More often than not, the true cost of time, that is, the hourly rate of each person working on a project has never been accurately calculated and therefore not factored correctly into the quotation price, including overheads that are paid annually and profit. Owners forget that they too are selling time in managing the project, but more often than not, include the cost of their time as part of the profit.
Many business owners do not realise that part of what they do is sell time and they do not consider calculating how much their hourly rates and those of their employees are. For example, take a small artisan ice-cream producer who has two employees who mix the ice-cream ingredients and place the mixture into ice-cream machines all day, while the owner spends half of every day supervising this process.
The employees are selling time and the owner is selling a half day of her time every day. They are not just selling ice-cream. These costs should be factored into each ice-cream tub’s selling price.
In simple terms, hourly rates are calculated using the employees’ annual remuneration package, including benefits such as medical aid, provident fund contributions and travelling allowances, company contributions to statutory obligations and overheads plus profit divided by the average labour capacity in a year.
To simplify this, here is the equation:
Annual Remuneration + Benefits
+ Company Contributions
+ Annual Company Overheads + Profit
If the owner of the business is providing the service personally, the remuneration should be market related and relevant to the years of their experience as well as the skill level and risk attached to the actual service being provided. For example, in the medical profession a cardiac surgeon provides more complex services and carries more risk in his work than a general practitioner and would therefore have good reason to demand a higher fee or hourly rate.
Depending on the industry, some element of an employee’s day will be unproductive as it is unreasonable for any person to be productive for a full eight hours, particularly in a high-skilled industry.
That leaves just 14 working days a month when averaged over a year. That’s right, less than three weeks a month.
Make sure that you recalculate your hourly rate and that of your employees each time there is a change in remuneration or benefits. The remuneration paid to employees who do not directly generate income, such as receptionists, administrators and sales personnel should be included under overheads.
If the hourly rate costing is correct, each employee’s true productivity can now easily be measured against the income they directly produce or have contributed when compared to their remuneration package. This provides useful information when conducting employee appraisals and addressing pay rises.
Related: How to Get the Better of Debt
If your business is selling a service or any part of a service, when last did you ask your accountant to assist you in checking your hourly rate and that of your employees?
Save Your SME Money With A Good Payroll Management System
Not only does an efficient payroll system enhance staff morale and boosts your reputation, it can also save your business significant costs.
Payroll solutions are designed to help hone the strategic focus of your business’ HR department, by shifting HR and payroll managers’ from paperwork to developing and motivating employees.
“The biggest potential saving comes from full compliance with tax and labour laws and regulations,” says Ania Strydom, Compliance Specialist at Sage. “Avoiding the massive costs of fines, interest and penalties that a company risks if it doesn’t comply.”
Here are her tips for conducting payroll, saving money on a good system, and pitfalls to avoid that most SMEs don’t see coming:
Choosing a viable payroll management solution
- Look for a scalable product that can grow alongside the business
- Find a solution with full local support that is kept up to date with relevant labour and tax laws for the markets where the business operates
- Make sure the vendor has a proven track record and local reference sites
- Ensure that the solution is built on flexible modern technology that accommodates today’s trends — mobility and the cloud, for example
- Consider a solution with integrated employee self-service functionality.
Vital considerations when conducting payroll
- Ensure that the payroll department consists of people with a good knowledge of payroll and the required skills set to ensure success and compliance with payroll
- Instil a payroll environment that does not need regular review
- Conduct regular payroll compliance audits to ensure compliance minimises the risk of exposure.
How a good payroll management system actually save you money
- Using automated payroll software with employee self-service functions can help organisations save time as it diminishes the need for manual data capture, calculations, reporting or returns
- Rest easy knowing that automation reduces the possibility of human error, allowing businesses to focus on strategy, customers, and employee engagement rather than on red tape
- Payroll can help businesses understand how employees are contributing to profitability, what resources are needed, the cost for major projects, and identifying gaps or surpluses in their human capacity
- The risks of payroll fraud and incorrect payments are reduced by giving managers better visibility into transactions, providing an audit trail, and providing a set of controls, checks and balances
- The biggest potential saving comes from full compliance with tax and labour laws and regulations – avoiding the massive costs of fines, interest and penalties that a company risks if it doesn’t comply.
Avoid payroll errors SMEs typically make
- The use of manual solutions due to tight budgets. They should instead, look at affordable, cloud-based solutions that are priced per payslip per month instead
- Failing to enforce separation of duties. Different people should have responsibility for capturing payroll data and for managing access to the system as well as adding and removing employees from the payroll. Another person checking that the numbers add up could reduce risks of fraud and error
- Not keeping abreast of changes to tax and labour laws such as the Employment Tax Incentive.
EasyBiz QuickBooks – Business Management That Balances
EasyBiz QuickBooks – By Entrepreneurs, For Entrepreneurs.
EasyBiz QuickBooks are known for their business management software that makes accounting easy and the reason for that is EasyBiz was once a start-up business too.
Developed from the entrepreneurial spirit of Gary Epstein who wanted to offer small to medium businesses the opportunity to take ownership of their business success and growth by offering them an accounting package that would help them to achieve these goals.
EasyBiz have been there – done that, and are striving to share this knowledge and experience with their loyal customers to ensure that they bypass all of the possible pitfalls associated with the transition from being a growing business to a big business.
QuickBooks’ history in South Africa started 22 years ago, in 1994, when it was part of the Brilliant Accounting Software Company. In 2003 Softline Pastel merged with Brilliant and a year later QuickBooks was set up as a separate company within Softline.
Gary Epstein saw the value of this global brand and seperated from Softline by way of a Management Buy Out in 2005. Since then, guided by passion and a belief that this software truly lives up to its promise of making accounting easy, the company has gone from strength to strength in the South African market.
With over 50 000 users in South Africa and 63 Million around the world, QuickBooks has indeed gone from a relatively small business to a force to be reckoned with in the accounting and payroll software space.
This growth is not surprising when one considers the innovative and comprehensive nature of QuickBooks’ business software solutions. QuickBooks recognises the challenges that most small and growing businesses face – they have faced them too.
Many entrepreneurs, executives or managers are very good at what they were trained to do, but have very little idea about how the financial side of the business operates.
How many business owners and managers have you come across that can’t read a balance sheet? If you ask them why, they will always say that they rely on their CFO, FD, FM or accountant to tell them what’s happening to their business’s finances.
This lack of financial acumen has resulted in business owners being misled, which in turn has led to the demise of many businesses.
This is why QuickBooks not only developed accounting software that is quick to learn and easy to use (for operators as well as senior management), but it can also be accessed by different levels of a business, as the business grows.
Take for example QuickBooks’s latest innovation – the Business in a Bag concept – aimed at start up’s and fledgling businesses, this package includes software, a training manual, discounted training and mentoring (all at a very reasonable price) and has been devised to help new business owners to achieve their goals.
QuickBooks continues to focus on serving the needs of small and medium-sized businesses in South Africa.
There are no hidden surprises and of course, with QuickBooks’ legendary, easy-to-use interface that has made QuickBooks the choice of millions of users globally.
Their entrepreneurial spirit and understanding of the needs of their customers has certainly been a contributing factor in creating the massive support network that they offer to businesses, whether they are just starting out or managing exciting change and growth in their organisation.
Says Gary Epstein, MD of EasyBiz QuickBooks, “We are an entrepreneurial concern and know how difficult it is to start and manage a small business. On this journey, one thing is certain, without a good financial understanding and a feature-rich accounting package, most new ventures fail. We believes in assisting start-up and growing business and our goal is to help ensure that the entrepreneurial spirit of South Africa stays alive”.
How the Right Technology Makes DIY Payroll As Easy As 1-2-3
Madelein van der Watt, Development Manager at Sage Pastel Payroll & HR, offers a simple guide to easy DIY payroll with the right technology.
If you own a small business and employ people, making sure they’re paid accurately and on time each month is probably one of your biggest headaches.
After all, it’s not worth your while to pay a full-time resource to run a small payroll, while outsourced providers can be expensive and unreliable.
However, it’s simpler and less time-consuming than you might imagine to run your own payroll, provided you put the right tools in place.
Here are a few steps to follow to successfully process a SARS compliant payroll and pay your employees on time, and all in just a few hours a month.
1. Have the correct employee info
Ensure that you have up-to-date and accurate personal information for each employee, including:
- date of birth (age affects the tax calculation)
- banking details
- medical aid contributions and dependents (for tax credits).
Employee self-service solutions allow your employees to view and edit their personal information from a web browser or a mobile device. That means they can help you keep their records up to date, which can save you a great deal of time and inconvenience.
2. Get the basics done
Capture the basic data for each payslip that will remain constant each month, for example, monthly salaries, pension and medical aid deductions, and fixed allowances.
If you store this information in your payroll software or on a spreadsheet, you won’t need to recapture it each month.
3. Getting the variable payroll input
There are many fields on the average payslip that change all the time – overtime, bonuses, commissions, travel claims, and loan deductions or garnishee orders.
Some of this information might be on email, some jotted down on bits and pieces of paper, and some claims might still be outstanding. Use technology to bring order to the chaos.
Insist employees use employee self-service to submit their timesheets and claims for overtime and expenses, so that you will have access to the information in one place when you need it.
4. Calculating deductions
This is the most difficult, time-consuming and error-prone step in the whole process, particularly if you try do it yourself with a spreadsheet or a calculator and a piece of paper.
Rather invest in a reliable payroll solution. There are affordable options with flexible, per-payslip pricing.
The really good ones allow you to do your payroll at your convenience nearly anywhere you have access to the Internet. You can do your payroll from your tablet or smartphone while travelling as easily as you can from your computer at work.
Related: How to Survive The SARS Season
5. Producing a professional looking payslip – in paper or electronic version
Providing your employees with a proper payslip is a requirement of the Basic Conditions of Employment Act. If you make use of a software solution, you will be able to generate a well-designed payslip with all the information required by law simply by hitting the print or email button.
6. Reporting to SARS
Each month, you must report your Pay as You Earn, Unemployment Insurance Fund (UIF) and Skills Development Levy calculations to SARS, and of course, pay the money to the agency. You also need to send the UIF a list of your employees, how much they earn, and how much their UIF contributions are.
Payroll software will produce these reports in the correct electronic formats so you can email them or upload them to SARS’ e@syFile software.
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