroll cycle clearly highlighting the activities and the importance
of each stage.

b) Highlight the penalties to the employer for late submission of tax remittances.

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15a) Explain in detail how overtime paid to an employee affects the employees’ statutory
deductions.

b) Distinguish between statutory and voluntary deductions explaining how they influence payroll
calculations.

16. Discuss how a payroll tax imposed on the worker and a payroll tax imposed on the firm
affect the wages of employees and affect the labour market.

17. Given the environment Zimbabwean organisations are operating in, identify and explain the
challenges faced by these organisations in running the payroll.

b) how can the identified challenges be overcome?

18. Below is the payroll information of a qualified artisan for February 2018

ITEM AMOUNT$ ITEM AMOUNT$

Basic salary $1000 Overtime $250
School fees allowance $150 Airtime allowance $ 40
Housing allowance $150 ZCTU subscriptions $50
Bonus $1000 Medical aid $34
NEC levy $13 Loan recovery $60
NEC pension $21
Funeral contribution $18 Target bonus $ 200
Vehicle allowance $ Fuel coupons $ 55
a) Calculate the vehicle allowance for the month if the individual was using a vehicle with an
engine capacity of 1500cc valued at 3600 per year

b) Using the payroll input above calculate the net pay.

c) Assuming the above employee had a taxable income of $500 for January and $700 for
March, calculate the average tax per month that the employee should pay for the
remaining months using the final deduction system averaging method.

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 d) Assuming the above employee actually worked on 7 hour shifts for 25 days and worked
17 hours overtime, with the 17 hours being holiday overtime, correct the payroll error.
e) Upon retrenchment in July an employee was given $15 000 as a retrenchment package.
Calculate the tax applicable on the employees’ retrenchment package if their basic salary was
$1500.

19) Define and explain the gross up effect in managing payroll systems in Zimbabwe.

b) What is the rationale for organisations in Zimbabwe to engage in this concept of

grossing up?

20. Discuss the contribution made by information communication technology (ICT) in

promoting efficiency in running the payroll.

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PAYROLL

Definition of 'Payroll'

In a company, payroll is the sum of all financial records of salaries for an employee, wages,
bonuses and deductions. Payroll is a list of the people who work for a company and the amount
of money that the company has agreed to pay them. It can also refer to the total amount of money
that a company pays to all of its employees. Payroll can also refer to the list of employees of a
business and the amount of compensation that is due to each of them. A payroll is the payment
required to pay employees and to remit related taxes to various government entities for a
designated work period for which employees are entitled to receive a single payment. For
example, a weekly payroll indicates that employees are to be paid once a week. Payroll (total
compensation) can differ from one pay period to another due to overtime, sick pay and other
variables.

Payroll administration is defined as any of the tasks necessary to organize the compensation of
employees for the hours that have been worked. This may include keeping totals for hours
worked by employees, rates of pay and managing payments to employees.

Payroll administration encompasses all the tasks involved in paying an organization’s

employees. Depending on the company in question, a full range of other deductions may be
calculated, withheld and processed as part of payroll administration. For example, it might
include processing commissions in employee, adding bonuses into paychecks, calculating
overtime payments, and adhering to applicable employment laws. Some are applicable to certain
companies and not to other. E.g. Compensation wage differentials for risk of injury.

Payroll administration can be very simple, involving the payment of just a handful of employees,
or very complicated, involving payroll for thousands of employees and contractors. It may be

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handled by the owner of the company or an employee. However, other companies may have
many employees to pay and keep track of, necessitating a well planned, efficient system.

Payroll Functions

 Functions involve balancing and reconciling payroll data and depositing and reporting
taxes.
 The payroll department takes care of wage deductions, record keeping and verifying the
reliability of pay data.( check for ghost workers, overpayment and underpayment).
 The payroll department delivers payroll checks, maintains compliance with tax laws,
records paperwork for new hires and edits existing employee files.
 Payroll professionals are also responsible for calculating reimbursements, bonuses,
overtime and holiday pay.
 Payroll involves calculating time cards, commissions, bonuses, retrenchment package,
overtime, salaries, wages, employee reimbursements, holiday pay and benefit time such
as vacation, sick and personal days.
 Payroll also makes deductions from employees’ wages for taxes, wage garnishment,
health and life insurance, flexible spending accounts and retirement investments.
 Handling payroll-related problems are part of payroll administration as well. If an
employee is paid an incorrect amount or a direct deposit fails to go through, both things
are payroll administration issues.
 Payroll administrators are also responsible for making sure that payments are delivered
on time to employees.

Payroll system

A payroll management system is a software program or system application that is used by

companies to manage the financial aspects of the salary of its employees. This system oversees
areas related to payroll, salaries, allowances, deductions, and net pay, as well as generating pay
slips within a prescribed period.

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A payroll system is a financial system that a company establishes to calculate employee wages,
keep track of working hours, withhold taxes and other deductions, and pay taxes to federal, state
and local governments. A payroll system calculates the amount you owe your employees based
on factors such as the time they worked, their hourly wages or salaries, and whether they took
vacation or holiday time during the pay period. The system adjusts gross pay by calculating and
subtracting taxes and other withholding amounts. On payday, the system provides your
employees with paper checks or payroll deposits and a summary of the information you used to
calculate their gross and net wages.

An employer uses a payroll system to process its payroll. Consequently, payroll cannot be
processed without a payroll system. The payroll system provides the medium necessary for the
employer to process its payroll. As long as the payroll system satisfies the payroll needs a
company can use whichever system it wants

1. Types of payroll systems

There are many kinds of payroll management systems on the market, but they can be broken
down into three categories: manual, in-house computerized and outsourced. All of these options
have their pros and cons, but at the end of the day, it's important to have one system that works
specifically for your company's needs—no two businesses are exactly alike, after all.

Manual

With a manual system the employer processes its entire payroll by hand, including wages,
deductions and tax calculations. It usually involves time cards and manually updated excel
spreadsheets. To reduce the risk of errors, the employer should use this method only if it has few
employees. A manual payroll system should be chosen after careful deliberation. This system
requires the payroll person to process the entire payroll by hand; increasing the likelihood of
errors. This means that all wage calculations are performed on paper; this includes computation
of hours, statutory deductions (taxes) and involuntary deductions (health and pension benefits).
Employers can buy standard time-sheets from a stationary shop and have employees complete

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them. The employer can perform wage and tax calculations on a calculator, hand-write
paychecks/pay stubs or use a computer and keep hard copy payroll data in storage boxes

An advantage of using a manual payroll system is that it costs very little to use. However, it takes
a lot of time and energy to do manual payroll processing. Additionally, there is more room for
error with this method. Employees' paychecks and tax filings are susceptible to inaccuracy as a
result. In particular, tax filing errors can be costly due to penalties from the government.Still,
attempting to use this system if one is not knowledgeable about payroll laws, or if the payroll is
too large, can result in inaccurate paycheck and tax processing.

In-house Computerized

The in-house computerized system is a viable alternative if an employer wants to eliminate

manual payroll processing. This system uses payroll software such as Belina that includes
internet- or cloud-based solutions that can capture time, attendance, and scheduling data and
compute wages based on that information. It calculates wages and deductions based on inputted
data. For instance, the payroll person would enter the employee’s information e.g. allowances
into the payroll software. The payroll software has the ZIMRA tax tables hard-coded in the
system and performs the calculations automatically.

The benefit of using a payroll management system is its ability to automate otherwise
complicated manual computations. Computing for deductions, income taxes, benefits,
allowances and the like can be done in less time as compared to having someone crunching
numbers for each and every employee. This results in time savings as well as a lower incidence
of miscalculations attributable to human error. This method is much quicker than a manual
payroll system. The payroll professional can also access payroll reports, which allows him to
check for errors and correct them before the employee receives their paycheck. Computerized
payroll also reduces the amount of paperwork to be filed, as most of the payroll information can
be stored in the system. The system makes it easier to manage employee information, so there’s
no need for to consult various sources for data. Having all the information required in one place
means that reports generation is easy and there will be no struggle to produce information about
attendance, leaves, payroll taxes, and the like. This is useful for tax compliance and legal
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documentation, as well as during audits where specific reports are required and must be
submitted within tight deadlines to avoid penalties.

A computerized system also promotes better security and helps keep employee data confidential.
Tighter controls can be implemented, where only those who have the right access codes or
administrative rights can gain entry into the system. At the same time, employees can also log on
to view information related to their current status, making it easier for them to keep track of their
leave allowances and other benefits.

This system requires the employer to invest in, and maintain the payroll software. In companies
that have the resources customized programs can be prepared to suit the organization's needs
Depending on the complexity of the software, the payroll staff may require extensive training. If
the payroll is small, a sole payroll person can handle payroll processing. But if the payroll is
large, with thousands of employees, an employer would need to hire a full payroll staff, which
can include payroll clerk/assistant, payroll specialist, payroll supervisor and payroll manager.
This system can prove expensive for employers. If the system is in-house computerized, the
employer can purchase the software package that best suits its needs.

The employee responsible for payroll must stay up-to-date and knowledgeable of staff changes
and payroll tax laws for accurate pay, tax withholding and filing.

Outsourced

Outsourcing, involves companies handing off their data to organizations that specialize in
computing employee salaries Outsourcing the payroll to a payroll service provider is often a
cost-effective and time-saving alternative for employers. Payroll services have payroll
professionals that process clients; payroll, including direct deposit payments. Employers pay a
flat fee for this service, eliminating the need to pay an on-site payroll staff salaries and benefits.
Ultimately, outsourcing payroll gives an employer time to focus on other duties.

Many payroll service providers offer online payroll solutions, which allow employers to access
to employee payroll data and payroll registers online. Furthermore, payroll services typically

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offer clients different methods of transmitting payroll hours for each pay period, such as via fax,
by email or online. If the employer chooses the external system, it can, for example, choose an
online payroll service provider with the ability to manage employee payroll accounts and print
payroll reports online. Online payroll companies allow you to manage and monitor payroll
details 24 hours a day, seven days a week from a secure Web browser, and you never have to
purchase additional software and equipment. You can enter and update payroll and track
employee vacation days and sick pay from your computer or laptop at your convenience. Many
online payroll companies offer payroll tax filing and payment in addition to basic payroll
services, allowing you to focus on other aspects of your business. If email updates are offered,
you can sign up to receive payroll status and other relevant account information for quick review.

The downside to outsourcing is that when employees have payroll concerns, immediate help
might not be available. Furthermore, when a payroll service makes certain payroll tax errors, the
government penalizes the employer, not the payroll service provider. Consequently, some
employers hire an on-site payroll administrator, who works as a liaison for the payroll service
and the employer.

Objectives of a Payroll System

Accuracy : A payroll system must be able to keep and generate accurate reports on employee
income. Once a good system is in place, you will have an accurate record of the working hours
of your employees. An automated system minimizes the possibility of human error, as the only
real factor is whether employees remember to clock in and out. From the business owner's
standpoint, being able to generate year-to-date income reports makes filing business taxes a little
easier: the amount used to calculate tax deductions for business expenses regarding employees
(specifically, the employee's income) can be readily accessible. From an employee's point of
view, being able to ask the employer for a record of his income could be critical for securing
loans or state assistance (such as disability or unemployment benefits).

Generate Paychecks and Pay Stubs: An equally important objective of any payroll system is to
generate paychecks and pay slips. Computerizing this task saves managers and business owners
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time and money; rather than reviewing time cards manually and calculating a check amount
based on the hours worked, the payroll system should be designed to automatically calculate
these figures. Employees appreciate a timely payroll system as well: it reduces anxiety about
receiving checks on time and any anxiety about receiving a check for the wrong amount.

Help Owners Comply with Labor Laws

A payroll system must make complying with state and federal labor laws easier, while at the
same time helping the owner reduce overhead. For example if the law mandates that employees
be paid overtime if they work over 40 hours in one work week. A payroll system must
automatically factor in the overtime pay. This helps employers stay within the law when it comes
time to pay overtime. Additionally, since an employer can use the system to check the number of
hours an employee works, the employer can shift schedules to avoid paying additional overtime
(thereby helping the employer keep costs lower).

Deductions

They must be set up for more complex operations, such as deductions for tax and benefits
purposes. Most payroll systems can be customized to accommodate your tax and benefits needs
and can be further adjusted for the specific circumstances of each employee. In-house payroll
personnel and outside contractors must be thoroughly knowledgeable about which deductions are
required under the law. No matter which payroll system you use, however, you are ultimately
responsible for the accurate reporting and paying of payroll taxes.

Record-Keeping

Another feature of a payroll system is that it can be used to keep detailed and accurate records.
These records can be stored in a main database on site, online or in an outside record-keeping
facility. Record-keeping can help you monitor trends such as how much overtime you're paying
and how many employees participate in your company retirement plans. Records also ensure that
you’re complying with all relevant laws and can prepare you for an audit or any other type of

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investigation of your business when you set up your system to monitor those activities. A payroll
system that accurately stores hours makes end-of-year tax preparation smoother as well.

Components of a Payroll System

By Bridgette Austin,

 To make sure that they comply with regulations companies must include crucial
employee and company information in their payroll systems. During the new hire
process, companies must collect information such as medical insurance to know what
should be deducted from an employee’s paycheck.
 The system must also track and process changes made to the employee’s tax exemption
status, pensions, insurance plans or retirement funds.
 As part of the new hire process, payroll systems include a component that designates
which employees are full time, part time and contractors. Classifying workers in a payroll
system is important since the government levies high penalties on companies that
categorize employees incorrectly.
 Without knowledge of the number of hours an employee has worked, employers cannot
determine what to pay an employee. While some workers are paid a salary, others are
compensated hourly or designated as nonexempt employees. Payroll systems include
timesheet information or areas where hourly and nonexempt employee hours are recorded
and reviewed for accuracy. Information can be collected through a computerized time
clock, punch card stamp clock or paper timesheet.
 Although ZIMRA provides companies with tax tables to calculate employee tax
withholdings, vendors and payroll computer systems can also supply this information.
Payroll systems must calculate deductions made through pension plans, insurance plans,
union dues and garnishments.
 The payroll register summarizes employee earnings and deduction information in a
journal entry that is inserted into the general ledger for accounting and general research
purposes.
 A payroll system also processes tax information and helps you comply with your tax
obligations. The system adjusts employees' pay based on the tax.
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  A payroll processing system can also calculate the amount of payroll tax you owe and
automate your payments to taxing authorities.
 It processes other payroll deductions such as wage garnishments and voluntary
deductions.

Payroll is a critical financial responsibility for your business that requires accurately paying
employees and complying with local, state and federal government regulations. Payroll
processing errors result in employee frustration and monetary fines, but using a payroll
system can ease your mind and help you avoid miscalculations and noncompliance. Deciding
whether to use in-house, outsourcing or online payroll processing requires knowing the right
features needed for your business.

Choosing an effective System

 Good intuitive and affordable HR software have the capability to reduce paperwork,
saves time, completely eliminates the necessity of multiple spreadsheets and paper file
cabinets and removes the need to create human resource documentation from scratch.

 Need to identify the hidden costs, as many payroll services appear to be cheaper than
others, but actually contain a pile of additional costs for regularly occurring payroll
activities. these hidden costs can significantly increase the cost of managed payroll

 It eliminates HR processing burdens and provides with that extra time so that dealing
with recruitment and industrial relations and critical payroll becomes easier and can be
dealt with more effectively.

 A flexible and detailed software program has the quality to manage staff records, track
payroll data and benefits, navigate personnel information and even tally vacation
accruals.

 All organizations are unique and it is this uniqueness which makes them special. So a
payroll system should ultimately match your company's procedures and practices and in
most cases software programs are tailored to meet organizations’ unique needs.

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  Ease of use is also an important factor in a payroll as you don't want to have to spend
hours and hours in training if not absolutely essential. Hence a self directed or easily
learned program is much more valuable than one that is complicated. The System should
allow the employees to log in to a secure personal HR area where they can access (for
instance) their contract of employment, their holiday and absence information.
 The size of the company determines system chosen. Very small companies (fewer than
10 employees) may use a manual payroll system if the hours tend to remain the same per
pay period. Larger companies generally employ a payroll staff and use an in-house
computerized payroll system or use an external payroll service.
 The complexity of the payroll will often determine what type of payroll system the
employer needs. For example, if there is multi-state processing, several garnishments and
child supports orders, and different pay rates and pay cycles involved, the employer is
better off using a computerized payroll system with an in-house payroll staff or entrusting
his payroll to an external payroll service.
 Security features. An effective payroll management system should have the ability to
restrict access to certain users. Rules should dictate who can see, modify, and approve the
report. it is important that any payroll solution you select is protected by a system like
this.
 For computerized systems availability of customer support or after-sales service offered
is important.
 When outsourcing the payroll software vendor should offer an easy way to transfer data
from one system to another.

The payroll and benefits administrator’s role

A payroll administrator is a person who supervises the issuance of payroll and maintenance of
payroll records.

 The payroll administrator collects and verifies timekeeping information and is

responsible for issuing paychecks that are correct and complete. Withholdings are
documented on each paycheck so that the employee can verify that they are correct.

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  Making the monthly payments on time
 Working out tax and national insurance deductions
 Setting up new members of staff
 Calculating overtime
 Issuing tax forms where needed
 Managing special situations like maternity or sickness pay
 The payroll department pays employees accurately and on time.
 Timekeeping- calculates time worked, including overtime. She consults with employees’
managers or supervisors on time card issues and verifies that the data is correct before
paycheck processing occurs.
 The paycheck processor verifies that the payroll system has the correct compensation
data for each employee. This includes salary, hourly rates, regular hours and overtime
hours. She verifies other types of pay, such as bonuses, commissions, severance, piece
rate, expense reimbursements, back pay and retroactive pay increases. Other types of
compensation include bereavement, vacation, sick, personal and holiday pay.
 . he/she forwards the direct deposit file to the bank and prints paychecks and pay stubs.
After closing out the payroll period, she verifies paycheck information via payroll
reports.
 Manage Employee Benefits.
 Payroll Accounting Through payroll accounting, the company tracks wages paid,
deductions from employees’ paychecks, and all employer-paid payroll expenses.
 Addresses internal payroll inquiries from managers, supervisors and employees. It also
addresses related external concerns, such as from government agencies that need
information on employees for wage garnishment.

Qualities of a Good Payroll Administrator

Mathematical Abilities -This trait is necessary because payroll involves the calculations of
employees' wages and taxes. Furthermore, the payroll employee has to ensure that the employer's
taxes are deducted and employees' benefits (e.g. vacation days) and voluntary deductions (e.g.

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retirement plan) are accurately computed. Without good mathematical skills, the payroll person
is apt to make an abundance of errors, which can lead to incorrect paychecks and tax issues.

Analytical Skills -The payroll professional should have above-average problem-solving and
analytical skills. Regardless of whether an error is the result of the payroll person, supervisor,
employee or a system glitch, the payroll person must have keen analytical skills to understand
the problem and solve it quickly. If complex tax errors arise, the payroll employee must be
knowledgeable enough to work with the accounting department to fix them.

Experience - The payroll employee with experience is dependable and knowledgeable.

Software Knowledge- Most companies use payroll software to simplify payroll processing.
good payroll employee is willing to learn as many types of payroll software as possible.

Honesty and Confidentiality The payroll professional must be trustworthy and able to keep
information confidential. Payroll includes handling employees' personal information (e.g. bank
accounts) and having access to the company's funds.

Be firm Employees will ask you to “bend” the rules from time to time. Know when you have the
latitude to make exceptions and when you must stand firm. For example, it may seem harmless
enough to fill in a time card for an employee, but it’s a violation of labor law.
Be accurate Being accurate doesn’t require you to be perfect. After all, to err is human. But you
should have a process to catch errors before they affect your employees. Compare the payroll
input to attendance records before you submit it for processing. Check again when the payroll
comes back. Also, balance the totals and generate an audit report, if available. Each additional
review increases your odds of catching a mistake. Allow time for verification between your pay
period end date, input date and delivery date.
To keep abreast of the state of the payroll art with regard to developments in payroll technologies
To be current with legislative developments and actions on the part of regulatory bodies, insofar
as they affect payroll

Who should do payroll HR or FINANCE

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 Payroll is also a sensitive matter as employees may have queries when they receive their
pay slips. Not to generalise, Accounts personnel are not very much the right persons to
have the kind of human relations skills to answer such queries with empathy and
patience.
 At the same time, payroll is also considered a function of HR because it pays and deals
with people. Take, for example, maternity pay. The HR side is that the company must
preserve the employee’s rights and abide by federal and state anti-discrimination and
maternity laws. At the same time, the employee must receive compensation, a finance
function, in accordance with the company’s policies. Proper Statutory Records must be
maintained and it is the responsibility of the HR to keep all Statutory Records in Order.
 Another reason is the salaries have become more and more linked with employee
performance and retention with a substantial part of salary paid as performance-linked
incentive. Various Data needs to be generated from the Employee Payments to calculate
various indicators like Labour productive, Labour Cost. Performance Management being
the HR function, payroll management in a performance-oriented reward system has
become HR function.
 Accounts department mainly performs a control function and is therefore made as
bottleneck. A bottleneck approach( is a stage in a process that causes the entire process to
slow down) is not the right approach when you need to reward people's performance in a
dynamic business environment. So, the payroll function has been transferred to HR to
make it stay nearer to the people of the organization so as to respond quickly to the
employees' queries and performance. Of course, Accounts will ultimately monitor the
expenses and give their advice regarding any lapse in controls through audit and other
tools.
 It is necessary for HR to check and authorize Salary Details before processing. This is
done with the view to check that the person has been given all his variables, attendance
has been properly calculated and necessary statutory deductions had been made. This is
done because in case of any Salary Discrepancies it is HR to whom a person approaches
and HR has to deal with them. For example; Leave availed not recorded, special
sanctions of leave or special payments; person has been marked absent while he was on

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 Out Door duty, increments and there are countless others. When HR hires or terminates
an employee, it forwards the necessary paperwork to payroll so the employee can be paid.
When employees receive performance reviews, HR sends the respective documents to
payroll, which calculates the amounts that employees should be paid going forward.
Vacation, sick and leave balances are tracked by both payroll and HR; the information is
forwarded to managers and supervisors so they can effectively schedule time off requests.
 Ultimately when it comes to inputs, it is HR that provides the inputs that are essential to
process the payroll. As HR plays a pivotal role in salary fixations and finalization of other
monetary things to the employees, it is always better to have HR handle the payroll.
 Many payroll activities are related to HR issues, so the payroll and human resources
departments must coordinate shared functions. This includes recruitment, salary
increases, bonus payments, benefit deductions, vacation leaves and firing employees. The
human resources department must be sensitive to the time devoted to payroll processing
because as the champion of employee relations, they’ll face issues directly if paychecks
aren’t processed correctly and on time.

Payroll functions are covered by either the finance department or human resources department in
most organizations. Deloitte’s 2011 Payroll Operations Survey revealed that 42 percent of the
companies surveyed reported that payroll was a function of their finance departments, and 40
percent said that payroll was a function of their HR departments. Essentially, payroll is number-
driven and calls for knowledge of tax laws and accounting. Thus, many respondents believe it
should be positioned with the finance department

BENEFITS ADMINISTRATION.
Benefits administration is the process of establishing, maintaining, and managing benefits for
the employees of an organization. Kwon and Hein (2013) suggests that benefits make up an
important component of the employment relationship, providing employees with financial
protection, access to health care and programs to support work/life balance. Benefits
administration involves the creation and management of employee benefits, as well as providing

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a means for employees to be trained in understanding how the benefits work, and what types of
standards employees must meet in order to qualify for the benefits

According to the IAS ( international accounting starndard) 19 (2011) employee benefits are all
forms of consideration given by an entity in exchange for services provided by employees or for
termination of employment. They include such benefits provided directly to employees and to
their dependents or beneficiaries.
According to the International Benefits Network, the term “employee benefits” refers to non-
wage compensation provided to employees in addition to wages or salary. his can include a
wide range of benefits including social security benefits, retirement and death benefits, medical
care, sickness benefits, long-term care, child care, tuition fees, housing allowances, company
cars, profit-sharing, share-options, termination indemnities, relocation assistance, shopping
discounts.
Benefits may be financed by employer and/or employee contributions. Some employers offer
cafeteria plans which give employees the option of choosing from a menu of benefits. The
benefits provided in each country will depend on local taxation, social security and labour law.
However, in the narrow sense, the term is normally limited to benefits which include an element
of insurance or funding. These are normally as follows: retirement benefits; survivors’ and
children’s benefits, medical care, Sickness and disability benefits.

DIFFERENT TYPES OF BENEFITS

Short term benefits - Short-term employee benefits are employee benefits (other than
termination benefits) which fall due wholly within twelve months after the end of the period in
which the employees render the related service. Short-term employee benefits, such as wages,
salaries and social security contributions (e.g., contribution to an insurance company by an
employer to pay for medical care of its employees), paid annual leave, profit-sharing and
bonuses (if payable within twelve months of the end of the period) and nonmonetary benefits
(such as medical care, housing, cars and free or subsidized goods or services) for current
employees.

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Short-term employee benefits include items such as:
(a) Wages, salaries and social security contributions i.e WCIF
(b) Short-term compensated absences (such as paid annual leave) where the absences are
expected to occur within twelve months after the end of the period in which the employees
render the related employee service.
(c) Profit-sharing and bonuses payable within twelve months after the end of the period in which
the employees render the related service; and
(d) Non-monetary benefits (such as medical care, housing, cars and free or subsidized goods or
services) for current employees.

The entitlement to compensated absences( leave) can be accumulating or non-accumulating. An

accumulating compensated absence is carried forward and can be used in future periods. An
accumulating compensated absence can be vesting, so that employees are entitled to a cash
payment for unused entitlement when they leave the entity. If an accumulating compensated
absence is non-vesting, then employees do not receive such a cash payment when they leave the
entity.

Long term benefits - Long-term employee benefits, include long-service leave or sabbatical
leave or other long-service benefits, long term disability benefits and, if they are not payable
wholly within twelve months after the end of the period, profit-sharing, bonuses and deferred
compensation.

Termination benefits - Termination benefits are employee benefits provided in exchange for the
termination of an employee’s employment as a result of either :(a) an entity’s decision to
terminate an employee’s employment before the normal retirement date; or (b)an employee’s
decision to accept an offer of benefits in exchange for the termination of employment (voluntary
redundancy in exchange for those benefits). The termination benefits encourage employees to
leave service voluntarily.

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An entity shall recognise a liability and expense for termination benefits: (a) when the entity can
no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a
restructuring and involves the payment of termination benefits.

Voluntary Termination Benefits - Voluntary Termination Benefits represent payments made

to employees as:

 An inducement to hasten the termination of services or

 As a result of a voluntary early termination plan.

Involuntary Termination Benefits- Involuntary Termination Benefits represents payments

made to employees as a consequence of the involuntary termination of services. In contrast to
voluntary terminations or separations, involuntary terminations result from a unilateral
decision by the organisation, such as a layoff. The conditions for involuntary terminations are
outlined in the Labour Act, which provides the basis for conveying these types of benefits to
employees. For involuntary termination benefits the criteria given in the Labour Act must have
been met.

Post-employment - Post employment benefits are employee benefits (other than termination
benefits) which are payable after the completion of employment. Post-employment benefit plans
are formal or informal arrangements under which an enterprise provides postemployment
benefits for one or more employees. Post-employment benefits such as gratuity, pension, other
retirement benefits, post-employment life insurance and postemployment medical care .Post-
employment benefit plans are classified as either defined contribution plans or defined benefit
plans, depending on the economic substance of the plan as derived from its principal terms and
conditions.

Post-employment benefits: defined contribution plans

Defined contribution plans are post-employment benefit plans under which an entity pays fixed
contributions into a separate entity (a fund) and will have no legal or constructive obligation to
pay further contributions if the fund does not hold sufficient assets to pay all employee benefits
relating to employee service in the current and prior periods. Under defined contribution plans
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the entity’s legal or constructive obligation is limited to the amount that it agrees to contribute to
the fund. Thus, the amount of the post-employment benefits received by the employee is
determined by the amount of contributions paid by an entity (and perhaps also the employee) to a
post-employment benefit plan or to an insurance company, together with investment returns
arising from the contributions. In consequence, actuarial risk (that benefits will be less than
expected) and investment risk (that assets invested will be insufficient to meet expected benefits)
fall, in substance, on the employee.

Post-employment benefits: defined benefit plans

The entity’s obligation is to provide the agreed benefits to current and former employees; and
actuarial risk (that benefits will cost more than expected) and investment risk fall, in substance,
on the entity. If actuarial or investment experience are worse than expected, the entity’s
obligation may be increased.
'Other Post-Employment Benefits - OPEB' - Other post employment benefits are Post-
employment benefits that an employee will begin to receive at the start of retirement. This does
not include pension benefits paid to the retired employee. Other post-employment benefits that a
retiree can be compensated for are life insurance premiums, healthcare premiums and deferred-
compensation arrangements.

Deferred Compensation - Deferred compensation allows employees to receive income at a later

date. Deferred compensation plans are structured as supplemental benefit arrangements or as
purely deferred compensation plans. Deferred compensation is one in which an employee's
existing compensation or salary is reduced --- e.g., the employee is paid only a portion of his
stipulated salary --- and the remaining accrues as deferred compensation.

Note: In most cases when it comes to evaluating job offers, most jobseekers today in Zimbabwe
and world over know that salary isn’t everything. Benefits are an important part of job-offer
negotiations for employers and employees alike. Indeed, benefits continue to evolve. For
example, many employers offer an increasing array of options that provide workers with greater
flexibility in balancing work with other facets of life. Family-friendly policies (such as
telecommuting) and career-related benefits (such as educational assistance) are just a few of the

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offerings from contemporary employers. Benefits are not evenly spread among the
workforce; some workers are more likely than others to have access to benefits.

Full-time workers, for example, have greater access to benefits than do part-time workers, and
workers in large establishments usually have greater access to benefits than do those in small
establishments. Workers who belong to a labor union also are more likely to be offered benefits
than those who are in jobs in which workers are not unionized. Moreover, having access to a
benefit does not necessarily mean that workers choose to receive that benefit. It simply means
that the employer makes the benefit available. Both employers and employees must contribute to
two mandatory social insurance programs: Social Security (NSSA) and Medicare. Social
Security, the largest component of legally required benefits, helps provide financial support to
workers and their families when workers retire, die, or become disabled. Medicare provides
healthcare assistance to older workers and to people with long-term disabilities.

PAYROLL IN ZIMBABWE

Note: The following are just a few pointers for processing payrolls in Zimbabwean organisations.
This list is intended as a guideline and may not be fully comprehensive for the industry in which
you are working. However, for the purpose of this module as a minimum you should be
registered with and well versed by:

 National Employment Council (NEC) for the industry you are working in
 National Social Security Authority (NSSA) including Workmen’s Compensation
 Ministry of Labour - Manpower Development Fund (ZIMDEF)
 Standards Development Fund ( SDF)
 Zimbabwe Revenue Authority (ZIMRA)

NATIONAL EMPLOYMENT COUNCIL (NECS)

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In Zimbabwe, the provision for National Employment Councils has been there since 1980.
National Employment Councils, once known as Industrial Councils, have been in existence since
1934 in some cases they were named Bargaining Councils.In simple terms, National
Employment Councils are representative bodies of employer and employee organisations. The
National Employment Council is ordinarily made up of structures namely: Council, the
Executive Committee, Negotiating Committee and a Local Joint Committee.

However, certain Collective Bargaining Agreements for specific sectors have developed
structures that include Exemptions Committees, Job Evaluation Committees, etc. Key to these
structures are Designated Agents (DA) who may be conciliators and arbitrators responsible for
resolving disputes in their particular industry in terms of provisions envisaged in Sections 63 and
98 of the Labour Act (Cap 28:01).

During the 1980s, the industrial relations system in Zimbabwe envisaged Employment Boards,
which were under the supervision of Minister of Public Service, Labour and Social Welfare.
During this period, the minister by way of Statutory Instruments, used to gazette minimum wage
notices in respect of any class of employees in any class or industry and would prohibit the
payment of any wage less than such specified minimum wages, benefits or increments to such
class of employees. This later changed during the 1990s when Employment Boards were turned
into Employment Councils, the main reason being that the Ministry of Labour deemed it
expedient to devolve powers on collective bargaining to specific constituencies. Ideally, the main
objective was to empower Zimbabwean employer organisations and trade unions to manage their
own affairs, which brought about consistency between the Zimbabwe Labour Act and
International Labour Conventions (ILO), which Zimbabwe ratified. In Zimbabwe most
companies fall under different NECs depending on the nature of the industry, we have NEC for
the Catering Industry, Banking sector NEC, NEC for mining, NEC for telecommunications etc.
To date, there are 48 National Employment Councils in Zimbabwe. Section 65 (5) of the
Constitution of Zimbabwe Amendment (No.20) Act 2013 stipulates that: “Except for members
of the security services, every employee, employer, trade union and employee or employer’s
organisation has the right to engage in Collective Bargaining”.

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Once an employment council is formed, the law requires the employment council to have a
constitution which provides for among other things, a statement of the aims and objectives of the
council and that the registered trade union concerned or federation of such trade unions to
appoint 50 percent of the members of the employment council and the employers’ organisation
concerned or federation of such organisations to appoint the remaining members. The
constitution should also provide for dues which are payable to the employment council thereof
and the administration of the funds of the employment council. Section 62 of the Labour Act
Chapter 28:01 states the duties of the employment councils as follows:

o Assist its members in the conclusion of collective bargaining agreements or

otherwise prevent disputes from arising, or settle disputes that have arisen or may
arise between employers and employers’ organisations on one hand or employees,
workers committees or trade unions on the other and shall take such steps as it
may concede expedient to bring about regulation or settlement of matters of
mutual interest to such persons or bodies.

o Take such steps as it may consider expedient to ensure that any collective
bargaining and any regulations pertaining to an undertaking or industry with
which it is concerned is being observed.

The scope of collective bargaining agreements negotiated by registered trade unions, employers
or registered federations is specified in Section 74 of the Labour Act, Chapter 28:01. In most
cases, Collective Bargaining Agreements which are administered by National Employment
Councils make provision for the following:
 Rates of remuneration and minimum wages for different grades and types of occupations
 Benefits for employees
 Deductions which an employer may make from employees’ wages, including deductions
for membership fees and union dues, and deductions which an employer may be required
or permitted by law or by order of any competent court to make

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 Methods of calculating, or factors for adjusting rates of pay, and the dates, times and
modes of payment
 All issues pertaining to overtime, piece-work, periods of vacation and vacation pay and
constraints thereon
 The demarcation of the appropriate categories and classes of employment and their
respective functions
 The conditions of employment for apprentices
 The number of hours of work and the times of work with respect to all or some of the
employees
 The requirements of occupational safety
 The maintenance of, and access by the parties to, records of employment and pay
 Procedure for dealing with disputes within an undertaking or industry
 Housing and transport facilities or in their absence, an allowance for the same
 Measures to combat workplace violence and handling its aftermath.
 Grading of employees – More often than not in most companies employees fall under
different grades. These grades are mainly governed by NEC regulations for that specific
industry and all companies should comply. Depending on the grading system in place
normally most companies have grades ranging from 1- 14, for example in the Catering
Industry.
 Minimum wage amounts – As a salary administrator one has to be well versed with NEC
minimum wages. Companies are expected to pay at least the NEC rates. However most
NEC regulations allow companies to even pay more than to pay less. As such failure to
observe this requirement will be viewed as an unfair labour practice. The NEC after
every salary review sends new salary schedules to all employers in that specific industry.
The minimum wages will be determined by employee grades.
 Overtime and short time payments – Likewise overtime conditions in all companies are
largely covered under the NEC regulation. Most NEC regulations suggest the times
employees should clock in or out, determines times for lunch and any other activity.

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  Leave and other conditions of service – Like wise conditions of employment apart from
being covered by the contract of employment NEC regulations also performs the same
functions.

The high court however ruled that companies are not obliged to register or pay leveies to NECs.
Justice Lavender Makoni in the NetOne Cellular versus the Minister of Labour & the National
Employment Council for the Communications & Allied Services Industry (HH 211/2015) said
that compulsory collection of funds from employers for the sustenence of NECs was
unconstitutional. However, the court held that however if the NECs came up with minimum
conditions of service, employers are bound to comply despite the fact that they do not subscribe
or pay anything.

NATIONAL SOCIAL SECURITY AUTHORITY (NSSA)

In Zimbabwe the National Social Security Authority (NSSA), constituted and established in
terms of the NSSA Act of 1989, Chapter 17: 04, is the statutory corporate body tasked by the
Government to provide social security.
The provision of social security can be defined as instituting public policy measures intended to
protect an individual in life situations or conditions in which his/her livelihood and well being
may be threatened, such as those engendered by sickness, workplace injuries, unemployment,
invalidity, old age, retirement and death.
It is based on the principle of social solidarity and pooling of resources and risks, involving
drawing of savings from periods of employment, earnings and good health to provide for periods
of unemployment, old age, invalidity and death.
The workers are entitled to a number of benefits after contributions for a minimum set period and
having met the qualifying condition of each of the benefits. It provides an important cushion for
Zimbabwean citizens during invalidity, retirement or death of a breadwinner who was a member
of the scheme. It is the noble duty of the employers and employees to ensure that contributions
are paid to NSSA.

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At the moment NSSA is administering two schemes: Pension and Other Benefits Scheme and
Accident Prevention and Workers’ Compensation Scheme, in an endeavor to provide a more
comprehensive social security package for the Zimbabwean society, groundwork for the
introduction of more schemes is underway.
Registration - to register with NSSA complete a P2 form for the employer and P3 forms for
each employee. Employers are required to register with NSSA within 30 days of becoming an
employer by completing and submitting to NSSA registration form P2. They are also expected to
ensure each employee completes employee registration form P3. The details provided on the
form P2 and P3 are required for the registration of the employer and employee respectively, with
both schemes, that is, Accident Prevention and Workers’ Compensation Insurance Fund and
Pensions and Other Benefits scheme. Both forms can be obtained from any NSSA office. After
processing the form NSSA will notify the employer of his/her BP and SSR number. The Social
Security Number (SSR No) or the BP number should be quoted in every communication with
NSSA in relation to the scheme. Where an employer has more than one business in the same type
of industry such businesses shall be registered once and allocated one SSR Number. Where an
employer has businesses in different types of industries, such businesses shall be registered
separately, whether they are located in one area or not. The employee on the other hand is issued
with a SSN and a Social Security Card which has the SSN printed on it. He / she should use the
number throughout his/her lifetime when communicating with NSSA. The number does not
change when employee moves from one employer to another.

Employer must inform NSSA of any changes that occur in any of his registration details. The
employer shall notify NSSA in writing, within one month of the following changes:
 Change of address;
 Change of business name or designation;
 Closure of business or branch of business;
 Ceasing to be an employer;
 Resuming to be an employer;
 Commencement of business or enterprise;
 Opening of a new branch.

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Notice of employee registration details changes to be given by employer
Employer must notify NSSA on form P4c of changes to employment status of his/her
employees, that is, termination of employment or death of employee. If employer engages a new
employee who is already a member to NSSA, the employer must then complete form P4C to
update the new employment history of the employee. Changes to name, national identification,
addresses, beneficiary details must be put in writing and must be accompanied by proof where
necessary.

Membership - The Pension and Other Benefits Scheme is for every working Zimbabwean above
the age of 16 years and under the age of 65 years who is in permanent employment, seasonal,
contract or temporary employment. This does not include domestic workers and the informal
sector that are expected to join at a later stage. It is a national scheme thus compulsory
requirement by law for all Zimbabwean workers who meet these criteria to become members and
contribute towards it. Membership to the scheme is compulsory regardless of whether the
employee is covered by a private scheme. Upon joining, every registered employer is issued with
a social security registration number and every registered employee is issued with a social
security number for life. It is the duty of the employer to ensure that all employees even those
hired on contractual basis are registered with NSSA and to ensure the correct employee and
employer contributions are paid over. Employees contracted for periods of less than 18 days in a
month do not contribute to the Pensions and Other Benefits scheme.
Workers who are exempted from membership are: Non Zimbabwean citizens who are not
ordinarily resident in Zimbabwe, diplomatic staff who are non–Zimbabwean and Persons
employed as domestic workers.

CONTRIBUTIONS
The Pension and Other Benefits Scheme is financed through a defined Benefit – scaled premium
method, where equal monthly contributions are made by both employers and employees as
follows:

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 1. 3.5% of $700 by employee
2. 3.5% of $700 by employer

The total of 7% of $700 is paid to the nearest NSSA office on or before the 10th of each month.
Employers are obliged to ensure that contributions are deducted and paid to NSSA. The
Insurable Earnings Ceiling from which deductions are made has been set at Seven Hundred
Dollars (US$700) per month. Insurable earnings ceiling is subject to change in line with
amendments to the relevant legislation. Deductions are made for all employees below the age of
65. Employees contracted for periods for less than 18 days in a month do not contribute to the
scheme. However, where you have casual workers who work for 5 days or more in a month but
the contract runs for several months, the employees are supposed to contribute as they have fixed
contracts of employment. The periods worked will be aggregated for one to qualify for a benefit
According to the national pension scheme rules, the maximum pension NSSA can pay depends
on the ceiling on insurable earnings and the number of years a contributor would have
contributed to NSSA. If an employee’s monthly income is $700 or more their NSSA contribution
is a flat fee of $24.50. However, if an employee’s basic salary is less than $700 then their
contribution is 3.5% of their basic salary. For Example

Employee earning US500.00

Employee contribution (3.5%) = 0.035x $500.00 = $ 17.50 us

employer contribution (3.5%) = 0.035 x $500.00 = $ 17.50 us

Total due (7%) =$35.00 us

If an employee is engaged in two or more insurable employments concurrently, each employer is

liable to collect and pay contributions on the salary/wages paid by him. The benefit of the worker
will be based on the combined contributions made from the various employers. All employees
working in a profession, trade or occupation who are above the age of 16 and who have not
attained the age of 65 should contribute to the fund. Under this scheme once an employee attains
the age of 65, deduction of contributions in respect of the employee should cease even if he/she

37
continues to work This age is reduced to 55 depending on the industry in which the employee
works.

Contributions paid in the erroneous belief that the contributions were payable shall be refunded
by NSSA on receipt of an application for a refund made within twelve months from the end of
the year in which the contribution was paid. For example POBS contributions made in respect of
an employee who is over the age of sixty-five (65) are considered erroneous.

Benefits Payable By the Scheme

The Pension and Other Benefits Scheme offers four main types of benefits and they are as
follows:

 Retirement pension and grants

 Invalidity pension and grants
 Survivors' pension and grants
 Funeral Grant

N. B. Please note that these benefits are payable either in the form of a grant which is a one off
payment or a pension paid on a monthly basis in arrears

NSSA Forms - forms needing completion:

 P2 - employer registration
 P3 - employee registration
 P4A - monthly remittance advice
 P9 / P10 - claim for benefits
 P4C - NSSA update for employee details e.g. discharged employees
 P16 - annual contribution return

After payments are made the following forms should be completed.

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P4A form - The purpose of completing this form is to ensure that the money paid is credited to
the correct account, period of payment and that the apportionment of funds between the two
schemes is done as per your declaration.
P4 form - The purpose of completing this form is to provide a breakdown of employee’s
contribution (made up of employer and employee’s contribution). This is important because it
facilitates the crediting of individual employees’ accounts and provides the base of calculating
benefits for members
P3 form- New employees. As soon as a person is paid a salary/wage, social security
contributions are due that month. When adding new employees on the P4 form ensure
registration forms P3 are completed to facilitate registration.
P4C form: Ceased employees. Contributions in respect of employees ceasing employment are
payable in the normal way up to the date of cessation. Complete the form P4C for employees
who would have left your employment in a given month to update your records.

Employer obligations under NSSA

 Employers should remit contributions to NSSA.

 Employers should register their businesses and employees with the National Social
Security Authority.
 They are also required to keep records with relevant information on each employee that
they may have to produce on demand to NSSA inspectors. Employers are required to
maintain a record in respect of every employee that must include the employee’s social
security number, national identity card number, name, date of birth and date of
commencement of employment, as well as the date and amount of each wage or salary
payment, the amount deducted from basic earnings in each contribution month and the
employer’s contribution each month.
 The employer must notify NSSA in writing of any changes in address, business name or
designation and closure of the business or branches. The employer must also notify
NSSA in writing on ceasing to be an employer, resuming being an employer,
commencement of a business and the opening of a new branch.

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  If the employer takes on an employee who is already a member of NSSA’s social security
schemes and therefore already has a social security number, form P4c should be used to
notify NSSA and update the employee’s employment history. The same P4c form should
also be used to notify NSSA when an employee leaves the job or dies.
 The employer is also expected to notify NSSA in writing if there are any changes to an
employee’s name, national identification number, addresses or beneficiary details. Proof
of the changes, where necessary, should accompany the notification.
 Employers should be familiar with the P4A form. This is the remittance advice form that
has to accompany the monthly contributions to NSSA. At the end of each year the
employer is expected to complete the P16 form that is for reconciling Pension and Other
Benefits scheme payments made during the year and ensuring the accounts of individual
employees are credited correctly.NSSA supplies the form with a list of employees, their
social security numbers, the date of commencing employment and, where applicable,
cessation date. The employer is expected to fill in the blanks on the form and return it.
Should NSSA not send the employer the form, the employer is still obliged to send in the

annual return.

 When an employee or former employee or his or her surviving spouse or other dependant
wishes to claim a benefit under the Pensions and Other Benefits scheme, the employer is
required to fill in Sections D and E of the P9/10 claim form.
 When an accident occurs at the workplace that causes serious injury to an employee
resulting in the employee being unable to work for one day or more, then the employer
should report the accident to NSSA by completing and submitting the WCIF 14 form
within 14 days of the accident occurring.
 Employers should ensure that every employee, regardless of the employment period,
even if it is only a few hours, is covered by the Worker’s Compensation Insurance Fund.
An accident can happen at any time.

WORKMEN'S COMPENSATION FUND (WCIF)

Workmen's Compensation Fund (WCIF) is a Compulsory Government insurance scheme that

operates under NSSA. The Scheme was established and is administered in terms of statutory
40
Instrument 68 of 1990.The employer is required to complete and return a Worker’s
Compensation Insurance Fund wage declaration form. The form is normally posted to the
employer by NSSA. Its purpose is to assess the employer’s risk and come up with the rate the
employer should use to pay premiums the following year.

Contributions
The contributions are entirely an employer contribution for insuring their employees in the work
environment. Currently all employers, except the Government, employers of domestic
employees and informal sector employers are required by law to contribute to the Scheme. It is
wholly funded by the employer; employees do not contribute. Unlike NSSA there is no age limit
for the contribution as long as an employee is employed, the employer should contribute for
them. There is no specified period that one should have contributed in-order for him/her to
benefit. Contribution is based on the risk premium of the organization. Premiums are paid for all
employees regardless of age. N.B. Employers are required to pay premiums for all employees
inclusive of those above the age of 65.
Businesses are classified according to industries and each industry is allocated an industrial code
(IC). Each industrial classification is allocated an insurance rate based on risk analysis. The
minimum insurance premium the employer is required to pay will be calculated using the risk
factor (degree of precariousness associated with the industry) depending on the type of business
the company is involved in. Contribution rates are supposed to vary according to inherent
occupational risk, from less than 2% in most low-risk commercial/administrative occupations to
11% for high-risk sectors The insurance year runs from January 1 - December 31st.
For Example:
The monthly premium for an employer in the farming industry with a total wage bill of US $30
000.00 will be as follows:
Total Insurable APWC (accident prevention and workers compensation) Wage Bill for the
month US $30 000.00
IC Code 0110 Rate 1.38%
Monthly premiums 0.0138 x $30 000 = US $ 414.00
Total Wage Bill (Basic Salary) * 5000
Industry*catering
41
Premiums IC Code 6300
Rate 1.20% * 5000 =
Monthly Premiums $60.00

Categories of Insurable Employment

 Employment in Zimbabwe under any contract of service, written or implied;
 Employment in Zimbabwe whether registered or not;
 Employment within or outside Zimbabwe of a person domiciled or having a place of
residence in Zimbabwe, if the contract of service was entered into in Zimbabwe;
 Employment in the service of Diplomatic or Consular Missions in Zimbabwe;
 Casual employment; when an employee is employed in any 6 weeks of a 12 week period
or receives payment in any one calendar month for at least 18 days of employment with
one employer;
 Employment in co-operatives. This refers to employees and members of the co-
operative who are drawing a salary or wage from the co-operative.

Registration

When an employer commences business he/she is required to go to his/her nearest NSSA office
to complete registration forms indicating the estimated earnings of his/her employees.

The registration is done together with NSSA and makes use of the same registration forms that
NSSA requires. Employers have the responsibility of keeping NSSA informed of any changes
or developments in their businesses. This will allow NSSA to adjust premiums and records in
line with any changes as and when they occur. the employer should fill in the WC 50: Wage
Declaration Form. This form is for Accident Prevention and Worker’s Compensation Scheme
(APWC) deductions. Its purpose is for assessing the employer’s risk and coming up with the rate
(%) the employer will use to pay premiums the following year. NSSA will prepare an end of year
summary for each employer. The employer will be expected to insert the appropriate data in the
blank columns provided

42
Objectives of the scheme

(a) Providing financial relief to employees and their families when an employee is injured or
killed in a work related accident or suffers from a work related disease or dies thereof.
(b) Creating an awareness of, and promoting health and safety at all places of work.
(c) Encouraging adoption of health and safety legislation through factory and machinery
inspection.
(d) Providing rehabilitation services to disabled employees so as to reduce their disablement
and enable them to return to their former employment or otherwise prepare them for a
useful and meaningful place in society.
(e) Compensation may also be given to employers if they face costs due to an employee
being absent from work as a result of illness.

Reporting Workplace Injuries

Once an employee is injured in a work related accident, the employer must immediately provide
first aid before promptly transferring him/her to the nearest medical centre. The employer is then
required to report the accident to the nearest NSSA Office after filling in the relevant details on
form WCIF No. 14, which he/she should keep at his/her work premises at all times. In cases of
serious/fatal accidents the employer should contact the nearest NSSA Office and the Police
within 24 hours. NB. All accidents must be reported within 14 days irrespective of whether the
employee has completed treatment or not.

The Accident Prevention and Workers' Compensation Scheme offers the following benefits:

A Short Term Benefits

Periodical Payments in Respect of Loss of Earning –Periodical payments are meant to provide
compensatory income where this has been lost or stopped by work related accidents. Guarantee
continual payment of normal monthly wages for the first 30 days following an accident and a
percentage thereof. Documents Required When making a Claim - Confirmation of return to
work, Medical report, clinic card or doctor’s certificate showing off-duty period, WCIF 14.

43
Medical Costs NSSA pays all medical fees including transport, drugs and hospital using AHFoZ
(association of healthcare funders of Zimbabwe) rates, besides providing artificial appliances.
Documents Required when Making a Claim -Receipts to prove payments made, Invoices,
Completed WCIF 18 form, Quotations for artificial appliances, Hospital bills showing
breakdown of services rendered.

Funeral Grant - In the unfortunate event of a member losing his/her life as a result of a work
related accident, the Scheme currently pays out a maximum of $US200 (As at February 2015)
towards funeral expenses. Documents Required when Making a Claim - Certified copy of
burial order or death certificate of the deceased worker, certified copy of claimant’s national
identity card, driver’s licence or valid passport, certified copy on marriage certificate or original
affidavit, Funeral expenses form.

Lump Sum- Where an employee's injury results in permanent disablement, compensation will
be paid to him/her as a lump sum if the disability is less than 30%.
A children's allowance for children up to the age of 19 years is included. Documents Required
when Making a Claim. - Medical report, Worker’s national identity card, driver’s licence or
valid passport, Children’s long version birth certificates, certified copy of marriage certificate or
original affidavit.

Long Term Benefits

Employees’ Pension - In instances where an employee's injury results in 30% or more,

permanent disability, compensation will be paid to the employee as a pension. A children's
allowance is included in employee's pension, for children up to the age of 19 years and /or those
who are below 25 years, provided they are in full time education. The benefit may also be given
to permanently disabled children who are incapable of supporting themselves regardless of their
age. Documents Required when Making a Claim. - Medical report, Worker’s national identity
card, driver’s licence or valid passport, Children’s long version birth certificates, Certified copy
of marriage certificate or original affidavit,

44
Widow or widower’s pension - If an employee dies as a result of a work related accident, the
surviving spouse receives a 2/3 of the deceased’s pension. In the case of an employee with more
than one wife, the proceeds will be shared equally among them.

Dependant’s allowance - If a single employee dies as a result of a work related accident, the
dependants can be parents, sisters or brothers. However, proof of dependency must be
established beyond reasonable doubt.

Other benefits - Rehabilitation benefit – NSSA offers full rehabilitation services for injured
employees at a fully equipped workers compensation rehabilitation center in Bulawayo. Why is
the Rehabilitation Centre not treating government workers injured at work? - The government
does not contribute to WCIF hence they are not insured under Workers Compensation Insurance
Fund.

If an employer, through negligence or fraud fails to register, or to pay contributions at the right
time stipulated in the act or to pay correct contributions and is subsequently required to pay
arrears of contributions which include surcharges, penalties or interest she/he is not entitled to
recover any part of surcharges, penalties or interest charges from the employees.

If an employer discovers an overpayment that he has made, he should advise NSSA in writing.
NSSA will then check whether the employer or employee has debts due to NSSA. Such debts
can include the following: Surcharges due to the Fund, Contribution underpaid, Benefits
overpaid and Benefits mistakenly paid.If there are any such debts due, the overpayments may
be used to offset the debts. Else NSSA will then authorize the employer to deduct any net
amount overpaid to NSSA from a subsequent month’s contribution.

STANDARDS DEVELOPMENT LEVY

The Standards Development Fund was established through the Act of Parliament No. 3 of 1987.
This is a Government levy that falls under the Ministry of Industry and International Trade. All
employers are compelled to contribute the levy to develop and promote the standardisation and
quality control of commodities and services. The main function of the Fund is to collect a levy
45
and distribute it to beneficiaries who are involved in the development and promotion of standards
and quality of goods and services. The minister approves the beneficiaries according to the
S.D.F. Act 3 of 1987 section 9.

Contribution – solely contributed to by the employer. The contribution amount is based on the
total wage bill for the quarter. The Minister of Industry and Commerce is empowered to impose
a levy of 0.5% of the total remuneration payable by the employer to his employees for the given
period. The payments are paid quarterly as follows:- January to March , - April to June , - July -
September , October - December . Payments should be made within 5 working days of the
quarter. Late payments attract a surcharge (an additional sum added to the usual cost or amount
paid) of 15 %.

Calculation of Amount Due - The payment due is .5% (half of one percent) of the total wage
bill that includes:

salaries and wages, bonuses paid in terms of contract or for work performed , cost of living,
housing, education, climatic and other allowances of a like nature, leave pay , commission ,
value of free food, free quarters, including rent paid on behalf of employees, electricity, water
and other remuneration in kind, directors fees and all other pre-tax emoluments paid to directors.

The Standards Development Levy payment is not based on employer's contribution to pension
and medical aid

Registration Of Employers
Registration forms are collected in Harare, Bulawayo and Mutare regional offices. The
registration is done at the same time as Company Registrations to the Registrar of Companies.
List of employers who are required to pay the levy includes the following classifications:-
a)Agricultural and Livestock Production, including Hunting trapping and Games Propagation.
b) Agricultural Services
c) Fishing
d) Educational Services
e) Medical, Dental and other health services
46
f) Veterinary Services
Exemptions - there are a number of instances where contributions need not be made for an
employee, as follows:.
a) In respect of any person who is employed by the state;
b) In respect of any person who is employed in domestic services in a private household;
c) Religious organizations (includes religious bodies propagation social work and religious
doctrines, including canvassing. Church staff (not ordained), missions, (all functions but
organizations for propagation social work, including canvassing, charitable societies and
institutions, old people’s homes, orphanages, institutions for the care of the handicapped and
disabled persons, Society for the Prevention of Cruelty SPCA, Red Cross and ambulance
societies);
d) Crèches and nurseries;
e) Social and related community services not elsewhere classified (includes political
associations);
f) Agricultural, motor, dogs, horse, ideal home, industrial, flower, horticultural and all similar
shows.
Common Offences - The following are common offences that employers should be wary of:

 Obstructing, hindering or resisting an Inspector in the performance of his duty.

 Failure to produce any books, payroll or other records relating to employee’s
remuneration.
 failure to pay levy on time

NB: Rebates are available to employers for professional training offered to employees.

MANPOWER DEVELOPMENT LEVY ZIMDEF

Zimbabwe Manpower Development Fund (ZIMDEF) was established by section 23 of the

Manpower Planning and Development Act, 1984 (now revised Manpower Planning and
Development Act Chapter 28:02 of 1996). ZIMDEF is a state enterprise that operates under the
Ministry of Higher and Tertiary Education, Science and Technology Development.The broad
objective of ZIMDEF is to finance the development of critical and highly skilled manpower
47
through a training Levy paid by registered companies in Zimbabwe. This is a compulsory
government levy that falls under the Zimbabwe Manpower Development Fund (ZIMDEF). The
contribution is used for maintaining training institutions.

Registration - Registration to the schemes is compulsory. All employers must register within 30
days of becoming an employer, by completing employer registration form P2 and ensure that
employees complete employee registration form P3. The registration is done at the same time as
Company Registrations with the Registrar of Companies. Employers can register with ZIMDEF
by filling in registration forms that are obtained from ZIMDEF offices or download the forms on
internet. Levy Inspectors also visit employers that are not registered and issue registration forms
to be completed. Forms are submitted to ZIMDEF after completion and attach a Certificate of
Incorporation.

Contributions - ZIMDEF contributions are employer contributions only based on cost to the
employer of the employment of staff. ZIMDEF contributions are based on the same transactions
as the Standards Development Levy except ZIMDEF includes the value of company
contributions of pension, NEC, medical aid. It looks at the total cost to the organization of
employment. The payment is 1% of the total wage bill and company contributions for pension
and other payments made on behalf of employees that includes:

salaries and wages, bonuses paid in terms of contract or for work performed, cost of living,
housing, education, climatic and other allowances of a like nature, leave pay, commission,
value of free food, free quarters, including rent paid on behalf of employees, electricity, water
and other remuneration in kind, directors fees and all other pre tax emoluments paid to directors,
employer contribution to NSSA, employer contribution to medical aid, employer contribution to
pension, employer contribution to NEC ZIMDEF contributions are raised primarily to sponsor
the training of artisans through the apprenticeship and other schemes.

Levy becomes due on the 1st of each month and should be paid by the 15th of every month, any
unpaid levy by the 15th becomes levy debt and may attract a 10% surcharge

48
Levy Inspectors may request for financial statements which include trial balances, statement of
comprehensive income, payroll summaries, and wage book extracts from employers for
computation of levy due. Levy Inspectors also carry out door to door registration to ensure that
every employer pays 1% Training Levy to ZIMDEF.

To employers : Employers may claim rebates if they –

o Release their employees for part time lecturing at Ministry of Higher and Tertiary
Education, Science and Technology Development training institutions.
o Provide trade testing facilities.
o Incur expenses on employees who successfully complete courses by Higher Education
Examination Council (HEXCO), Chartered Institute of Secretaries (CIS), International
Air Transport Association (IATA), Chartered Institute of Transport (CIT), Southern
African Association of Accountancy (SAAA), Zimbabwe Institute of Management
(ZIM), to mention a few.
o Payment of skilled worker’s expenses including upgrade training courses.
o Provide on-the-job training opportunities for categories of students and trainees, they may
claim rebates atUS$50.00 per month for each attachee.

Claims have to be submitted through the industrial training department for vetting and
transmission to ZIMDEF. It is a requirement that the employer keeps and submits a record of the
total number of hours and dates which the trainee actually spent with the organization. ZIMDEF
may not honor claims without this detail. In addition to the rebates claimable employers may also
claim re-imbursement of allowances paid to the trainees, up to the maximum allowance which
ZIMDEF would have paid, had the employer not directly paid the trainee.

What projects has ZIMDEF funded for human capital development?

 STEM scholarships
 Kwekwe Polytechnic Engineering workshop
 Harare Polytechnic library
 Morgan ZINTEC library

49
  Refurbishment of Hotel St Patricks (Bulawayo)
 State of the art Chinhoyi University Hotel
 Other projects funded by ZIMDEF through the Ministry of Higher and Tertiary
Education, Science and Technology Development included Intergrated Skills Outreach
Programme (ISOP) and Graduate Entrepreneurial and Employment Promotion
Programme (GEEPP).

Having realized the negative impact of the harsh operating environment on debtors, ZIMDEF has
come up with a strategy that will enable companies to clear their debt and meet current training
levy obligation in a smart way. The aim of this strategy is to save organizations from being
choked to death by the Fund. The mandate is to support companies through development of
skilled human capital in the interest of growing a vibrant and sustainable economy. Therefore,
not even a single company/organization should close down due to any debt related to ZIMDEF’s
statutory obligation

Zimbabwe Revenue Authority (ZIMRA)

All amounts paid to an employee are subject to taxation at the rates prescribed in the Finance
Act. The tax payable must be deducted from employees on a 'pay as you earn (PAYE)' basis.
Register your organization with ZIMRA. They will in turn allocate a reference number that will
be used for your transactions. Every month the amounts deducted need to be paid to ZIMRA on,
or before the 15th of the subsequent month.

Establishment of Zimbabwe Revenue Authority

The Act established an authority, known as the Zimbabwe Revenue Authority, which is a body
corporate capable of suing and being sued in its own name and performing all acts that bodies
corporate may by law perform. The authority has the following functions and powers;

Functions and powers of Authority

(1) The functions of the Authority shall be—
(a) to act as an agent of the State in assessing, collecting and enforcing the payment of all
revenues; and

50
(b) to advise the Minister on matters relating to the raising and collection of revenues; and
(c) to perform any other function that may be conferred or imposed on the Authority in terms of
this Act or any other enactment.
(2) For the better exercise of its functions, the Authority shall have the power, to do or cause to
be done, either by itself or through its agents, all or any of the things specified in the Second
Schedule, either absolutely or conditionally and either solely or jointly with others.

TAXATION

Taxation is a means by which governments finance their expenditure by imposing charges on

citizens and corporate entities. Taxation refers to the practice of government collecting money
from its citizens to pay for public services. The money raised from taxation supports the
government and allows it to fund police and courts, have a military, build and maintain roads,
along with many other services.

In Zimbabwe the major pieces of legislation that govern the taxation of income are;

(a) The Income Tax Act Chapter 23.06

(b) The Finance Act Chapter 23.04

(c) The Capital Gains Tax Act Chapter 23.01

(d)Amendment

PAYROLL TAX

Payroll taxes are taxes imposed on employers or employees, and are usually calculated as a
percentage of the salaries that employers pay their staff. This includes Income tax and other
statutory deductions made by the employer from the employee's gross salary or wages.

Payroll taxes are used extensively around the world both for social security finance and for
general revenue purposes. Payroll taxes play a major role in the overall public finances of the
advanced economies. Most countries rely overwhelmingly on payroll taxation to finance their
social security programs, with individuals’ entitlements to benefits linked directly to the taxes
51
they pay as employees or paid by their employers. The distinguishing trait of all payroll taxes
is that they apply to a base of labour earnings only. Returns to capital, business, and financial
investments are excluded from the base of a payroll tax.

Payroll tax is determined by an individual’s remuneration. In terms of the Income Tax Act
Chapter 23.06, remuneration is defined as any income which accrues to an employee as a result
of his/her contractual relationship with his/her employer. This includes:
Basic salary, Bonus, Allowances, Commission, Vouchers, Cash in lieu of leave (CILL).All
benefits i.e. motoring benefit, company accommodation / house, school fees, loans, company
furniture, security guards, salary advance ,overtime, bonus, gratuity, fees, pension, allowances,
benefits ,any other payment over and above basic pay. Salary arrears, wages etc. becomes
taxable on the date on which the decision to pay the arrears is made. Bonuses and commission: a
bonus or commission is subject to PAYE on the date the amount is declared or paid whichever is
earlier.
Director’s fees: director’s fees accruing to a working director who is in receipt of other types of
remuneration is subject to PAYE. Director’s fees payable to non-executive Directors is not
subject to PAYE but is taxed as non-remuneration income subject tax.

Labour earnings for the purpose of a payroll tax include wages and salaries and
supplementary labour income and fringe benefits. Some payroll taxes further cover self-
employment earnings, whereas others do not. Payroll taxes can be levied on the employer, the
employee, or both parties in varying proportions. A payroll tax may use exemptions or
ceilings on the taxable payroll, applied at the level of the individual worker or the aggregate
payroll of the firm. Payroll taxes typically apply a flat rate to the taxable earnings or payroll,
within the bounds of floors or ceilings e.g 301 – 1.500 in Zimbabwe. Statutorily, it is a
requirement that any employee who receives income above a prescribed minimum threshold,
should contribute to the government revenue.

Payroll taxes generally fall into two categories: deductions from an employee's wages, and taxes
paid by the employer based on the employee's wages. The first kind are taxes that employers are

52
required to withhold from employees' wages, also known as withholding tax, pay-as-you-earn
tax (PAYE),) and often covering advance payment of income tax, social security contributions,
and various insurances (e.g., unemployment and disability). It is tax an employer withholds
and/or pays on behalf of their employees based on the wage or salary of the employee.
Withholding Tax is the amount withheld by the party making a payment (payer) to another
(payee) and remitted to the Zimbabwe Revenue Authority (ZIMRA). The payee is taxed on the
gross amount using the appropriate rate of tax, and the tax withheld (the Withholding Tax) is
remitted to ZIMRA on or before the due date. Withholding Tax is Income tax withheld from
employees' wages and paid directly to the government by the employer.

The purpose of Withholding Tax is to facilitate or accelerate the collection of tax. This is
achieved by collecting tax from a reasonable and manageable number of payers rather than a
much greater number of payees, and by collecting tax from payers that may be registered already
for other revenue heads rather than payees who may be outside the statutory registration
requirement.

The second kind is a tax that is paid from the employer's own funds and that is directly related to
employing a worker. These can consist of fixed charges or be proportionally linked to an
employee's pay. The charges paid by the employer usually cover the employer's funding of the
social security system, and other insurance programs (NSSA, WCIF,SDF). The economic burden
of the payroll tax falls on the worker, regardless of whether the tax is remitted by the employer
or the employee, as the employers’ share of payroll taxes is passed on to employees in the form
of lower wages than would otherwise be paid.

Employee benefits and taxation in Zimbabwe

Different types of income/remuneration received or receivable by an employee are taxable. Some

benefits from employment are liable to Income Tax whilst other benefits are exempt. Most
benefits from employment that are provided by employers, in addition to one’s salary, are subject
to Income Tax in terms of Section 8 (1) (f) of the Income Tax Act [Chapter 23:06]. All benefits
which accrue to an employee, with the exception of medical aid and medical expenses paid

53
on behalf of the employee by the Employer, are taxable. A variety of advantages and benefits
granted by an employer or on behalf of an employer to spouse or child are also taxable.
Advantage or benefit includes board, occupation of quarters or residence, or the use of furniture
or motor vehicle. It also includes the use of or enjoyment of any other property whatsoever,
corporeal or incorporeal, including a loan, an allowance, passage benefit and any other advantage
or benefit whatsoever in lieu of or in the nature of remuneration as stated above. Company motor
vehicle, house boats, security, cell phone allowance, airtime, meals, canteen meals, parking fees,
DSTV subscriptions, golf subscriptions, fuel, accommodation, educational assistance, school
fees, holidays and others are some of the examples.
Generally, there are two types of benefits that an employee may get in addition to a salary:

 Benefits-in-kind. These are benefits that an employee receives that cannot be converted
into cash but have an ascertainable cash value. Examples include provision of a company
car, loans given at a special rate or provision of accommodation.
 Benefits (other than benefits-in-kind). Examples include vouchers, holidays, payment of
an employee's bills and various cash incentives.

The rules applying to benefits-in-kind vary. Generally, the value of the benefit-in-kind is the cost
to the employer of providing the benefit less any contribution made by the employee. Special
rules apply to the following benefits-in-kind: Motoring benefit, Loan benefit, Provision of
accommodation.

The value for tax purposes of an advantage or benefit, other than a payment by way of an
allowance, is determined as follows:
(i) In the case of the occupation or use of quarters, residence or furniture, by reference to its
value to the employee; and
(ii) In the case of any other advantage or benefit, by reference to the cost to the employer

Therefore, taxation of benefits is made literally on the value of the benefit to the employee or on
the cost of providing the benefit to the employee. For example, if an employer provides an
employee with a cash incentive of US$1,200.00, this is treated as income for tax purposes and is

54
taxed using the monthly Pay As You Earn (PAYE) rates after adding the cash incentive to the
monthly salary and making the necessary adjustments for allowable deductions and exemptions.

The following are some of the examples of the benefits/advantages normally granted to
employees and how they should be taxed:
Inducements given to employees either to join a company (golden hellos) or to remain with the
company (golden handshake) both form part of remuneration and are added to the gross income
and are subject to PAYE.

Disposal or Sale of Motor Vehicle to an Employee at Less than Market Value. The disposal or
sale of a motor vehicle to an employee at less than market value during or on termination of
employment gives rise to a benefit subject to PAYE. Taxable amount is Market Value –Selling
Price. No benefit arises where the employee was 55 years or older at the beginning of the
year of assessment.
Benefits/Allowances cont.
Fuel Coupons -Taxable in the hands of employees if given to employees who are not enjoying
a taxable motoring benefit, these are valued fairly and reasonably.

The provision of domestic workers including gardeners, the provision of security services, the
provision of clothing with the exception of protective clothing is also taxed.

Use of motor vehicle - Where an employee enjoys the use of a company vehicle or is allocated a
company vehicle, the value of the benefit is determined according to the engine capacity of the
vehicle. The deemed motor vehicle benefits are as follows:
Engine capacity of motor Deemed value Deemed value 2010- Deemed value 2014
vehicle 2009 2013 to date
Up to 1500cc $550 $1 800 $3600
Over 1500cc -2000cc $660 $2 400 $4800
Over 2000cc -3000cc $880 $3 600 $7200
Over 3000cc $1100 $4 800 $9600

55
The deemed cost should be reduced proportionately where the period of use for the motor
vehicle is less than 12 months.
Passage benefit - The benefit covers the cost borne by an employer on travels by an employee,
spouse or children, which are not for the purposes of the employer’s business. This includes the
cost on taking up of employment or termination of employment where such costs have been
previously offered to the employee.
Occupation of residence - Unlike other benefits these are not valued at the cost to the employer
but on the value to the employee. As a guideline the following basis is considered reasonable:
Within the municipal area or within 16km of the central post office these are to be valued at open
market value. A benefit arises where the employer grants the employee free accommodation or
pays subsidised rentals or rental charges which are below the open market rates applicable in that
area.

Where the employee does not pay anything towards that accommodation, the whole amount -
determined on the basis of the open market value - is a benefit and subject to tax. Where an
employee pays rentals less than the open market value of the house/accommodation, the
difference between the amount paid and the market value constitutes a benefit. For example, if
an employee occupies a house granted by the employer and valued at US$1000 per month for
which he/she pays US$300 per month as rent, the benefit to be taxed in the employee’s hands
would be US$700 per month. For valuation of quarters or residences other than those mentioned
above, the respective employers may engage and agree with ZIMRA before determining the
benefit.

School fees benefit - Where the employer pays school fees for the employee’s children, the cost
of the fees payable becomes taxable in the hands of the employee. In cases where the employer is
a school and the employee’s child is admitted/enrolled at the school without paying school fees
or pays fees that are less than those paid by other students attending the same school, a portion of
the foregone fees becomes a taxable benefit in the hands of the employ. In the case of an
employee who is a member of the teaching or non-teaching staff of a school, only half the
amount or value of a school benefit shall be brought into his/her gross income and shall apply to

56
only three of the children of the employee concerned. In addition, any school fees discounts or
reductions granted because of the employer-employee relationship become taxable benefits in
the hands of the employee.

Loan benefit - It is any form of credit whatsoever granted directly or indirectly to an employee,
his spouse or child by or on behalf of the employer or a person associated with the employer.
This does not include any credit granted for the purposes of the education or technical training or
medical treatment of such employee. The exclusion is, however, subject to the satisfaction of the
Commissioner General. A benefit arises where the rate of interest payable on the loan is less than
the prescribed rates, that is less than the London Interbank Offered Rate (LIBOR) rate plus five
per cent (5%) per annum and where the amount of the loan exceeds US$100. Where the
employer charges an interest rate which is more than the prescribed rate of interest, there is no
taxable benefit. In cases where the employer advances a loan to an employee and writes off all
or a portion of that loan, both the full amount written off and the computed loan benefit is taxed
in the hands of the employee. The Libor rates can be obtained from the Zimra website
(www.zimra.co.zw). The value of the benefit is determined by computing the difference between
the interest rate charged by the employer and the prescribed rate of interest, multiplied by the
loan amount and the number of days in which the loan is enjoyed. Loans could be for
Car/Vehicle, Educational, Housing, Medical, Personal, University and other.

Libor Rates January - December 2017

Month 1-Month 3-Months 6-Months 12-Months

January of 2017 0.7714 1.0244 1.3391 1.7069

February of 2017 0.7767 1.0446 1.3515 1.724

March of 2017 0.9286 1.1347 1.4259 1.8069

April of 2017 0.9909 1.159 1.4152 1.7765

May of 2017 1.0122 1.186 1.4242 1.7493

June of 2017 1.1714 1.2624 1.4323 1.7323

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July 2017 1.228 1.3075 1.4571 1.7411

August 2017 1.2319 1.3143 1.4538 1.7254

September 2017 1.2349 1.3233 1.4732 1.7382

October 2017 1.2385 1.3608 1.542 1.8209

November 2017 1.2879 1.4342 1.6265 1.9016

December 2017 1.4925 1.6098 1.7743 2.0491

NB: 5% should be added to the rates shown on the schedule above to determine the
prescribed rate of interest chargeable on the loan for each month.

Allowances/ incentives - Allowances/incentives granted by the employer or on behalf of the

employer to an employee, spouse or child form part of gross income and are liable to tax.
For example, if an employer provides an employee with a cash incentive of US$1,200.00, this is
treated as income for tax purposes and is taxed using the monthly Pay As You Earn (PAYE)
rates after adding the cash incentive to the monthly salary and making the necessary adjustments
for allowable deductions and exemptions.

Other benefits - There are a number of benefits that can be granted to employees. Clients are,
therefore, advised to contact their nearest office for guidance on tax treatment if needed.

Pay as You Earn (PAYE)

The PAYE system is a method of paying Income Tax on remuneration. The employer is
responsible for the calculation of the PAYE due from all forms of remuneration granted to the
employees in terms of the 13th schedule to the Income Tax Act. The employee, on the other
hand, is expected to furnish the employer with full information on other sources of income and
proof of the allowable deductions and credits to be taken into account in determining PAYE
liability.
P.A.Y.E is calculated as follows:

58
  determine gross income for the day/week/month/year.
 deduct exempt income, for instance bonus as per limit in the act, you get => income
 deduct allowable deductions, e.g. pensions, you get => taxable income
 apply the rate of tax applicable, you get => PAYE due before aids levy
 apply the 3% aids levy on PAYE, you get => total tax to be remitted to Zimra

Benefits exempt from tax

Exemptions (3rd schedule of Income Tax Act)
Tax exemption refers to a monetary exemption which reduces taxable income. Tax exempt status
can provide complete relief from taxes, reduced rates, or tax on only a portion of items.
Generally, tax exemption means free from federal income taxation.
There are some benefits that an employee can receive that are not subject to tax. These include:
• Allowances or value of any benefit, which is granted to any person in full time
employment of the State as specified in a Statutory Instrument e.g. housing and transport
allowances to civil servants.
• The value of an allowance in respect of accommodation and transport, or the value of the
grant of quarters or a residence to any member of staff of a mission hospital or rural
clinic operated or sponsored by any religious body.
• An amount accruing by way of a benefit in respect of the injury, sickness or death of a
person which is paid to the person or his dependents or deceased estate :-by a trade union;
or from a benefit fund; or in terms of a policy of insurance covering accident, sickness or
death; or by a medical aid society.
• The value of medical treatment and transport to obtain the same and Medical Aid Society
subscriptions, paid by an employer on behalf of his employee or their dependents
• The portion of entertainment allowance paid to an employee which is expended on the
business of the employer. Entertainment Allowance – given to an employee sorely for the
purpose of the employer’s business.
• Annual Bonus – up to 1000usd as at December 2017
• Re-imbursement of Travel & Subsistence Allowance

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N.B This is not an exhaustive list and conditions often apply to exemptions and should therefore
be checked with the Zimbabwe Revenue Authority.

Exemptions for the elderly (those above 55 years of age)

• Exemption from Income Tax of the first US$3 000.00 per annum on rental income
• Exemption from Income Tax of the first US$3 000.00 per annum on income earned from
banker’s acceptances. Exemption from Income Tax of the first US$3 000.00 per annum
on income earned from interest on deposits to financial institutions.
• Pension received from a pension fund or the Consolidated Revenue Fund is exempt from
Income Tax.
• Where an employer disposes of a motor vehicle to an employee whether on termination
of employment or otherwise, the benefit is exempt from tax.
• The full amount arising from the disposal of a Principal Private Residence (PPR) by
persons who are 55 years or above on the date of the sale is exempt from Capital Gains
Tax.
• The first US$1 800.00 that accrues on the sale of any unlisted marketable security is
exempt.

Allowable deductions ( Section 15 of Income Tax Act)

Any item or expenditure subtracted from gross income to reduce the amount of income subject to
tax. For example, if you make $4000 and you have a deduction for $1,000, then your taxable
income is reduced to $3000.These are deductions which reduce amounts subject to tax.
Examples include the following;

Subscriptions to a Professional Association – continued subscriptions to a professional

Institution by an employee after having qualified in the respective field (post grad). Proof in the
form of receipts should be submitted to the employer. The allowable deductions include pension
contributions, subscriptions to professional, trade or technical associations, NEC Contributions,
Trade Union Subscriptions and Cost of renewal and replacement of tools – this is applicable to

60
qualified artisans, whose contracts of employment require them to buy their own tools of trade
for use on their jobs. Donations by an employee to:

National Scholarship Fund/ national Bursary Fund, any charitable trust administered
by the minister responsible for social welfare or health,

The state for use in: Construction, extension or maintenance of hospitals, Purchase of
medical equipment for hospitals, Procurement of drugs for hospitals for the 3 scenarios
above should be operated by the state, local authorities or religious organizations.

Professional Trade or Technical Associations: These consist of subscriptions paid to

registered bodies by qualified members and are tax deductable from remuneration in
full in the year in which they are paid. Of course subscriptions to sporting or
recreational clubs are not deductable. Proof of payment of the subscription should be
given to the employer to enable the deduction to be processed.
These are deductible subject to statutory restrictions enacted each year. Where the employee is a
member of several approved funds (including NSSA and any retirement annuity funds), all
contributions are aggregated and restricted to the statutory maximum each year.
NB** The maximum allowable deductions is $5400 per annum or $450 per month.

Tax credits
These are amounts which directly reduce calculated PAYE. A tax credit is a sum subtracted
from the total amount a taxpayer owes to the state. It is a sum that can be offset against a tax
liability. An amount of money that a taxpayer is able to subtract from the amount of tax that
he/she owes to the government. The dollar value of the credits is subtracted from the total dollar
value of owed taxes.

The value of a tax credit depends on what the credit is being provided for, and certain types of
tax credits are granted to individuals or businesses in specific locations, classifications or
industries. Unlike deductions and exemptions, which reduce the amount of your income that is
taxable, tax credits reduce the actual amount of tax owed.

Governments may grant a tax credit to help disadvantaged taxpayers by reducing the total cost
of housing. Credits are meant to reduce the tax payable and therefore increase disposable income
61
for the taxpayer. Credits are designed for specific categories of taxpayer to address special social
welfare needs such as expenses towards improvement or maintenance of health and/or the
control of permanent physical, mental and visual disability.

NB*** When tax Credits are due and payable to an individual, they should first reduce his/her
calculated PAYE before Aids Levy is effected to determine the final amount due and payable to
ZIMRA. The following are examples of Tax Credits currently applicable and the figures change
from time to time as and when amendments to the Finance Act are announced.

Elderly person’s credit - This is a credit applicable or available to those employees who are 55
years of age and above. Where the assessment period is less than 12 months, the amount (credit)
shall be reduced proportionately.A maximum of $900 is granted annually or $75 per month.
Proof in the form of a birth certificate or a National ID should be submitted to the employer. The
credit for this category is US$900.00 per annum spread over 12 months

Blind person’s credit - This is a credit which is available to employees who are permanently
blind. A credit of $900 per annum is granted or $75 per month. The credit for this category is
US$900.00 per annum spread over 12 months. To qualify, the person claiming the credit must
have medical proof supplied by a specialist medical practitioner, specifying the degree of his
blindness. The taxpayer or his/her employer should then apply for a directive at the nearest
ZIMRA office for consideration. Any portion of the deductible credit which is not applied to
reduce the chargeable tax for a married person can also be allowed as a deduction from the
chargeable tax which his or her spouse is chargeable. This means that spouses can benefit from
each other’s concessions. In that case, both spouses should complete and submit separate returns
for the relevant tax year so that the transfer of the credit can be facilitated, each person claiming
the portion not claimed by the other.

*NB** Semi blind employees are not catered for, instead they are catered for on cost of
spectacles as a medical expense credit.

Mentally or Physically Disabled Persons’ Credit - The credit for this category is US$900.00
per annum spread over 12 months. To qualify, the person claiming the credit must have medical

62
proof supplied by a specialist medical practitioner, of permanent substantial disability (which
excludes blindness, for which a separate credit is available). Temporary disability such as is
caused by injury due to an accident or illness for which rehabilitation or cure can reverse the
condition does not qualify as disability for purposes of the credit. Mentally disabled persons who
cannot personally attend to the requirements stated above can be assisted by a representative and
in the case of applications by their employer.

Any portion of the deductible credit which is not applied to reduce the chargeable tax for a
married person can also be allowed as a deduction from the chargeable tax which his or her
spouse is chargeable. This means that spouses can benefit from each other’s concessions. In that
case, both spouses should complete and submit separate returns for the relevant tax year so that
the transfer of the credit can be facilitated, each person claiming the portion not claimed by the
other.

NB. To claim the disability credit, the taxpayer must have been ordinarily resident in
Zimbabwe in the period of assessment.

Credit for the Cost of Purchasing Invalid Appliances - The credit for this category is 50% of
the total cost of the appliance used by the taxpayer, his/her spouse or any of his/her children
including legally adopted children in respect of any of the following appliances: a wheelchair ,
any artificial limb, leg callipers or crutch ; special fitting for the modification or adaptation of a
motor vehicle, bed, bathroom or toilet to enable its use by a person suffering from a physical
defect or disability; or spectacles or contact lenses.

The taxpayer should complete a return and attach evidence of such purchase and proof of the
cost thereof. Please note that this credit is open to residents of Zimbabwe only.

Medical Expenses Credit - The credit for this category is a total of 50% for ‘‘medical expenses''
paid for. These should be expenses incurred by the taxpayer and paid by him for services
rendered to him/her, his/her spouse and minor children, including legally adopted minor children
and cannot be extended to anyone else. A credit will not be allowed to the extent that the

63
taxpayer is entitled to a refund or payment from any source whatsoever in connection with the
expense (for example a credit is not allowed where a refund is awarded by a medical aid society).

These medical expenses include expenses paid for the following:

 Services rendered by a medical or dental practitioner

 Drugs and medicines supplied on the prescription of a medical or dental practitioner
 Accommodation on admission, maintenance, nursing and treatment, including blood
transfusions, X-ray and laboratory examinations and medical tests in a hospital,
maternity-home, nursing-home, sanatorium, surgery, clinic or similar institution
 Transportation by ambulance, including an air ambulance
 Medical aid contributions to a medical aid society in respect of the taxpayer or his/her
spouse or any minor children.

In submitting a tax return, the taxpayer should attach evidence of the expenses claimed in their
original forms.

To claim the medical expenses credit, the taxpayer must have been ordinarily resident in
Zimbabwe in the period of assessment.

Example of Tax Credits application

Below is an example of the computation covering some credits. Note that taxpayers may claim a
combination of applicable credits where they qualify, for example, one may be blind (blind
person’s credit) and suffer a physical disability (disability credit), necessitating the use of an
orthopaedic appliance the cost of which may also be claimable as a credit.

Hypothetically, let us take the case of a qualifying elderly person (over 55 years) whose income
is US$3000 per month and who contributes US$120 to NSSA and US$200 to a medical aid
society. Injured in a road accident, he incurs medical expenses amounting to US$350 and
purchases an artificial limb for $150 during the period of assessment to replace an amputated leg.

His chargeable tax, accommodating the applicable credits, will be calculated as follows:
64
Calculation of Tax Due
Earnings 3,000
less: Allowable deductions- NSSA 120
Taxable Income 2,880

Tax There on (per tax tables) 720

Less Credits:
Medical Expenses @ 50% of $350 175.00
Purchase of artificial limb@ 50% of $150.00 75.00
Physical Disability Credit ( 900/12) 75.00
Elderly Person's Credit (900/12) 75.00 425
Tax after credits 295
Add: Aids Levy @ 3% 8.85
Total payable 303

NB. Please note that false claims will not only be disqualified, but constitute offences for
which the taxpayer concerned may be penalised and/or prosecuted

What happens in cases where there is an unutilised portion of the tax credit against the
Income Tax chargeable to the employee? In the event of any portion of the credits not being
fully utilised during the month, it should be carried forward to the next month. It should however
be stated that the credit is not supposed to be brought forward into a subsequent or different tax
year. Credits exceeding monthly P.A.Y.E should not give rise to tax refunds. In this case the tax
credit is restricted to the P.A.Y.E. payable for the month and cumulatively for the same tax year.

AIDS levy

The trust fund, also known as the AIDS Levy, was introduced in 1999 and became effective in
January 2000. Resources for the fund are collected through a Parliament special tax act, which
requires employees in Zimbabwe to contribute 3 per cent of their PAYE. The AIDS levy
contribute the money to purchase ARVs.

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Basic Formula for Net Pay:

Employee's gross pay (pay rate x hours worked)

minus Statutory payroll tax deductions
minus Voluntary payroll deductions
equals Net Pay

NB. To increase the net salary employers sometimes engage in what is called the gross up effect.
A practice usually in reference to an employer reimbursing a worker for the taxes paid on some
portion of their income, usually from a one-time payment such as relocation expenses. In other
words, if an employee is promised $5,000 for relocation expenses, the actual check might be
issued for $6,500. This would leave the promised $5,000 after the required taxes had been
deducted.

Voluntary Payroll Deductions - Voluntary payroll deductions are withheld from an employee's
pay check only if the employee has agreed to the deduction. Voluntary deductions pay for
various benefits which the employee has chosen to participate in.

The rates of tax applicable each year are provided for in the Finance Act and the tax deduction
tables can be obtained from the ZIMRA website. The tax table operates on an escalating scale
basis (i.e. the higher the earnings, the greater the percentage of tax that should be paid by the
employee). It should, however, be noted that when the earnings reach a certain amount, a flat rate
of tax becomes applicable for any earnings above this level. All forms of remuneration should be
taken into account before subjecting the income to tax. Any employer who deducts PAYE from
the employee’s remuneration is expected to remit the amount to ZIMRA on or before the 10th of
the following month.
The basic formulae for calculating employment income;

Basic Salary ***

Add Other income
Transport Allowance ***

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 Housing Allowance ***
Company Car *** ***
Gross Income ***
Less Exemptions
Bonus (tax free portion) ***
Entertainment Allowance ***
Travel & Subsistence
Allowance *** ***
Income ***
Less Allowable Deductions
Pension Contributions ***
NSSA Contributions ***
Donations *** ***
Taxable Income ***

PAYE = apply correct tax

table
****
Less Tax Credits
Elderly person's credit ***
Medical Expense credit ***
Disability credit *** ***
PAYE ***
Add 3% Aids Levy ***
Total Amount Payable to
Zimra ***

.
Obligations of employer under PAYE
67
  calculation and deduction of paye in accordance with the tax deduction tables.
 remittance of paye to Zimra within 10 days after the end of the month during which the
amount was withheld.
 keeping accounting records for a period of at least six (6) years.
 submission of the ITF16 return which contains details on annual earnings, deductions,
credits and paye for each employee within 30 days after the end of the year.
 failure to withhold any amounts which are required to withhold renders the employer
liable to the amounts due as well as penalties and interest.
 every employer who becomes liable to pay remuneration to an employee shall be
required to withhold pay as you earn (paye)/employees tax.
 payment of employee’s tax
 the registered employer is required to remit paye withheld to the Zimbabwe revenue
authority by the 10th day of the following month.
 employers to keep records and furnish returns
 every employer shall maintain a record for each employee showing: the amounts of
remuneration paid/payable to each employee, the amount of paye withheld and form p2.
such record must be retained for a period of at least six years.

CALCULATING OF OVERTIME

Overtime is the amount of time someone works beyond normal working hours. "Time worked
outside of normal schedule. Overtime pay is time and one-half the employee's "regular rate" of
pay. Working time before or after one's regularly scheduled working hours. Work performed by
an employee or worker in excess of a basic workday (typically 8 hours a day, 5 days a week) as
defined by company rules, job contract, statute, or union (collective) by practices of a given trade
or profession, by legislation.

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Overtime pay is time and one-half the employee's "regular rate" of pay (1.5) however if the
employee worked on holidays or on days which are not normally their working day the overtime
rate is double the regular rate. 1 for normal time; 1.5 for time and a half; 2 for double time.

Normal overtime is calculated as: normal hours worked X 1.5 X hourly rate
Holiday overtime is calculated as: normal hours worked X 2 X hourly rate.

Hourly rate is calculated by first calculating the daily rate as follows.

Basic salary divided by the number of working days per month = daily rate
Daily rate divided by the number of working hrs per day = hourly rate
e.g basic salary 1400 working days 26 working hours per day 8 overtime hours for normal
working days 10 overtime for days which are not working days 10
Daily rate = 1400/ 26 = $53.84
Hourly rate = 53.84/8 = $6.73
Overtime on normal working days is thus 10 x 1.5 x 6.73 = $100.95
Overtime for days which are not normal working days is thus 10 x 2 x 6.73 =$134.6
Total overtime for the individual is thus 100.95 + 134.6 =$235.55

Retrenchment package.

Retrenchment packages form part of gross income and are subject to income tax like all other
income. A retrenchment package is a pay off by an employer to an employee who has been laid
off due to restructuring that has rendered the employee’s position redundant. A Severance Pay or
Retrenchment Package is a payment made to the Employee by the Employer on the agreed
premature termination of a contract of employment, normally as a result of restructuring or
workforce streamlining due to operational hardships or reorganisation. It constitutes pecuniary
payment or the offer of material benefits. A retrenchment package may include any or all of the
following, severance pay (cash), gratuity (cash) and other material benefits like motor vehicles,
vehicles, computers, furniture and immovable property (houses and buildings).

69
Employees that are retrenched as part of a formalized retrenchment scheme agreed by the
Ministry of Labour are eligible for tax concessions. The tax relief does not apply to those
employees that have not been formally retrenched in the prescribed manner. Section 8 (1) of the
income tax act [chapter 23:06] defines what constitutes “gross income” and retrenchment
packages are brought into taxation under section 8(1)(b). Section 73 of the same act provides for
the payment of employee’s tax (including tax on retrenchment packages) withheld by employers.

Application for a Tax Deduction Directive

On termination of employment, an employer determines the respective retrenchment package

and applies to ZIMRA for a tax deduction directive in form NP4. The following information, in
respect of the employee receiving the retrenchment package, should be carefully and accurately
filled in by the employer onto the application form:

 First name and surname

 National identity number (which acts as the taxpayer identification number, TIN)

 Tax year (the period in which the retrenchment accrued or is paid)

 Nature of benefit

 Amount of benefit (based on the open market value of the benefit or property offered as
retrenchment)

 Salary and allowance per annum

70
The application form should be signed by both the employer (or his representative) and the
employee. Where the employee is unable to sign the application form, the employer should
indicate this to ZIMRA and may sign on behalf of the employee. The completed application form
should then be submitted to ZIMRA for processing.

On receipt of the application from the employer, ZIMRA will check the correctness and accuracy
of the information on the form and its accompanying attachments before issuing the directive.
Once a directive has been issued, the employer should remit the Employee’s Tax on the 10th of
the following month. Failure to withhold and late remittances/payments of Employees’ Tax
constitutes an offence and attracts penalties and interest.

Calculating a retrenchment package (Labour amendment No 5 2015. amendment of

subsection 12 C of Cap 28.01)
The Labour Amendment Bill provides for payment of a minimum retrenchment package for all
forms of termination. Section 12C (2) of the Amendment Act reads: “Unless better terms are
agreed between the employer and employees concerned or their representatives, a package
(hereinafter called “the minimum retrenchment package”) of not less than one month’s salary or
wages for every two years of service as an employee (or the equivalent lesser proportion of one
month’s salary or wages for a lesser period of service) shall be paid by the employer as
compensation for loss of employment.

Exemptions

Section 14 of the Income Tax Act as read with paragraph 4 (p) of the Third Schedule to the same
Act exempts the first US$10,000 or one-third of the first US$60,000, whichever is the greater of
the amount of any severance pay, gratuity or similar benefit received on cessation of
employment due to retrenchment, under a scheme approved by the Minister responsible for
Labor. The amount determined as legislated will thus not be liable to tax or in other words, will
be excluded from the taxable income

Computation of Tax On Retrenchment Package

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Below is an example of the computation in respect of taxation of retrenchment packages:

Total package xxxxxx

Less relocation allowance (xxxx)

Less exempt portion (xxxx)

Add annual salary at date of withdrawal xxxxxx

Taxable income xxxxxx

Tax thereon at normal rates xxxxxx

Less tax on salary at normal rates (xxxx)

Add 3% Aids levy xxxxxx

Tax applicable on retrenchment package xxxxxx

GRATUITIES

A gratuity is income that is given to an employee, generally, upon termination of an employment

contract. The payment of gratuities is a statutory obligation according the Collective Bargaining
Agreement for the industry in which the worker is employed. A gratuity may also be a token of
appreciation from the employer A gratuity is a lump sum payment in recognition of years of
service with an organisation. In most cases people who are on a pension fund are not entitled to a
gratuity.
According to George Makings in Zimbabwe gratuities were introduced many years ago when
few workers were on pension. As pensions became more widespread, many NEC’s either did
away with the gratuity provisions in the CBA or incorporated the liability at a certain date into

72
the appropriate pension scheme. Some NEC’s have retained the gratuity provision but allow the
full pension and the gratuity to be set off or, if the employee merely receives a refund of his own
and his employer’s contributions, NEC’s allow set off of the employer’s contribution against the
gratuity. In consequence, if the value of a pension scheme is more favorable than a gratuity,
generally no gratuity is payable.

Gratuities for service under 15 years or so are not high (see below). (Up to early 2009 hyper-
inflationary wages meant that gratuities for long-serving employees shot up substantially. Also,
pensions under defined contribution schemes and pension refunds did not keep pace.) Note that
gratuities are not payable to employees outside the scope of the Collective Bargaining
Agreement irrespective of whether they are on a pension scheme or not. Gratuities are only
payable within the scope of the respective Collective Bargaining Agreement of each National
Employment Council. The Calculation of gratuity for workers is laid down in the Collective
Bargaining Agreements for the Sector and may differ from CBA to CBA.

The amount of the gratuity is calculated by multiplying the percentage, given in the table below,
by the current monthly salary multiplied by number of completed years of continuous service.
For example:

According to Section 31 of the NEC for the Commercial Sectors of Zimbabwe regulations
employees, who have completed ten (10) or more years of continuous service are entitled to
receive a once off payment of gratuity if they, leave the employer or die.

The percentages to be applied are as follows:

Years Service - Percentage

5 yrs - 5 % , 6 yrs - 6 % , 7 yrs - 9 % , 8 yrs - 11 % , 9 yrs - 13 % , 10 yrs - 15 % , 11 yrs -
16 % , 12 yrs - 17 % , 13 yrs - 18 % , 14 yrs - 19 % , 15 yrs - 20 % ,16 yrs - 21 % ,17 yrs -
22 % , 18 yrs - 23 % , 19 yrs - 24 %, 20 yrs - 25 % , 21 yrs - 26 % , 22 yrs - 27 % , 23 yrs -
28 % , 24 yrs - 29 % , 25 yrs - 30 % , 26 yrs - 31 % , 27 yrs - 32 % , 28 yrs - 33 % , 29 yrs -
34 % , 30 yrs - 35 % , 31 yrs - 36 % , 32 yrs - 37 % , 33 yrs - 38 % , 34 yrs - 39 % ,35 yrs -
40 %.
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For example, if an employee has 10 years of service (and the CBA states the percentage for 10
years is 15%) and the employee’s wage is $100 per month when he leaves, then the gratuity
would be 15% of $100 multiplied by 10 (years) to give a gratuity of $150.

The basic standard practice followed in just about every CBA that contains a gratuity provision
is to start the percentage at 10% for 5 years’ service and go up 1% for each additional year of
service, to a maximum of 40% for 35 years’ service.

NB Since a gratuity is payable only if an employee leaves service, when you take over a
company and its employees as a going concern (i.e. no retrenchments), you take over gratuity
responsibilities as well, from their original date of service. The quantification of this liability
should be made prior to the sale/purchase of the business. It can be done by analysing the service
demographic of the workforce and then calculating, using the formula in the relevant CBA, what
the liability is at that particular time. Unfortunately, this may not be all that helpful if you don’t
know the effect of any pension scheme in the company – and you don’t know when each
employee is likely to leave the employment of the company. It is much simpler to insist all
services of existing staff are terminated prior to the ownership change as then all these liabilities
are cleared.

However, this also may not be a simple matter as this will require the current owner to retrench
his staff. The prohibitive expense of this may cause the proposed sale to fall through (or result in
an upward re-negotiation of the sale price).

How is gratuity taxed?

The amount received as gratuity is fully taxable in the hands of the employee. It is taxed as an
irregular earning and added to the projection of income in the FDS calculation.

FDS FINAL DEDUCTION SYSTEM

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Did you know that the Pay as You Earn (P.A.Y.E) system was introduced in 1966? Its aim was
to benefit the country by ensuring a steady and constant flow of revenue to the Government. It
also enabled the employees to spread the payment of tax over a period of twelve (12) months.
Under that system, all employers administered the P.A.Y.E. system, but at the end of the tax
year, the Tax Department would assess the same P.A.Y.E to account for income tax variances
(i.e. shortfalls and refunds). This system resulted in the duplication of similar processes and a lot
of resources were therefore tied up in assessing the final tax liabilities.

The Final Deduction System (FDS) was introduced with effect from 1 January 2000 to
overcome the problems associated with the P.A.Y.E system.

Final deduction system what is it?

This is a system whereby the employer is directed to withhold Employees Tax (P.A.Y.E) from
the employee’s remuneration in such a way as to ensure that the amount so withheld monthly and
in the year of assessment is as nearly the same as the income tax liability that is expected from
the employee concerned.

Who qualifies to be on FDS? All employers are as defined under Paragraph 1 (1) of Part I of the
Thirteenth Schedule to the Income Tax Act (Chapter 23:06) (Income Tax Act) expected to be
part of FDS

How does FDS work?

FDS aims at ensuring that the P.A.Y.E. to be withheld in any year of assessment is the same as
the final Income Tax liability for the employee concerned. Under the FDS, the employer
continuously calculates the cumulative tax liability on the total remuneration as it is paid to the
employee by allowing deductions and credits as and when they are incurred. The employer is
required to deduct P.A.Y.E. according to the P.A.Y.E. tables availed by the Zimbabwe Revenue
Authority (ZIMRA). The employer is not obliged to know the employees ‘other source of
income. However, the employees can voluntarily declare other employment income including
pension if they wish to have it taken into account when calculating the tax liability.

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Only specific deductions provided under the Income Tax Act are allowable against remuneration
payable to an employee. The following deductions are allowable against the remuneration
payable to an employee: Pension Contributions, Professional, Trade or Technical
Associations. Tradesman’s Tools

What credits are allowed under FDS? - These are listed in the Finance Act and briefly explained
below: Mentally or Physically Disabled Person’s Credit, Elderly Person’s Credit, Blind Person’s
Credit, Credit for cost of purchasing invalid appliances (allowable to Zimbabwean residents
only), Medical Expenses credit (residents only)

End of year adjustments

At the end of the year, the employer should carry out payroll reconciliations to ensure that all the
remuneration payable to the employee is included and the correct P.A.Y.E was deducted taking
into account all the allowable deductions and tax credits. In the case of any overpayments or
shortfalls, the necessary adjustments must be made.

Statutory requirement to submit ITF16 return and adjustments to be effected after

assessment

Every employer is required to submit an ITF16 (return showing remuneration, deductions, tax
credits effected for each employee) to ZIMRA within 30 days after the end of the year of
assessment. Once an ITF16 is assessed by ZIMRA, a schedule showing the P.A.Y.E shortfalls or
over-taxation for each employee is issued to the employer. On receipt of the assessment, the
employer should ensure that the following is effected:

 Pay any P.A.Y.E. shortfall to ZIMRA;

 Recover any shortfalls from employees who underpaid employees tax;
 Refund employees who overpaid employees tax;
 Prepare employees tax certificates (P6 forms) but only issue the certificates as requested
by the employees or to employees who are not supposed to be on FDS. The P6 forms
should only be prepared and issued after effecting the above stated adjustments;

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  Adjustments (payables or refundable) raised for prior years should not be mixed with
current year’s monthly P.A.Y.E. obligations. For example, an ITF 16 for 2012 which is
assessed in 2014 should have the payments/refunds accounted for separately and
reflected on the P.A.Y.E. account for 2012. An amended P2 for December 2012 should
be submitted to reflect the shortfall being paid for that year. Refundables for 2012 should
therefore not be set off against current 2014 PAYE remittances.

Who should submit Income Tax return forms under FDS?

The employees who:

 Terminate employment during the year of assessment;

 Change employment during the year;
 Work part time at the same time being fully employed by another employer;
 Start employment during the course of the year;
 Receive pensions;
 Are executors/executrix of deceased estates;
 Are in receipt of income which is not subject to P.A.Y.E.

In all the above stated cases, the employer should issue employees tax certificates (P6 forms) to
such employees to enable them complete Income Tax returns. It should be restated that this can
only be done after the assessment of the ITF16, effecting the necessary adjustments and approval
by ZIMRA.

Who should not submit returns of income? - All employees whose income consists of
employment income only and who were in continuous employment with the same employer for
the whole year are not required to submit Income Tax returns.

What are the employee’s rights and obligations under FDS?

Employees have rights and obligations to:-

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  Have their credits and deductions taken into account in determining their P.A.Y.E.
liabilities;
 Be issued with forms P6 at the end of the year or on leaving employment during the year;
 Furnish their employers with information on other income and proof of deductions and
credits;
 Have their P.A.Y.E correctly calculated, and
 Be refunded excess P.A.Y.E and pay P.AY.E shortfalls after final adjustment

What are the employer’s rights and obligations under FDS?

 Calculate and deduct correct P.A.Y.E. for each employee

 Take into account all income, deductions, and credits in determining P.A.Y.E. liabilities
 Remit the total P.A.Y.E to the Commissioner General of ZIMRA by the 10th of the month
following the month for which P.A.Y.E is withheld
 Make end of year adjustments for P.A.Y.E
 Issue tax certificates for all employees
 Maintain and furnish all relevant employee's records to revenue officers
 Make good any shortfalls and refund excess P.A.Y.E. to employees
 Ensure that the ZIMRA Commissioner General's directive is available for inspection at
all reasonable times by any employee who may be affected by it
 Receive adequate training on FDS from the nearest ZIMRA office
 Facilitate education of employees on FDS, and
 Be supplied with all relevant forms on FDS by the nearest ZIMRA office

What are the obligations of ZIMRA under FDS?

ZIMRA is obliged to:-

 Assist employers and employees on FDS

 Assist employers and employees on any queries on time
 Assist in the smooth implementation of FDS, and

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  Provide all the necessary forms

There are two main recommended methods of calculating P.A.Y.E under the FDS system namely
the forecasting and averaging methods. These methods are described and explained in the FDS
guide available on the Zimbabwe Revenue Authority website www.zimra.co.zw. It should
however be noted that the employer is not restricted to one method of calculating P.A.Y.E. and is
free to use any which achieves better results and best suited to their circumstances and systems.

Final Deduction System - Average

The PAYE amount to be deducted from an employee can be calculated in one of three approved
ways:
FDS Average Method - Summary Explanation
The FDS Average Method takes the average income per period to date. It then multiplies this
average by the number of remaining periods in the tax year and adds it to the income to date.

FDS Average Method - Detailed Explanation

The Average Method of calculating PAYE takes: |
- Earnings to Date (including the current period and net of deductions)
- Divides this by the number of periods to date to get an average.
- Multiply this average by the number of remaining periods to the end of the year, as a
projection.
- Add the projection to the Earnings to Date = Total Income (A)
- Calculate the annual PAYE payable on the Total Income (A) (using the ZIMRA Annual Tax
Tables) - Subscribe to the Belina Newsletter.
- Take into account Aids Levy
- Deduct credits from the previous periods
- Deduct PAYE deducted to date = PAYE to be paid by the end of the tax year (B)

Average the amount of PAYE to be paid by the end of the year (B) by the number of periods left
in the tax year (C) = (B) / (C)

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- Deduct current months credits including Aids Levy = PAYE for the current month

Final Deduction System - Forecast

FDS Forecast Method - Summary Explanation
The FDS Forecast Method takes the income to date, then adds to that a projection of the current
income to the end of the year.

FDS Forecast Method - Detailed Explanation

The Forecast Method of calculating PAYE takes:
- Earnings to date (including the current period and net of deductions)
- Add, forecasted monthly earnings to the end of the year based on taxable earnings = Total
Income (A)
- Calculate the annual PAYE payable on the Total Income (A) (using the ZIMRA Annual Tax
Tables)
- Take into account Aids Levy
- Deduct credits from the previous periods
- Deduct PAYE deducted to date = PAYE to be paid by the end of the tax year (B)
- Average the amount of PAYE to be paid by the end of the year (B) by the number of periods
left in the tax year (C) = (B) / (C)
- Deduct current months credits including Aids Levy = PAYE for the current month.

The FDS system however works better under a computerized payroll system.

What are the advantages of implementing the FDS system?

o Accuracy is achieved in calculating P.A.Y.E, as the system calculates the correct

amount of tax at a given time.
o Tax refunds are done promptly, within the payroll system therefore allowing
employees to use their resources as the year progresses
o Deductions and credits are allowed as they are claimed during the year

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 o Reduction of visits to the tax offices and reduced tax returns. This creates savings
in resources from both the Revenue Authority and the employee perspectives.
o Allows Zimra to make a single Assessment for the whole entity’s employees,
instead of individual assessments.
o Recognises the time value of money on both Employee and tax authorities (i.e. -
on refunds and shortfalls)

Disadvantages of FDS

 Places heavier compliance costs on the Employer and minimal on the tax authorities
 Requires above average knowledge of taxation to comply fully
 The need for Computerised systems to better manage it or cost of outsourcing to a payroll
Services Provider

Benefits of tax compliance

Tax laws provide for the charging of additional tax and penalties equal to the defaulted amount
and interest, where a client fails to adhere to its provisions. In some instances, fines, prosecution
and imprisonment may be effected depending on the nature of the default. However, taxpayers
can avoid these unnecessary penalties by being tax complaint. Regular audits are usually
conducted by ZIMRA to check on compliance and to correct problem areas identified, as well as
to educate the clients where necessary.
Costs associated with non-compliance come in various forms such as:
 Time wasting;
 Court cases that may affect the image of the business;
 High collections costs, as well as possible legal fees;
 Extra costs in additional tax and penalties that may negatively affect cash flows.

To avoid such costs, clients should:

 Keep proper records;
 Adhere to due dates for payment of taxes or submission of returns;
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  Pay the correct amount of tax;
 Declare the correct amount of taxable income in their tax returns;

Employers should note that benefits of tax compliance are mainly derived from proper record
keeping. These benefits include the following:

 The information kept by businesses is used to effectively manage the businesses

as well as check and show company performance;
 Business efficiency is also derived from good record keeping;
 When business systems are up to date and properly managed, there is improved
decision making;
 Updated records enable a clear assessment of the current affairs of the company;
 Proper records facilitate audits and reduce the time taken by auditors;
Records can be maintained in either manual or automated form. The law requires that all records
be kept in English language.

PAYROLL CYCLE

Definition: A payroll cycle is the length of time between payrolls. Thus, if an entity pays its
employees every Friday, this is a one-week payroll cycle, whereas paying them once a month is a
monthly payroll cycle. A business must have a payroll process in place to ensure employees
receive correct pay on time. While the exact payroll procedures vary by company, the basic
payroll cycle covers tasks most businesses must do to process their payrolls. The scope and
frequency of payroll processing depends on many factors, including the size of the business and
the payment cycle.

A payroll cycle can be viewed as a set of rules that defines the criteria by which scheduled
payments are selected for payment creation, e.g., payroll may be on a weekly, bi-weekly, or
monthly pay cycle. Payroll cycle refers to the length of time between payrolls. For example, if
an employer processes payroll every week, each week is considered a new payroll cycle. The
payroll cycle may include processes for recording time and attendance and converting that data

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into payroll calculations and disbursements. The cycle may also include related internal controls
over the eligibility of employees, accuracy of amounts paid, appropriate segregation of duties,
and safeguarding over cash and checks held.

The payroll cycle starts with hiring (and firing) people and determining their wage rates and
deductions, then proceeds to attendance and work (timekeeping), and ends with payment
followed by preparation of governmental (tax) and internal reports. Some of the main payment
cycle steps include gathering employee time, running earnings and deduction calculation and
payment print.

There are three external sources involved in the payroll cycle: government agencies, banks and
insurance companies. The HRM provides information on hiring, terminations and pay-rate
changes due to pay raises and promotions. The various departments provide data for the hours
worked. The Government provides the tax information and requirements.

Payroll Cycle Activities

Seven basic activities performed in the payroll cycle:

1) Update payroll master file.

2) Update tax rates and deductions.

3) Validate time and attendance data.

4) Prepare payroll.

5) Disburse payroll.

6) Calculate employer paid benefits and taxes.

7) Disburse payroll taxes and miscellaneous deductions.

Update payroll master file : Updating the payroll master file includes changes such as: New
hires, terminations, changes in pay rates, and changes in discretionary withholdings. It is
important that all payroll changes are entered in a timely manner and are properly reflected in the

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next pay period. The payroll administrator must add new or revise existing employee data before
running payroll. For example, the administrator must create an employee payroll profile for a
new hire. The profile includes her personal information, such as her Social Security number and
payment details, her tax information and pretax deductions, such as health insurance premiums.
If an existing employee has had any information changes, such as a new pay rate, the
administrator must make these changes before running payroll.

Update Tax Rates and Deductions: These type changes occur infrequently. Payroll receives
information from government, unions and insurance companies. An electronic payroll system
usually has applicable pretax work benefits, such as dental premiums, federal and local taxes and
pay rates, already inputted. Once the responsible person verifies the employee's hours, the
payroll system calculates her net wages using the inputted figures. The payroll administrator
must figure out these calculations herself if the payroll system is manual, using information from
the employee's file or the company's payroll records.

Validate Time and Attendance Data: The administrator must calculate employees' work time
for payment purposes using the company's method of timekeeping. If the timekeeping is manual,
the administrator has to add the hours together herself. If the company uses automated
timekeeping, such an electronic time card, the person responsible for approving the hours usually
just has to confirm the time shown is correct for payroll processing and fix any errors before
final approval.

Information on time and attendance comes in various forms depending on the employee’s pay
scheme. Most employees are paid either on an hourly basis or a fixed salary. Many companies
use a time card to record their arrival and departure time. This document typically includes total
hours worked during a pay period. Manufacturing companies may use job time tickets to record
not only time present but also time dedicated to each job.

Employees that earn a fixed salary, e.g., managers and professional staff: Usually don’t record
their time, but supervisors informally monitor their presence. Professionals in accounting, law,
and consulting firms must track their time on various assignments to accurately bill clients.

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Sales staff is often paid on a straight commission or base salary plus commission. Some may also
receive bonuses for surpassing sales targets therefore requires careful recording of their sales.

Increasingly, laborers may be paid partly on productivity. Some management and employees
may receive stock to motivate them to cut costs and improve service. Compensation boards are
being created to design compensation plans, rather than having executives create their own.

How can information technology help?

Collecting time and attendance data electronically, e.g.: Badge readers, Electronic time clocks,
Data entered on terminals, Touch-tone telephone logs

Using audit checks to verify accuracy and reasonableness when the data are entered.

Prepare Payroll

1) The payroll transaction file is sorted by employee number.

2) The sorted time-data file is then used to prepare employee paychecks( paycheck is a
paper document issued by the employer to pay an employee for services rendered.
Nowadays however companies use direct deposits to the employees designated bank
accounts)

3) Next, all payroll deductions are summed and the total is subtracted from gross pay to
obtain net pay.

4) Once net pay is obtained, the year-to-date fields for gross pay, deductions and net pay in
the payroll master file are updated.

5) Finally, the payroll register and employee paychecks are printed.

The administrator checks the direct deposit or paycheck amounts to confirm all the information
is correct once payroll is set. He confirms the amounts a second time after sending the direct
deposit or printing the employee checks. The administrator can usually print out or view reports
if the payroll is automated. A person running a manual payroll must double-check using an

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applicable method, such as directly confirming direct deposit transmissions with the company's
bank.

Reports: The payroll register is a report that lists each employee’s gross pay, payroll
deductions and net pay. Sometimes the payroll register is accompanied by a deduction register
which lists the miscellaneous voluntary deductions for each employee. Employee paychecks also
typically include an earnings statement, which lists the amount of gross pay, deductions and net
pay for the current period and year-to-date totals. Additional reports are produced by the payroll
system; especially for Government agencies.

Disburse Payroll : Most employees are paid by: Direct deposit, In some industries, such as
construction, cash payments may still be made, but does not provide good documentation. Direct
deposit is one way to improve the efficiency and reduce the costs of payroll processing. Direct
deposit provides savings to employers by eliminating the cost of purchasing, processing and
distributing paper checks, not to mention reducing bank fees and postage.

Disburse Payroll: steps

1) Once paychecks have been prepared, the payroll register is sent to the accounts
payable department for review and approval.

2) A disbursement voucher is then prepared to authorize the transfer of funds from

the company’s general checking account to its payroll bank account.

3) The disbursement voucher and payroll register are then sent to the cashier.

4) The cashier reviews the payroll register and disbursement voucher and then
prepares and signs a check transferring funds to the company’s payroll bank
account. The cashier also reviews, signs and distributes the employee paychecks.

5) The payroll register is then returned to the payroll department.

Calculate Employer-Paid Benefits and Taxes: The employer pays some payroll taxes and
employee benefits directly. The employer withholds federal and state taxes from employee

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paycheck, along with Medicare tax, and the employee’s share of Social Security. The employer
may also withhold voluntary deductions such as union.

In addition, the employer pays a matching amount of Social Security and State unemployment
taxes, share of health, disability, and life insurance premiums, as well as pension contributions.
Some companies offer flexible benefit plans, sometimes called cafeteria-style benefit plans.

Disburse Payroll Taxes and Miscellaneous Deductions The final activity in the payroll process
is paying the payroll tax liabilities and the other voluntary deductions of each employee.
Companies either prepare checks or use electronic funds transfer (EFT) to pay the taxes and
deductions. The administrator must address other payroll-related matters, such as the deposit of
withheld taxes to the correct place, after the employees receive their pay. What happens next
depends on the company's payroll practices. For example, a company may send payroll reports
and withheld taxes to a third party they've hired to handle tax deposits and payments.

Control Objectives, Threats and Procedures

A second major function of the HRM/payroll cycle is to provide adequate internal controls to
ensure meeting the following objectives:

 All payroll transactions are properly authorized.

 All recorded payroll transactions are valid.

 All valid, authorized payroll transactions are recorded.

 All payroll transactions are accurately recorded.

 Applicable government regulations regarding remittance of taxes and filing of payroll

and HRM reports are met.

 Assets (both cash and data) are safeguarded from loss or theft.

 HRM/payroll cycle activities are performed efficiently and effectively.

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Threats to the payroll cycle

 Hiring Unqualified Employees Hiring unqualified employees can increase production

expenses, and hiring a larcenous employee can result in theft of assets. Skill
qualifications for each open position should be stated explicitly in the position control
report. It is especially important to verify a job application’s skills and references,
including college degrees earned, because research shows that approximately 30% of
resumes contain false information.

 Violation of Employment Law The government imposes stiff penalties on firms that
violate provisions of employment law. The best control procedure is careful
documentation of all actions relating to advertising, recruiting and hiring new employees
and dismissal of employees. Careful training to keep up on laws

 Unauthorized Changes to the Payroll Master File Unauthorized changes to the payroll
master file can results in increased expenses if wages, salaries, commission or other base
rates are falsified. Proper segregation of duties is the key control procedure for dealing
with this third threat. Only the HRM department should be able to update the payroll
master file for hiring’s, firings, pay raises and promotions. Controlling access to the
payroll system is also important. The system should be programmed to compare user IDs
and passwords with an access control matrix that: defines what actions each employee is
allowed to perform, and confirms what files each employee is allowed to access.

 Inaccurate Time Data Inaccuracies in time and attendance records can result in
increased labor expenses and erroneous labor expense reports. Automation can reduce the
risk of unintentional inaccuracies (field, limit, and validity checks). Proper segregation of
duties can reduce the risk of intentional inaccuracies.

 Inaccurate Processing of Payroll Processing errors can lead to penalties if the errors
result in failure to remit the proper amount of payroll taxes due the government.

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  Theft or Fraudulent Distribution of Paychecks Another major threat is the theft of
paychecks or the issuance of paychecks to fictitious or terminated employees.

 Loss, Alteration or Unauthorized Disclosure of Data

 Poor Performance

 Computer virus

 Fraudulent activities

Control procedures

 Batch totals should be calculated at the time of data entry and then checked against
comparable totals calculated during each stage of processing.

 Hash totals of employee numbers are particularly useful. If the original and subsequent
hash totals of employee numbers agree, it means that: all payroll records have been
processed, data input was accurate, and no bogus time cards were entered during
processing.

 Cross-footing the payroll register: total of net pay column should equal the total of
gross pay minus total deductions.

 Access to blank payroll checks and to the check signature machine should be restricted.
All payroll checks should be sequentially pre-numbered and periodically accounted for.
The cashier should sign all payroll checks only when supported by proper documentation
(the payroll register and disbursement voucher).

 Someone independent of the payroll process should reconcile the payroll bank account.
A separate payroll bank account provides additional protection against forgery or
alteration. It is also important that someone who does not authorize or record payroll
should distribute paychecks and control the transfer of funds for direct deposit. Special

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 procedures should be used to handle unclaimed paychecks because they indicate the
possibility of a problem, such as a nonexistent or terminated employee.

 Backup and disaster-recovery procedures provide the best controls for reducing the risk
of payroll data loss. Physical and logical access controls are important preventive
measures to mitigate this threat. Access and processing integrity controls are also needed
to ensure the confidentiality and accuracy of payroll cycle data transmissions.

 Audit. Have either internal or external auditors conduct a periodic audit of the payroll
function to verify whether payroll payments are being calculated correctly, employees
being paid are still working for the company, time records are being accumulated
properly, and so forth.
 Change authorizations. Only allow a change to an employee’s marital status,
withholding allowances, or deductions if the employee has submitted a written and
signed request for the company to do so. Otherwise, there is no proof that the employee
wanted a change to be made. The same control applies for any pay rate changes requested
by a manager
 Change tracking log. If you are processing payroll in-house with a computerized payroll
module, activate the change tracking log and make sure that access to it is only available
through a password-protected interface. This log will track all changes made to the
payroll system, which is very useful for tracking down erroneous or fraudulent entries.
 Error-checking reports Some types of payroll errors can be spotted by running reports
that only show items that fall outside of the normal distribution of payroll results. These
may not all indicate certain errors, but the probability of underlying errors is higher for
the reported items. The payroll manager or a third party not involved in payroll activities
should run and review these reports.
 Expense trend lines Look for fluctuations in payroll-related expenses in the financial
statements, and then investigate the reasons for the fluctuations.
 Issue payment report to supervisors Send a list of payments to employees to each
department supervisor, with a request to review it for correct payment amounts and

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 unfamiliar names. They may identify payments being made to employees who no longer
work for the company.
 Restrict access to records. Lock up employee files and payroll records at all times when
they are not in use, to prevent unauthorized access. Use password protection if these
records are stored on line. This precaution is not just to keep someone from accessing the
records of another employee, but also to prevent unauthorized changes to records (such as
a pay rate).
 Separation of duties Have one person prepare the payroll, another authorize it, and
another create payments, thereby reducing the risk of fraud unless multiple people
collude in doing so. In smaller companies where there are not enough personnel for a
proper separation of duties, at least insist on having someone review and authorize the
payroll before payments are sent to employees.

The following list of possible controls address such issues as missing timesheets,
incorrect time worked, and incorrect pay calculations. They are:

 Automated timekeeping systems Depending on the circumstances, consider installing a

computerized time clock. These clocks have a number of built-in controls, such as only
allowing employees to clock in or out for their designated shifts, not allowing overtime
without a supervisory override, and (for biometric clocks) eliminating the risk of buddy
punching. Also, you should send any exception reports generated by these clocks to
supervisors for review.
 Calculation verification If you are manually calculating payroll, then have a second
person verify all calculations, including hours worked, pay rates used, tax deductions, and
withholdings. A second person is more likely to conduct a careful examination than the
person who originated the calculations.
 Hours worked verification Always have a supervisor approve hours worked by
employees, to prevent employees from charging more time than they actually worked.
 Match payroll register to supporting documents The payroll register shows gross wages,
deductions, and net pay, and so is a good summary document from which to trace back to
the supporting documents for verification purposes.
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 Match timecards to employee list There is a considerable risk that an employee will not
turn in a timesheet in a timely manner, and so will not be paid. To avoid this problem,
print a list of active employees at the beginning of payroll processing, and check off the
names on the list when you receive their timesheets.
 Overtime worked verification Even if you do not require supervisors to approve the
hours worked by employees, at least have supervisors approve overtime hours worked.
There is a pay premium associated with these hours, so the cost to the company is higher,
as is the temptation for employees to claim them.
 Pay change approval Consider requiring not just one approval signature for an employee
pay change, but two signatures – one by the employee’s supervisor, and another by the
next-higher level of supervisor. Doing so reduces the risk of collusion in altering pay
rates.
 When you pay employees with checks, several controls are needed to mitigate the risks of
fraud and various errors. Key controls are:
 Update signature authorizations When check signers leave the company, remove them
from the authorized check signer list and forward this information to the bank. Otherwise,
they could still sign company checks.
 Hand checks to employees Where possible, hand checks directly to employees. Doing so
prevents a type of fraud where a payroll clerk creates a check for a ghost employee, and
pockets the check. If this is too inefficient a control, consider distributing checks
manually on an occasional basis.
 Lock up undistributed paycheck. If you are issuing paychecks directly to employees and
someone is not present, then lock up their check in a secure location. Such a check might
otherwise be stolen and cashed.
 Match addresses If the company mails checks to its employees, match the addresses on
the checks to employee addresses. If more than one check is going to the same address, it
may be because a payroll clerk is routing illicit payments for fake employees to his or her
address.
 Payroll checking account You should pay employees from a separate checking account,
and fund this account only in the amount of the checks paid out. Doing so prevents

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 someone from fraudulently increasing the amount on an existing paycheck or creating an
entirely new one, since the funds in the account will not be sufficient to pay for the
altered check.

You may find that several controls buttress each other, so that there are overlapping effects
resulting from multiple controls. In these cases, you may be able to safely eliminate a few
controls, knowing that other controls will still mitigate the risk of loss.

OUTSOURCING

Outsourcing is when an organisation seeks to source aspects of its production/services by setting

up a contractual relationship with an external provider to reduce costs. Gianni Zappala states that
outsourcing is a situation where an external vendor provides, on a recurring basis a service that
would normally be performed within the organisation. It can be said to be a legal partnership
between two or more organisations where one contracts out the ownership, management and
staff of particular function to a specialist firm.

Therefore, with outsourcing organisations concentrate on aspects of their business which give
them a competitive advantage (core business) and contract out the more peripheral or noncore
aspects of the firm. Outsourcing is used interchangeable with subcontracting and contracting out.
The decision to outsource is a major strategic one for most companies, since it involves weighing
the potential cost savings against the consequences of a loss in control over the product or
service.

Bussin (2011) suggests that market trends have indicated that outsourced payrolls are highly cost
effective especially for smaller business that cannot afford a payroll department or dedicated
payroll personnel. In Zimbabwe most companies outsource their payroll activities.

The promise of payroll outsourcing is that the payroll service provider will assume all of the
hassle of paying employees, leaving employers free to pursue more value-added activities. But in
many other cases, companies who outsource end up trading one set of burdens and irritations for
another. The reasons why they may decide to outsource are varied depending on the structure of
the organisation and the industry in which the organisation operates. For example, small
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companies often survive with a few employees juggling their time between many duties such as
handling their payroll systems, in addition to other accounting or administrative work increasing
the possibility of error hence outsourcing becomes a better option.

Outsourcing can be undertaken to varying degrees, ranging from total outsourcing to selective
outsourcing. Total outsourcing may involve dismantling entire departments or divisions and
transferring the employees, facilities, equipment, and complete responsibility for a product or
function to an outside vendor. In contrast, selective outsourcing may target a single, time-
consuming task within a department, such as preparing the payroll or manufacturing a minor
component that can be handled more efficiently by an outside specialist.

As you evaluate your outsourcing choices, keep in mind that there are advantages to outsourcing
and disadvantages of outsourcing. However in most cases, the advantages of outsourcing
overshadow the disadvantages of outsourcing. If the outsourcing disadvantages outweigh the
advantages of outsourcing, then you should avoid outsourcing those operations.

Rationale for outsourcing

 Concentrating on core process: outsourcing the supporting processes gives the

organization more time to strengthen their core business process. A company can
draw a benefit of focusing on the core business because payroll in most companies is
taken as a support function what HR does is to simply submit the payroll input to the
company say Classic Software team or Earnest and Young. The input may include,
overtime, leave liability, allowances and any other income that may accrue to the
employee. Thus the biggest savings from payroll outsourcing might be time rather
than money. Outsourcing payroll can free up human resources staff or others who
handle HR tasks, so they can devote more time to recruiting, hiring, training and other
HR functions.
Ease and Flexibility. Outsourcing payroll services will provide you the ease and
flexibility of operation and concentrating on your core business instead of having to
worry about your small business payroll services.

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 Risk-sharing: Outsourcing certain components of your business process helps the
organization to shift certain responsibilities to the outsourced vendor. Since the
outsourced vendor is a specialist, they plan your risk-mitigating factors better. For
instance company information can be lost through viruses corrupting the whole
network system, or through computers crushing totally. Risk of storage and back up
of payroll related information is left in the hands of the company offering the
services.

 Cost Savings - when you outsource payroll services, you get to reap many cost
saving benefits. These cost savings come from having less investment in human
capital (fewer people on your payroll and your share of their payroll tax and
employee benefit expenses) and business payroll software and computer/printer, and
reduction in IT costs. In other words, you save the time you would have spent on
personally managing your business payroll systems. Notably outsourcing eludes the
need to hire individuals in-house; hence recruitment and operational costs can be
minimized to a great extent. For big organisations it may make sense to have such
departments as the payroll may involve large numbers of employees as such more
people can be required in the department. However, for smaller organizations it may
be cheaper to outsource payroll facilities since it reduces operational and recruitment
costs.
Swiftness and Expertise - The outsourced vendors also have specific equipment and
technical expertise, most of the times better than the ones at the outsourcing
company. Effectively the tasks can be completed faster and with better quality output.
When a company you outsource payroll to payroll processing companies, they give
you payroll solutions based on the best practices in the field. This knowledge is
something that is almost impossible for you to replicate if you are a small business
owner or haven’t been in the trade for decades, or don’t have a enormous budget to
research and employ the best and the most useful payroll tactics in the industry.
Professionalism - When you don’t have the skills or a trained professional on staff to
handle payroll, outsourcing might be a wise decision. Payroll firms typically offer
services that cover wages, overtime pay, bonuses, commissions and other forms of
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 compensation. They also handle benefits, pension and retirement savings programs,
and taxes. Achieve better access to skills due to challenges of attaching the right skills

The Disadvantages of Outsourcing

Risk of exposing confidential data- In HR one of the key ethical considerations is
confidentiality and salaries are key. Imagine with the growing levels of performance related pay
and individual bargaining most employees even occupying the same grade may have different
salaries and as such if this is exposed it has a great impact on industrial relations. When an
organization outsources HR, Payroll and Recruitment services, it involves a risk if exposing
confidential company information to a third-party. If this happens it tarnishes the image of the
company.

Loss of Control - Handing over your payroll operations to a third party gives you less control
over the financial information and confidential data associated with it. Also, the data might be
less accessible to your company because it’s stored on the payroll firm’s server. Payroll includes
the most personal and private information available on employees. Maintaining confidential data
internally could present fewer risks. A payroll firm that doesn’t – or can’t -- guard this
information leaves your company vulnerable to theft and employee lawsuits.
Synchronizing the deliverables - In case you do not choose a right partner for outsourcing,
some of the common problem areas include stretched delivery time frames, sub-standard quality
output and inappropriate categorization of responsibilities. At times it is easier to regulate these
factors inside an organization rather than with an outsourced partner.
Hidden costs- Although outsourcing most of the times is cost-effective at times the hidden costs.
Coordination costs

Most managers believe outsourcing payroll services reduces costs but a closer look in some cases
especially when managers do not plan it effectively it tends to increase costs, such as
housekeeping costs, updates cost and license costs.
Lack of customer focus - An outsourced vendor may be catering to the expertise-needs of
multiple organizations at a time. In most cases limited attention can be given to the organization,
which may adversely affect the business operations. Imagine an outsourced vendor may overlook

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the statutory payments say of NEC levy, NSSA and NEC pension. These effects can bring dire
consequences to the organisation.

Unreliability- Businesses can’t oversee offsite operations as effectively as those they manage.
Outsourcing payroll raises your risk of contracting with an unreliable firm. Businesses often get
references from other companies that outsource payroll before hiring a firm. Other companies
take advantage of free trials from a payroll firm so they can determine its reliability before
paying for the service.

 Costs of monitoring
 Outsourced labour might lack commitment
 Disparity of pay between outsources and internal employees.
 Does not build the internal resource with unique skills(RBV)
 Outsourcers lack of experience and vendors lack of experience.
 Opportunistic behaviour by the vendor.
 Vendors financial instability

CO-SOURCING THE PAYROLL SERVICES

A business arrangement in which work is performed by both internal staff and external
contractors. In co-sourcing arrangements, external workers are often used to handle peak work
loads or to provide expertise that internal staff lack.

Co-sourcing differs fundamentally from outsourcing. The combining of services from within and
outside a business to achieve the same goal. With outsourcing, employers shift straightforward
transactional and administrative tasks from HR’s to-do list to an outside vendor. Co-sourcing
goal is more ambitious: to create a more robust and efficient compensation function—within a
single country, regionally, or across the globe—by partnering with a service provider able to
augment internal resources any way they’re needed. Companies that form co-sourcing
partnerships can rely on their partners’ expertise and resources to supplement, complement, or
replace internal staff to achieve the right balance of control and delegation in compensation
management. It also enhances the function by leveraging efficient external resources that can

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scale up or down with organizational change; transfer knowledge from service provider to a
compensation team (thus reducing any need to “staff up”); and provide technological expertise
for existing compensation management systems as well as access additional technology as
needed.

The Dividends of Co-Sourcing

The long-term nature of co-sourcing relationships makes it imperative for both the client and the
service provider to partner with true synergies in mind. Co-sourcing also provides stability for
both the client and the provider. The relationship allows issues to be tackled in a holistic manner
with a longer-term perspective than is the case when working with conventional outsourced or
consulting providers.

Unlike traditional outsourcing engagements, co-sourcing involves transparent billing, which

provides the fund with operational advantages and related cost savings. Use of offshore
workforces can provide time-zone advantages and added scalability. Co-sourcing also provides
the client and its employees with the freedom to focus on critical value-add activities, as more
routine work is co-sourced to the provider. As the co-sourced vendor grows its client base, it
cultivates higher-value expertise and, in turn, the ability to provide higher-value services.

The level of integration and strategic alignment that it affords sharply distinguishes co-sourcing
from conventional outsourcing. Under an outsourced agreement, little ownership resides with the
client and the lion’s share of accountability rests in the hands of the vendor. With co-sourcing,
the vendor team is a vital extension of the client’s onsite team, fostering a measurably greater
sense of ownership and accountability while reinforcing confidentiality.

Co-sourcing is not a blanket panacea for every situation. Implementing a co-sourcing model
poses specific challenges to firms with large outsourcing businesses, such as a fund
administrator, since it requires close adaptation to a client’s established business model. The
more mature the client’s business model, the greater the demand for an innovative service
provider that can leverage people, processes and technology to provide a tailored co-sourcing

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solution.

Guidelines for using a computerized payroll system

Overview
Any system set up the different types of earning and deduction codes.
Earnings
Basic Pay -The actual rate of pay for each employee will be automatically picked up from the
employee master file, grade or NEC grade rate. Normally basic comes through automatically
each period.
Overtime - Create different overtime transaction codes for different overtime rates. When
processing the transaction the User will enter the number of hours and/or fraction, thereof,
worked. Enter the overtime rate factor eg. 1 for normal time; 1.5 for time and a half; 2 for double
time; and 3 for triple time as applicable
Short Time - When processing the transaction the User will enter the number of hours and/or
fraction, thereof, to be deducted
Bonus - Current legislation allows for the deduction from annual income of a specified
maximum bonus amount from the taxable income.
Allowance - Use the 'Allowance' button to set up a code to set up a taxable earning or allowance.
If no amount is entered when creating the code the user will be asked for a value when
processing.
Normal This is for a specified taxable amount for one or a range of periods. Enter an amount if
the allowance being paid is a fixed amount for all employees.
Vehicle This can only be used in conjunction with the Vehicle 'Benefit' transaction type. In this
context the net pay of an individual remains the same after the processing of the vehicle benefit
as it was before. A taxable amount is added to the employee's pay to compensate for the tax
payable for the use of a company vehicle. To set up the allowance create a benefit code for the
company vehicle.
Shift This is for taxable amounts that are a percentage of the basic multiplied by the number of
shifts worked.
Apply Min Days Worked for Allowance This allows the user to specify a minimum limit of

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days worked in order for the employee to benefit from this allowance.
Variable Allowance
Use the 'Var Allow' button to set up a code to process taxable amounts based on a percentage of
the basic.
Sundry Allowance - Use the 'Sundry' button to set up a code to process taxable amounts which
are a factor of one or more other earnings or deductions. The ability to take into account other
transaction codes makes this very flexible. Although pension is not an earning, this code may
also be applied in computing a pension where the base amount is the total of one or more (up to
10) earning and/ or deduction codes. If there are more than 10 dependant codes it is possible to
extend the functionality by using 'Earning Category'. There are six (6) different types of sundry
allowances, as shown below:
Amount apply a factor to the total value of several transaction codes
Hours apply a factor to the total number of hours processed on one or more earnings codes
Bonus compute the annual bonus amount (at special rates of tax) applying a factor to one or
more transaction codes.
Pension process a pension applying the percentage to the total of one or more other transaction
codes. This is particularly useful for processing NSSA where it may be appropriate to include
other earnings outside the basic amount. Enter on the right hand side of the screen the percentage
to be deducted from employee and employer, the maximum earnings amount to be used in the
computation and the maximum pension amount that can be deducted from taxable income for the
year (as directed by the Ministry of Finance).
Service process an amount that is based on the number of years service of an employee. The
service allowance can be applied as a factor to the total of one or more earnings / deductions and
Bring the amount through automatically into the payroll.
Overtime process an overtime applying a factor to the total value of several transaction codes
based on one of the grade rate, supplementary grade rate, the normal hourly rate or the daily rate.
The dependant earning or deduction codes can be selected by clicking the elipse button and
selecting the appropriate earning or deduction. For transactions depending on more than ten other
Earning / Deduction codes, the 'Earning Categories' under 'Setup' menu option enable the user to
group a number of Earning /Deduction codes under one

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Leave - Use the 'Leave' button to set up a code to process various types of leave. Select the leave
type by pressing the down arrow on leave type.
Paid leave Where the number of days is deducted from the leave pay entitlement and recorded
on the pay slip but there is no additional payment than that included in basic
Leave paid in advance Where leave is being taken for future periods. The number of days is
deducted from the leave pay entitlement and recorded on the pay slip. A leave payment amount
is paid to the employee, which is normally recovered in future periods.
Unpaid leave Where the number of days is recorded on the pay slip. The leave pay entitlement is
not affected. The gross pay is reduced by the value of the number of days being unpaid.
Adjust Days Use this to adjust the leave balance of an employee. The leave entitlement for an
individual is set up in the employee master. Days accrue each period and are accumulated and
reduced by the number of leave days paid for or taken.
Other Leave - Use the 'Leave' button to set up a code to process other types of leave, including
Compassionate, Occasional, Maternity, Study and Other leave.
Sick leave - Use the 'Sick Leave' button to set up a code to process sick leave days taken by an
individual. Create any number of sick leave codes with differing sick leave conditions applying
to various groups of employees. All sick leave days are accumulated for the year and reset either
on the anniversary engagement or at the end of the year. The number of sick leave days that an
employee can take after a specified number of years service can also be incremented.
Cash in lieu of leave - Use the 'C I L L' button to set up a code to process amounts of leave
converted to money -cash in lieu of leave. The system will record and report on the number of
days converted and add the value to gross pay. The number of days taken will be automatically
deducted from the leave balance. Putting a tick on calculate on last changed rate will make the
system calculate the cash in lieu using the rate of pay prior to current.
Gratuities - Use the 'Gratuity' button to set up a code to pay gratuities. The amount of the
gratuity needs to be manually calculated and entered into the system.

Deductions
Medical
Use the 'Medical Aid' button to set up a code to process medical aid contributions.

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Any number of schemes may be processed for each of the medical aid societies. If the medical
aid society operates different schemes then create a separate deduction code for each scheme. If
the medical aid has one scheme with different rates for different salary bands set up one code
using the 'Band Code' facility. Enter the contribution amounts for the employee, spouse, child
and dependant broken down into what should be paid by the employee and employer for the
period. In the example, above, employee pays half and the employer pays the other half of the
contribution for the, member, spouse, each child and each dependant. Whether there is a spouse
to be processed and the number of children and dependants, if any, to be included in the
processing is specified in the Employee Master for each individual. The Payroll will
automatically apply these contribution amounts against the number of people covered and
determine the amount to be deducted from the employee and employer.
Pension - Use the 'Pension' button to set up a code to process pension deductions. Pensions can
be calculated as a percentage of basic or as an amount. If the deduction is an amount leave the
percentage as zero. Enter the 'Percentage of Basic' for the employee and employer contribution.
Maximum Basic to be Applied for Pension this is used mainly for National Social Security
Authority (NSSA).
Annual Tax Free Contribution this is an amount that the Government allows annually to be
deducted from an individual's taxable income. It is set up in the Tax Parameters. Use the
'Secondary Pension Code' if you would like the amount deducted to take into account pension
deducted elsewhere. A common example is a pension contribution that is reduced by the amount
contributed to NSSA. The pension calculated can be based on the basic in the Employee Master,
Grade rate or NEC Grade rate. Once the maximum basic to be applied for pension, for NSSA,
has been entered then the rounding of the contribution to the nearest xx cents can be entered eg.
ten cents.
Trade Union - Use the 'Trade Union' button to set up a code to process Trade Union deductions.
A facility is given to enter the amount or a percentage of basic. Enter either the contribution
amount or percentage of basic to be applied. If the contribution is a percentage up to a maximum
amount enter the percentage and the maximum to be applied.
NEC - Use the 'NEC' button to set up a code to process NEC deduction amounts to be paid as a
percentage of basic or an amount for employee and employer.

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Loans - Use the 'Loan' button to set up a code to process loan amounts. The amount of the loan,
the number of repayment periods and the interest rate to be applied is entered when processing a
loan against the employee under the process menu. The loan repayments will be automatically
deducted each period. Belina Payroll calculates the total amount repayable including the interest
calculated on either a reducing balance or direct interest method.
Clear Repayment at Period End putting a tick here tells the system to clear the repayment
amount at period that no loan amount will be reflected in the next period.
Loan Interest Calculation this can either be by reducing compound or direct interest.
Sundry Deduction - Use the 'Sundry Ded' button to set up a code to deduct amounts computed
as a factor of one or more other earnings or deductions. The ability to take into account other
transaction codes makes this a very flexible deduction type. In addition to the ten (10) dependant
transaction codes that can be used in calculating the amount, the User can set up an 'Earning
Category' which can summarize any number of earning/ deductions codes into one.
Non Taxable
Mileage- Use the 'Mileage' button to set up a code to process the payment of taxable or non-
taxable payments to employees, using a rate per unit. Typically, for the payment of mileage
allowances which are non taxable, however, the code may be set up to process taxable amounts
where there is a charge per unit. The user has the option of specifying the unit to be used. Place a
tick under 'Taxable to make the payment taxable.
Expenses - Use the 'Expenses' button to set up a code to process non taxable earnings or
deductions. The User can set up the code so that when processed the amount comes through as a
non taxable addition, a deduction or an amount that the User can determine at the time of
processing whether it should be a positive or negative amount.
Benefits
Benefits
A benefit is the value, for tax purposes, of a service or benefit that an employee receives from
employment. The value of the benefit is taken into account in the calculation of PAYE eg.
Company car, house or loan benefit.
Employer
Company

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You need to set up a code to process amounts paid by the employer on Behalf of the employee.
These amounts are reflected on the pay slip but do not affect the net pay. These transactions may
be processed in order to highlight to the employee employment costs incurred on behalf of the
employee.

Tax Codes
AIDS LEVY: Set up a code to process Aids Levy. The levy percentage is entered under the 'Tax'
option under the 'Setup' menu.
PAYE :Use the 'PAYE' button to set up a code to process manual entries/ adjustments to PAYE
or Aids Levy. This code may also be used when loading opening balances onto a new payroll.
The system prompts the User to enter whether the deduction will affect net pay, or not. This has
been included to cater for instances where the employer has paid the tax on behalf of the
employee and should therefore not affect the net pay.

THE END

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