CERTIFICATE IN PAYROLL ADMINISTRATION

(CPA)

Module

Course Design duration: 100 Hours

 TABLE OF CONTENTS

Contents
CHAPTER ONE INTRODUCTION TO PAYROLL ADMINISTRATION (8 hrs) ....... 1

1.1 Overview ....................................................................................................... 2

1.2 Defining Payroll Administration ..................................................................... 2

1.3 Payroll Challenges ........................................................................................ 4

1.4 Importance of Payroll administration ............................................................. 7

1.5 When Do We Use the Payroll?...................................................................... 8

1.6 Strategic Information from the Payroll ......................................................... 10

1.7 Importance of Payroll administration in Organisations ............................... 10

1.8 Payroll administration and the Reward Cycle. ............................................. 11

1.9 Why Manage the Employee Rewards? ....................................................... 13

1.10 Payroll Administrator Job Description: ..................................................... 15

1.11 The importance of ICT to Payroll administration ...................................... 18

1.12 Conclusion ............................................................................................... 20

CHAPTER TWO: PAYROLL OFFICE OBLIGATIONS (8 Hrs) ...................... 21

2.1 Overview ..................................................................................................... 22

2.2 Obligations: Internal Stakeholders .............................................................. 22

2.3 Obligations: External Stakeholders (statutory) ............................................ 26

2.4 Obligations to other external stakeholders .................................................. 30

2.5 Conclusion .................................................................................................. 30

CHAPTER THREE: METHODS OF PAYROLL PREPARATION (8 hrs) ......... 32

3.1 Overview ..................................................................................................... 33

3.2 Traditional methods ..................................................................................... 33

3.3 Modern methods ......................................................................................... 34

3.4 Payroll preparation: best practices .............................................................. 36

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3.5 Payroll preparation method - Ideal approach. ............................................. 37

3.6 Payroll Calendar.......................................................................................... 38

3.7 Conclusion .................................................................................................. 41

CHAPTER FOUR:PAYROLL RECORDS AND DATA MANAGEMENT (10 hrs) 42

4.1 Overview .................................................................................................... 43

4.2 Records Enabling Regulations .................................................................... 43

4.3 Benefits of a good Records administration programme: ............................. 44

4.4 Record life Cycle Continuum Concept ........................................................ 45

4.5 Payroll Data ................................................................................................. 46

4.6 Data Classification ...................................................................................... 48

4.7 Data storage, security and confidentiality ................................................... 48

4.8 Approaches to Data Security and Confidentiality ........................................ 52

4.9 Data Verification, Certification and Control ................................................. 52

4.10 Interface of Data with other Systems ....................................................... 53

4.11 Payroll Contingency and Disaster Recovery ............................................ 53

4.12 Conclusion ............................................................................................... 53

CHAPTER FIVE: PAYROLL MANAGEMENT CYCLE (9 Hrs) ............................ 55

5.1 Overview ..................................................................................................... 55

5.2 Data Collection ........................................................................................... 56

5.3 Payroll Input ............................................................................................... 57

5.4 Validation of Payroll Input ........................................................................... 59

5.5 Payroll Run Stage ....................................................................................... 60

5.6 Reporting and Payments ............................................................................. 61

5.7 Costing and Accounting .............................................................................. 63

5.9 Conclusion .................................................................................................. 64

CHAPTER SIX: INTRODUCTION TO PAYROLL ACCOUNTING (12 hrs). 65

6.1 Overview ..................................................................................................... 66

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6.2 Accounting concepts ................................................................................... 66

6.3 Payroll Accounting ...................................................................................... 67

6.4 What is Payroll Accounting?........................................................................ 68

6.5 Payroll Accounting Cycle ............................................................................ 70

6.6 Salaries Control Account ............................................................................. 76

6.7 Conclusion .................................................................................................. 81

CHAPTER SEVEN: OVERVIEW ON APPLIED PAYROLL LAWS (8 hrs).......... 83

7.1 Overview ..................................................................................................... 84

7.2 Labour Act (Chapter 28:01) ......................................................................... 84

7.3 Manpower Planning and Development Fund Act ........................................ 86

7.4 Overview and Analysis of the Standards Development Fund Act ............... 88

7.5 Overview of Pensions and Provident Fund Act ........................................... 90

7.6 Income Tax Act & Finance Act .................................................................... 90

7.7 NSSA Act and WCIF ................................................................................... 90

7.8 National Employment Councils & Trade Unions.......................................... 90

7.9 Other Legal Instruments .............................................................................. 91

CHAPTER EIGHT: TAXATION OF INDIVIDUALS (20 hrs) ............................... 93

8.1 Taxation Overview ...................................................................................... 94

8.2 Students Reference guide to Income Tax Act ............................................. 94

8.3 Taxation in perspectives ............................................................................ 95

8.4 Types of Taxes in Zimbabwe ...................................................................... 96

8.5 Taxation formulas and definitions.............................................................. 100

8.6 Treatment of Certain types of remuneration .............................................. 109

8.7 End of year adjustment ............................................................................. 115

8.8 Conclusion ................................................................................................ 117

CHAPTER NINE:INTRODUCTION TO PENSIONS ADMINISTRATION (8 hrs)119

9.1 Overview ................................................................................................... 120

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9.2 Overview of legislation governing pension in Zimbabwe ........................... 120

9.3 Pension Scheme ....................................................................................... 123

9.4 Types of pension schemes ....................................................................... 124

9.5 The structure of Zimbabwean Pension Industry ........................................ 125

9.6 Administrative issues on Pensions ............................................................ 126

9.7 Conclusion ................................................................................................ 128

CHAPTER TEN: PAYROLL PRACTICALS (9 hours) ................................ 130

10.1 Setting up & data Input (Masterfile)........................................................ 130

10.2 Validation process.................................................................................. 130

10.3 Process actual live payroll .................................................................... 130

10.4 Reporting and payments ........................................................................ 131

10.5 Payroll Direct Deposits........................................................................... 131

10.6 Period end procedures........................................................................... 132

10.7 Accounting ............................................................................................. 132

10.8 Year-end Payroll requirements .............................................................. 132

CHAPTER 11: REFERENCES .......................................................................... 133

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List of Figures
Figure 5-1 ...................................................................................................... 65
Figure 6-5 ...................................................................................................... 80

List of Tables
Table 3-6-1 .................................................................................................... 48
Table 5-6-1 .................................................................................................... 71
Table 6-5-1 .................................................................................................... 81
Table 6-5-2………………………………………………………………………….82
Table 6-5-3………………………………………………………………………….83
Table 6-6-1………………………………………………………………………….85
Table 6-6-2………………………………………………………………………….90

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STUDY GUIDE OVERVIEW

i. Introduction to the study guide:

ii. Minimum Entry Requirements
iii. Duration
iv. Assessment
v. Study Material
vi. Learning Objectives
vii. Learning Outcomes

I. Module Overview

The Payroll function in many organizations is being managed by employees who do

not have qualifications for this vital role within the company. The appearance of payroll
qualification courses has done much to raise the profile of the payroll professional. In
Zimbabwe, the Institute of People Management of Zimbabwe (IPMZ) offers payroll and
pension qualification.

This module introduces the role of Payroll Administrator and the demands of the job.
The role requires a knowledge of government legislation that sets out how payroll is
processed: In these modern days, employers must process their payroll using a
computerised system and submit information online to the bank on or before each pay
day and employers need to keep certain information about their employees. Tax and
other statutory returns need to be submitted timely to the respective bodies to avoid
penalties and surcharges. The payroll data must be posted directly into the integrated
accounting system or through journal entries. The guide also looks at procedures and
practices within the payroll department including procedures for ensuring that changes
to payroll records are properly authorised and the difference between positive and
negative payrolls and how the Payroll Administrator deals with them.

The importance of keeping payroll data secure and confidential including the relevance
of the statutory instruments like the Data Protection Act (UK). The role requires a
knowledge of government legislation that sets out how payroll is processed.
Employers must process their payroll on computer and submit accurate information to

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tax and other statutory bodies on or before each of the stipulated dates; therefore,
employers need to keep certain information about their employees. The guide also
looks at procedures and practices within the payroll department.

II. Minimum Entry Requirements

- Prospective students must be in possession of a minimum of FIVE O"LEVELS, or
equivalent, including ENGLISH Language and Mathematics/Accounts
- Prospective students must be at least 23 years, plus 2 years working experience
in the salaries field or Accounting

III. Duration
This is a 100-hour program. Delegates are required to attend at least 6 hours of
training per weekend or 6 hours of training during the week broken down to 2 hours
per day.

(A detailed calendar will be availed to prospective and registered students)

IV. Assessment
In between the training days, students are given assignments that they must do and
pass. There shall be an examination at the end of the course

i. Module Assignments will contribute 20% to the final mark

ii. Theoretical Exam will contribute 40% of the final mark
iii. Practical Exam will contribute 40% of the final mark.

V. Recommended Reading Material

i. Labour Act (Chapter 28:01)
ii. Income Tax Act (Chapter 23:06)
iii. Finance Act (Chapter 23:04)
iv. NSSA Act (Chapter 17:04)
v. Workmen’s Compensation Insurable Fund Act
vi. Pension and Provident Funds Act (Chapter 24:09)
vii. Manpower and Development Fund Act (Chapter 28:02)
viii. Standards Development Fund Act (Chapter 14:19)
ix. Basic Accounting modules/Text books
x. Human Resources Modules/ Text books
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 xi. NSSA Pension Study Material
xii. Payroll Management: A beginner’s guide – study book

VI. Learning Objectives:

The Certificate in Payroll Administration will help to;
- Outline the curriculum of the Payroll Administrators for the current and next
generation through certification.
- Promotes and uphold professionalism in payroll administration for the benefit of all
stakeholders.
- Imparting of specialised knowledge and skills to current, prospective payroll
personnel and associated professionals, as well as the training and experience
required to be effective payroll practitioners.
- The need develop and maintain appropriate remuneration services standards to
payroll stakeholders.
- Promote confidence in the skills and abilities of qualified payroll professionals.

VII. Learning Outcomes:

On completion of the Certificate, participant should;
(i) acquire the best practices on payroll administration
(ii) understand the importance of payroll administration in organisations.
(iii) exposed to laws applicable to remuneration administration and its levies.
(iv) understand records management process and theories
(v) methods of payroll preparation and payroll management cycle.
(vi) enhanced skills in payroll accounting and taxation principles.
(vii) an overview understanding of pensions administration

At the end of the course, students will be able to competently execute their
responsibilities and uphold the integrity of the profession. Managers who will have the
opportunity to complete the course will have greater understanding of payroll
administration processes and how critical the administration of employment benefits
is within organisations.

Flexibility in payroll technology and legislative compliance will be crucial to the success
of Payroll Practitioners in the future
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CHAPTER ONE: INTRODUCTION TO PAYROLL ADMINISTRATION (8 hrs)
 Key points
- Overview
- Defining payroll administration
- Payroll Dilemma
- Importance of payroll administration
- Where do we use payroll?
- Importance of payroll management in Organisations
- Why manage the employee rewards?
- Roles of a Payroll Administrator
- The importance of information communication technology to Payroll
administrator
- Conclusion
 Exercise

Unit Objectives
- create understanding of payroll administration and its importance
- .use of payroll information within organisations
- Importance of efficient and effective payroll administration for organisations.
- the purpose of reward management
- Key responsibilities of payroll personnel.
- Key functions of information technology to payroll administrators and how
to leverage it rewards administration.

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1.1 Overview
In the field of learning, payroll administration has largely remained on the
sidelines, despite being one of the oldest profession in the history of mankind.
From the Stone Age to Iron Age and to the current information age, human
beings has and still trading their labour. The relationship between employer and
employee is fulfilled by compensation, be in money or other benefits. The
complexity of processes involved in processing employee benefits in today’s
world, demands knowledgeable, competent and compliance conscious Payroll
Business Partners to help organisations achieve desired results.

Grayson Hopkins (2017) during South Africa Payroll Association Conference

highlighted that

“It is easy for one to state what needs to be addressed from a high level
perspective however; putting this into operation in an effective manner
is a far more daunting task. This is made difficult considering that payroll
departments not just in South Africa but worldwide must combat an ever-
changing technology, economic, political, social and legal environment”.

1.2 Defining Payroll Administration

To correctly define what payroll administration is, we need to first understand

what a payroll is. The Institute of Payroll Professionals (2007:04) defined payroll
“as the provision of advice, products and services to internal/external customers
which ensures that accurate and timely remuneration, statutory deductions and
entitlements are made in relation to the employees of an organisation”.
Administration on the other hand, is the range of activities connected with
organisation and supervising the way that an organisation or institution
functions. The administration of something is the process of organizing and
supervising it.

Payroll administration therefore, encompasses all the tasks involved in paying

an organization’s employees. It typically involves keeping track of hours worked
and ensuring that employees receive the appropriate amount of pay. It also
includes calculating taxes and social security pensions, as well as ensuring that
they are properly withheld, processed and submitted to the relevant authorities.
Depending on a company, a full range of other deductions may be calculated,

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withheld, and processed as part of the payroll process. Additionally, the
processing of independent (fixed- term, providing service as an individual)
contractor payments may fall under the same umbrella.

The specific tasks involved in payroll administration tend to vary according to

the unique needs of each organization. For example, services organisations
have workers that receive commissions in addition to salaries or who are paid
in foreign currency. In these companies, processing of commissions or salaries
in foreign currency to employee salaries is a part of payroll administration. For
some companies, it also involves assigning exempt or non-exempt status to
workers, adding bonuses, calculating overtime payments, and adhering to
applicable employment laws. Handling payroll-related problems are part of
payroll administration as well. If an employee is paid incorrect amount or
a salary payment fails to go through the bank, both issues are dealt with by
officials from this department. Likewise, tax filing and deduction errors are
payroll matters as well.

Employment benefits is a collective term for salaries and wages and benefits in
kind offered to employees in exchange for their labour. Strategic management
is about making key corporate decisions Payroll administration is key to
providing strategic management information on employee benefits, such as
overtime analysis, leave liability analysis report, payroll variance report period
vs period etc. The provision of accurate and current payroll information enable
management to make key and informed decisions that can effectively enhance
functioning of an organisation. It therefore follows that any organization that
considers its employees as a vital component of their business operations
should consider payroll administration as a very important function in its
operations.

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1.3 Payroll Challenges
The payroll profession has many challenges in Zimbabwe and across the globe.
The challenges range from administrative, certification, professional
recognition, technological and globalisation which have been and in some an
impediment to effectiveness and efficiency.

Administrative Overwhelm
Many organisations, especially small and medium enterprises, still process
payroll in-house manually. Processing payroll manually require a great deal of
paperwork and high degree of accuracy. The processing of payroll manually
creates an administrative burden for payroll and human resources staff. Errors
in data entry can create payment and compliance issues within organisations.
Manually tracking of employees' vacation and sick days within organisations
can be a task fraught with potential for mistakes, paper attendance registers
are notoriously prone to misuse and unintended errors.

Incompatible Software
Many payroll programs are not compatible with user requirements. Many payroll
softwares do not have built in gross up functionalities creating an administrative
burden for many payroll professionals of doing computation on another platform
and then upload on the in-house payroll software. Another example is for
traditional payroll softwares, the program used for master data and records
management, may be different from platform used for transactional processing.
Over the years have witnessed many time and attendance systems failing to
interface with payroll and master file. The challenges results to an organisation
migrating to a new system, which is compatible with time and attendance,
access control. Any many organisations programs used for performance
management, recruitment etc. are may not be compatible with the payroll
system resulting to increased costs for the organisation. The biggest challenge
is when the payroll system cannot be interfaced with the accounting system,
posting and accounting for transactions becomes a headache.

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Identity Challenge
The payroll function is one function, which is not easily identifiable within an
organisation, despite critical role, complexity and exposure. The function has
no singular identity, it either fall under finance, information technology and or
human resources. The lack of singular identity has resulted to dual reporting in
most cases within organisations and as a result creating operational efficiency,
mainly due to departmental power struggles within organisations. Few
organisation in Zimbabwe have the payroll person reporting to the Chief
Executive or General Manager. The major challenge from payroll personnel
experiences has been reporting to a finance person with limited understanding
of employment relations and its legal dynamics and reporting to a human
resource person with limited accounting and information technology
[Link] challenge mainly results to administrative inefficiencies, which
may result to suffocating potential.

A case of responsibility without authority

Processing is an enormous task, which involves transacting in huge data with
high financial impact. Payroll personnel in any organisation manage between
20 to 40% of organisation costs and in relation to government revenue;
individual taxation (P.A.Y.E.) for the year ended 2018 contributed 17% of total
revenue collection and “the Revenue head was the second highest contributor”
[Link]: ZIMRA 2018 performance report. A function tasked with
such responsibility should have authority and involved in key decision-making
processes within organisations and the country. Virtually no field that comes
near to payroll management, serve for finance personnel, when it comes to
financial responsibility and handling large sums of money on behalf of the
government.

Certification
Zimbabwe has become one the Countries including South Africa, Nigeria,
Canada, United Kingdom, America etc. that have institutions representing and
leading in certifying payroll practitioners. The absence of certifying professional
and academic institutions created a challenge across organisation of employing
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personnel without requisite academic and professional competences in
management of employment benefits. In many cases when the incumbent
payroll person left, replacement has mainly been handpicked either a person
with accounting or human resources qualification but with limited knowledge on
payroll administration. The challenge has resulted to many organisation being
heavily penalised by statutory organisations.

Professional Body
The absence of a professional body to govern the professional conduct of
payroll professionals is one of the challenges. Other professionals like; Doctors,
Accountants, Auditors etc. are highly governed by a code of practice that help
to create discipline. In South Africa, the South African Payroll Association
(SAPA) has a code of ethics, which every member is required to subscribe.
“This ensures that the body is made up of professionals who are committed to
a high standard of practice in their profession.” [Link]
mechanisms are required in Zimbabwe and some other countries, to ensure
that noncomplying members are brought to line or ultimately strike off the
profession. For example, those practitioners committing fraud need to be made
public and struck off the register of payroll professionals.

Globalisation, a case of multinational companies

Going global for many organisations has presented many challenges with
regard to finding the best way. Many multinational organisation face the
challenge of adjusting to the accurate, timely processing of payroll across
different legal jurisdictions, languages and currencies. In most cases, whereas
the goals of the business are global, remuneration factors may remain locally
determined. The challenge for payroll administrators in any other country will
be to fully appreciate the nuances of adjusting to taxes, reporting, and language
of another nation.

Data privacy and technology.

Payroll databases are a gem for hackers and cyber criminals due to so much
personal information. The challenge has increased since the 21st century as
result of internet. Even though many organisations are tightening on personal
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 sensitive information, many governments are failing to keep abreast with
technology.

Untimely Payroll Processing

the economic challenges on Zimbabwe from the end of the 20 th Century has
resulted to many organisations in Zimbabwe violating some part of Section 12A
and 13 of the Labour Act (Chapter 28:01). When it comes to paying employees
some businesses struggle to process their payroll in time. In some
organisations payroll is often pushed aside until absolutely necessary, but this
can lead to complications and may lead to unhappy employees, potentially,
legal trouble and penalties.

1.4 Importance of Payroll administration

The importance of payroll administration can be seen from the external and
internal relations that it has.

Externally
Employment laws are complex, and they continue to change with the changes
in governments, Technology, market trends and technology. The governments
through statutory bodies continue to have an influence into the administration
of salaries and wages globally as they continue to impose levies and additional
taxes on remuneration. Labour bodies also make their demands on salaries
and wages. As more and more of these stakeholders continue to push forward
their agendas, the payroll departments will continuously become more
important and complex.

Internally

Within an organization, payroll administration is necessitated by:

 Increasing employee demands
 The gaps in benefits preferences amongst employees within the same
Department or company.
 The need to have a standard, scientific, uniform and organized way of

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 rewarding employees.
 The need for information at one’s fingertips.
 Increased demand of various reports and support from other departments
or sections within the organisation i.e. advise taxation, cost maximising,
employee- cost ratio etc.
 Change in management information needs has influenced payroll
practitioners to be analytical driven in providing management with solutions
to costs and risk management.

1.5 When Do We Use the Payroll?

The existence of payroll can be appreciated from both internal and external
associations as detailed below;

Recruitment

Payroll can be a tool used to attract, recruit and retain the best-qualified and
most productive employees. This can be achieved through the implementation
and management of well-planned business procedures, pay structures and
remuneration policies. The information from payroll guide most organisation on
recruitment, mainly because cost of employment reports from payroll are
accurate on gender, grade, age, staff turnover etc. Such statistics from payroll
help an organisation to when recruiting, how to balance the current sensitive
issue on gender, how many employees nearing retirement by use of age
statistics and which grade level has the highest or lowest turnover, hence which
deliberate strategies can be applied to retain such employees. The rate of pay
reports from payroll guide the human resources personnel to assess whether
remuneration request from prospective applicants can be sustainable or may
not result to demotivation of other employees.

Performance Management

Payroll is also a tool for managing performance and productivity as it provides

the necessary data and information required for measuring employee
performance and reward them accordingly payroll system is vital for processing
the payments such as incentives, bonuses paid as part of the performance

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management process. Management use the payroll as a means of managing
performance and aligning business and individual goals and aspirations.

Absence Management

The cost of absence can be reflected in the payroll, by use of attendance trends
analysis report, thereby helping management to remedial action. In most
manufacturing organisations or time based occupations time management is
critical for results accomplishment, Most of the tasks are chain driven, the
absence on one employees or lateness affect targeted results, hence
organisation should be able effectively cost absence time. The attendance
trends analysis report also helps to measure manpower utilisation with
organisations.

Staff Motivation

By far, this is the most important use of the payroll. The payroll is the evident
demonstration by an organization that it seriously values its employees. Paying
employees accurately, consistently and on agreed pay dates helps employee
to plan, as a result increased motivation. Employees who are always paid late,
without consistency on pay dates and with errors on their payslips, are always
demotivated and reduces their work performance.

Labour Costing

Labour costs are an important factor of production. To accurately price their

products, business rely also on the information coming through from the payroll.
Absence of clear reports, which detail and categories earnings and deductions
according to their classes can result to poor accounting of employment benefits.
Poor recording of transaction may result to an organisation failure to properly
account for its profits and losses and may result to heavy penalties from
statutory bodies in the event of miscalculation of poor classification of earnings
and deductions, which are determinant of taxation.

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 Budgeting

Management use payroll reports to forecast and anticipate the labour cost for
the future. Such information helps management to anticipate the level of
production that is likely to be. In most organisation, payroll office is the source
of accurate figures of employment costs; hence, most remuneration budgets
are originated from the payroll office. The budget helps the organisation to plan
and management cash flows and commodities costing to eliminate operating
unprofitably.

1.6 Strategic Information from the Payroll

Some of the strategic management information that comes from the payroll
includes:
 Basic pay movements
 Overtime payments
 Company contributions and other benefits
 Cost of Employment
 Statutory obligations and other related expenses
 Leave liability
 Labour turnover
 Performance of payroll costs against budgets
 Retirement projections

1.7 Importance of Payroll Management in Organisations

Reward and compensation management has always generated much interest

to both employers and employees in organisation. Various theories of equitable
employee rewards have been put forward by various scholars of human
resources management and management in general. Interestingly, even the
politicians in the form of governments have had great influence in the field of
compensation and reward management.

In the middle of the twentieth century, Fredrick Taylor pioneered the first study
on reward management when he penned down the “instrumental theory”. He
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 recognised that getting results from people at work would always call for
managing their rewards. In his theory, he clearly stated: “It is impossible,
through any long period of time, to get workmen to work much harder
than the average men around them, unless they are assured a large and
permanent increase in their pay”. The passage of time has shown us that
Taylor was not at loss when he made this statement. People have worked and
will continue to work for rewards. Whether those rewards would be monetary or
otherwise is irrelevant. What is important to employers is how they will manage
those rewards.

1.8 Payroll administration and the Reward Cycle.

The process of managing employee remuneration goes through several

phases. The main phases are the analysis of current systems, development,
implementation and control.

Analysis of current system

Every organisation has some form of remuneration system in place, be it formal

or informal. To effectively manage the employee benefits, management need
to look closely at the current system. This process will require communication
with the employees on why there is a need to review the system. This
encourages buy in and helps to take off the suspicion, which employees might
have should management decides to change the system. If employees are not
happy with the changes, caution must be exercised if the changes are to be
introduced anyway. As a matter of advice, it might be wise to delay or shelve
off such a program of change. We should remember that in the analysis stage
we are also analysing the employees’ acceptance and the feasibility of making
such changes.

The change management process in remuneration management can be

influences by two major kinds of organizational change; circumstances driven
change and planned change to encourage growth and improvement. Below are
some of the eight critical steps, which may make change successful;

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 - Identify areas which require improvement
- develop a strong proposal to stakeholders
- plan for change
- Identification of resources required and acquisition plan.
- Communication/continuous engagement with all stakeholders
- Monitoring and managing of resistance, dependencies and budget risk.
- celebrate success
- Evaluate, adjust and strive for continuous improvement.

Development

This involves putting in place plans to the creation of a reward system. It

involves the drawing up of job analysis and descriptions. Drawing up job
descriptions requires extensive consultation with the persons doing the job.
Quite often, the human resource practitioner must filter out exaggerations from
the employees about their job to come out with the correct job descriptions.
Employees will often say a lot about their jobs and how important they are, to
be graded higher. Once job descriptions have been drawn up, an evaluation
committee will be set up to evaluate all the jobs in relation to each other within
and outside the organisation. Once again, it is the Human Resources Manager
or Officer who will head the committee.

Implementation

This involves putting in place the reward system or a job grading system/pay
structure. This stage presents challenges of its own too. The major activity of
the implementation stage is communication. For any reward system to be
successful, management should effectively communicate the benefits of the
system. Management must bear mind that they are dealing with employees’
expectations that may be true or false and hence the need to de-mystify any ill
conceptions of the whole process. It is not appropriate that communication is
made to the employees as a group and them followed by one-on-one
communication.

The first group to be addressed should be that of the Works Council and
workers’ committee members. The group address will normally explain the
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 general issues. It will be advisable that management explains that the
evaluation process is concerned with jobs and not individuals. The one-on-one
communication calls for discussions with the individuals. It is in the one-on-one
discussions that management makes known to the holder what grade his job
falls on and what are the rewards and demands of the job.

Control

Control involves monitoring, feedback and reaction. It involves the actual

process of doing things. It includes the everyday activities that are crucial for
any employee benefits Management system to continue in existence. It involves
the payment of salaries and wages to employees. Salary scales and job grades
are set in periods that are far in between. However, the actual processing of
pay and benefits are a monthly, fortnightly, weekly or, even daily activity. In the
control stage, we are concerned with maintaining the reward system
competitive and functional. Management gets feedback from the employees
through their representatives and then takes appropriate action. They will also
get information from external organisations and act accordingly.

Management will also monitor the whole system to ensure that it is not abused
and/or deliberately let it to fall because of non-usage.

1.9 Why Manage the Employee Rewards?

Organisations manage employee rewards for various reasons, which are

influenced by the nature, environment and vision of the respective organisation.
The management of employment benefits is also influenced by macro factors
that have an impact on an organisation, for example; political (government
policy, political stability), economic factors (profitability, disposable income
etc.), social-cultural factors (career attitudes, population growth, age
distribution etc.), technological factors (i.e. New ways goods production),
environmental factors (raw material availability, carbon footprints targets set by
government etc.) and legal factors (include advertising standards, consumer
rights and laws etc.). Below are some of the reasons;

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Re-enforcing the organisation culture
By rewarding those with the desired culture, organisations are, in fact, re-
enforcing that culture. It is hoped that other employees will see the benefits of
adopting a certain culture as they see those doing so being well rewarded.

Control of payroll costs

This is achieved through the establishment of salary bands and fringe benefits
that are relevant to the industry. Without a proper salary and wage
administration system it would be impossible to say which employee benefits
need to be controlled and whether the organisation is paying above or below
what other organisations within the same industry are paying.

Motivating employees

Various theories have been put forth as to how to motivate employees. Fredrick
Taylor of the (Scientific Management Theory), pioneered the payment by
results methods and bonus schemes for motivating employees. Maslow came
with his theories of needs. Some scholars have advocated job enrichment,
others the monetary aspect of pay and recently the theories of flat organisation
for effectiveness and motivation. In all these theories there seems to be a
general agreement that money in the form of pay, plays a big role in the
motivation of staff. This supports John Stuart Mill (1806–1873)’s claim that
human being are homo economicus that is an economic animal, an individual
with interests and preferences and a rational capacity oriented to maximizing
those preferences, which are usually considered as self-regarding.

Professor Frank Horwitz summed it up by saying, “Exhortation and preaching

do not have a tangible and ongoing benefit. The old notions that money
does not motivate carry little credibility today”. True indeed, much can be
said on motivation, but we must remember that the main reason why most
people work is for them to earn money and thereby lead better lives.
Consequently, a well-managed reward system will be far more motivating than
any of the theories put forth.

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 Alignment of employee and organisation goals

Many times, during the collective bargaining, management (representing the

organisation) put forward their proposals on salary adjustments. The workers
also put their proposals, which in most occasions are different to those of
management. These proposals will be discussed until a compromise is reached
(or, to put it in other words, an alignment has been made between the
employees’ proposal and those of the organisation represented by
management). During collective bargaining, management and employees are
discussing and perfecting the reward system.

Throughout history there has never been a time or organisation in which the
employees’ and the managers, expectations have been in perfect agreement.
In most cases deadlocks are always there and arbitrations usually brings the
two together. The relationship has always been a forced one. Reward
management therefore functions as the means through which expectations are
discussed.

Industrial Harmony within the organization

If the reward system is properly managed, it will result in less industrial conflicts
and disputes between the employer and the employees. Most often,
employees resort to strikes because of misunderstandings with management
on reward issues. Industrial harmony is necessary for improved productivity and
business performance.

1.10 Payroll Administrator Job Description:

To make sure that people are paid correctly and on time. Performs all activities
necessary to process one or more payrolls, including maintaining related
records, filing tax reports, preparing accounting transactions and documents,
and preparing special reports for management.

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 Payroll Administrator Job Duties

Key roles of a Payroll Administrator include the following;

- Responsible for the preparation and processing of the monthly payroll,

fortnightly, weekly or daily. (This includes the entire cycle of payroll
processing from capturing of new employees, leave, terminations and check
and authorise claims)
- Review and ensure accuracy of approved advances, travel and overtime
claims;
- Responsible for the coordination between payroll and human resources, to
ensure proper flow and maintenance of employee data
- Handle the administration of the Biometric system
- Maintain employee records; ensure that employee changes are entered
correctly and made on a timely basis; review changes for proper
authorization.
- Generating reports for payments e.g. PAYE returns and other third parties
- Maintain a proper document control system
- Keep abreast with company policies and statutory legislations that impact
on remuneration
- Prepare month-end journals and reporting integrating to the financial
system. including preparation/distribution of detailed reports, e.g. expense
claims, overtime, leave balances, head count, and month end reports)
- Communicate payroll changes to the HR Manager/Director and Financial
Manager/Director and on time
- Office Management – Maintenance

Payroll Administrator Skills and Qualifications:

Effective and efficient delivery demands certain critical expertise and requisites
as indicated below.

- Three plus years in a Payroll Office, performing all payroll functions

- Excellent skills using MS Excel, and Internet Explorer
- Strong skills using and understanding the flow of transactions in an integrated
and automated payroll accounting system

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- Ability to maintain confidentiality and exercise extreme discretion
- Excellent problem solving/judgment skills, and high level of attention to detail
and accuracy
- Strong organizational skills, and the ability to work independently and under
pressure
- Ability to handle and prioritize multiple tasks and meet all deadlines

Key success factors of Payroll Professionals

Both managerial and operational payroll personnel have the task to raise the
status of profession further. Below are some of the attributes, which a payroll
professional should have;

Business and
professional Values Personal expertise
management
• Customer focus • Integrity • Managing self
• Commercial • Analytical thinker • Social awareness
awareness -be a • Accuracy -attention to • Social skills
business partner detail • People skills
• Results deliver • Confidentiality • Persuasion
• innovation • Punctuality - time • Assertiveness
management • Creativity

Payroll professionals should know that, both internally and outside the
organisation, they are ambassadors of the organisation and should uphold and
maintain highest level of integrity.

Payroll Professional mandated authority

The payroll officers in most organisations, in both developed and less
developed countries, has inherent response-ability and yet in many
organisations, does not have the corresponding authority. The internal authority
payroll personnel have is either, guided by organisational policies or referral
through human resources or finance. the response-ability of the payroll
professionals comes from a bound of legal instruments which include; Income
17 | P a g e
 Tax Act, The Finance Act, Manpower Planning and Development Act, Labour
Act, National Social Security Act, court of law (for garnishee orders) etc.
Through the various Acts of parliament, the payroll personnel power is
unquestionable and obligatory. Deductions like income tax, National Social
security pension, Worksmen insurable employer contributions, manpower levy
etc. are not negotiable, whether stated in a contract of employment or not, it is
a statutory requirement.

1.11 The importance of ICT to Payroll administration

Any business with employees should have a payroll process establishment;

payroll is often the largest expense for a business. An effective and efficient
payroll process will ensure that employees are paid accurately and consistently,
keeping them satisfied with this aspect of employment and allowing Human
Resources to focus on other areas. Payroll seems simple at its core but
becomes complicated because of the various statutory compliance demands
that comes into play. Employers must withhold taxes from each pay cheque
and make sure accurate funds are paid to the correct government agency.
Employers may also be responsible for deducting and paying premiums for
insurance and depositing funds into retirement accounts or to selected
charities.

Payroll processing duties can create a huge burden and unwanted stress for
small business owners and can be overwhelming for large businesses. A
missed deadline or incorrect filing of taxes can result in fines or jail term. To
avoid these issues, small, middle-sized, and large businesses can all benefit
from using payroll systems.

Computerised Payroll system

A computerised payroll system is software designed to organize all the tasks of

employee payments and the filing of employee taxes. These tasks can include
keeping track of hours, calculating wages, withholding taxes and deductions,
printing and delivering cheques, completing direct deposit, paying premiums to
insurance carriers, and paying employment taxes to the government. Payroll
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software often requires very little input from the employer. The employer is
required to input employee wage information and hours—then the software
uses the information to perform calculations and deduct withholdings
automatically. Most payroll softwares are updated whenever a tax law changes
and helps to remind employers when to file various tax forms.

Successful implementation of alternative compensation is contingent upon

having accurate data. After accuracy has been determined, collecting, storing,
and using data accurately to inform and distribute compensation is critical.
Without computerized records, the human resources and payroll departments
would be forced to search all personnel files to obtain the data used to generate
a payroll register. Numerous mathematical computations would also need to be
performed to figure the amount of net pay for each employee. This manual
process would be nearly impossible for medium- and large-size companies that
disburse hundreds, or thousands of employees pay cheque each period. It is
clear that computer technology can be a necessary ally of the payroll process.
Because of the modern pressures to cut costs and competitive nature of the
business world, many companies require their human resources and payroll
departments to process massive amounts of employee data in extremely short
periods. Therefore, even the smallest companies may find it worthwhile to
enhance their payroll processing with computerized systems.

Routine payroll processing occurs at specified time intervals—namely, the

weekly, biweekly, or monthly pay dates. Because of this infrequency and the
sequential nature of the payroll process, many companies find that batch
processing is well suited for payroll activities. With batch processing, the human
resources department is responsible for keying employee information into a
personnel master file, and the timekeeper can accumulate.

The computation of tax under the manual payroll approach is a process, which
is quite tedious for most personnel and require in-depth understanding of
classification of earnings and deductions and how they are applied on tax
tables. High accuracy and consistency should be achieved for full compliance
to be achieved. Computation of tax when using a computerised payroll package
is quite easy, however high accuracy and consistency on coding and
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 categorisation of earnings and deductions should be achieved to eliminate
inaccurate results. For more detailed analysis of taxation, computation and
categories of earnings and deduction, ref to Chapter 8 (Introduction on Taxation
of Individuals).

1.12 Conclusion

In simple, payroll administration is critical for any organisation’s success. Like

accounting, the payroll function is responsible for handling complex
transactions on behalf of employer, statutory bodies and other organisations.
In Zimbabwe Payroll Administrators function helps the government revenue
collection efforts, through proficiency in computing Pay As You Earn (PAYE),
pensions deductions, medical aid, manpower levy etc. PAYE in Zimbabwe
contributes an average of twenty percent to Consolidate revenue fund.

 Exercise
1. In about 1000 words, detail the importance of payroll management in your
Organization.
2. Write a Payroll Clerk job description and an analysis of the person’s key
attributes.

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CHAPTER TWO: PAYROLL OFFICE OBLIGATIONS (8 Hrs)
 Key points

Overview
Internal Stakeholders
- Obligations to human resources
- Obligations to accounting
- Obligations to auditing
- Obligations to employees
- Obligations to the organisation/employer

External (statutory) Stakeholders

- Obligations to National Social Security Authority
- Obligations to ZIMRA
- Obligations to ZIMDEF
- Obligations to Standards Development Fund
- Obligations to Pension funds
- Obligations to National Employment Councils & Trade Unions

Other Stakeholders (Non - Compulsory)

Conclusion
 Exercise

At the end of this chapter you should be able to state clearly the obligations of
the payroll department to statutory, financial, insurance and assurance
institutions, other business organisations and functions including individual
stakeholders. As you read through this chapter, try to put the various thoughts
and suggestions mentioned in the context of your organisations. You may as
well view these obligations in the context of deductions that are done through
2.1 Overview
the payroll of which some are judicial and meant to bring justice or compensate
those who were wronged or disadvantaged in the form of garnishee orders or
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court directives.
2.1 Overview

The payroll office has various responsibilities, to both internal and external
stakeholders. Internally payroll office has the following stakeholders; employer,
employees and functions that relate to the office on daily, weekly, monthly or
annually basis including finance, audit and information technology. Externally,
responsibility of payroll office is either statutory (Trade Union and NEC dues,
garnishees, court orders etc. or voluntary such credit deductions arranged by
management.

2.2 Obligations: Internal Stakeholders

Payroll office has two key internal stakeholders; namely the employer
represented by various departments or sections and the employees. Key
payroll office internal stakeholders who represent the employer; human
resources, finance, audit, Information Technology etc. The employees are
either self-representative or by workers’ committees, human resource
department etc. The purpose of the payroll office is to serve the employer and
employees on provision of service delivery focused on payroll processing.

Quite often, the Salaries Administrator has an obligation to provide employment

costs advice to Human resources staff, finance, management and employees
as well i.e. overtime costs, leave liability, absence costs etc. The expert advice
encompasses how to manage the pensions, salaries and loans in general. The
payroll department/section may be called upon to offer advice as to how some
benefits may be structured to minimise the tax impact on employee salaries.

Obligations to Human Resources

To provide a service on recruitment and employee termination. In most

organisations, the Human Resources Manager has a duty to recruit, select,
place the right candidate into the organisation, manage, create harmony within
the organisation and train and development off staff. After this, it then becomes
the duty of the Salaries Manager or Administrator to make sure that all the
necessary information about the new employee is available to enable the

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payment of such an employee. In effect, the payroll department/ section has
the fundamental obligation to ensure that an employee’s full information is
available and that the employees are paid correctly and on time. In most
organisations the payroll office has the most up to date information with regards
to employees i.e. bank details, date birth, addresses etc., therefore its becomes
the duty of payroll officers to compliment through exchange of such information
with the human resources function.

Obligations to Accounting

Financial accounting theory focuses on the “why” of accounting – the reasons

why transactions are reported in certain ways. Most introductory accounting
courses cover the “what” and “how” of accounting. These include hundreds
of journal entries, gaining familiarity with all the common accounts that
companies use, learning how financial statements are put together, and how to
calculate the proper debit and credit amounts. Provision of financial data is
critical. The cost of employment is a major component of any business or
organisation. Companies must know the cost of employment to accurately price
their products and services. It is therefore important that, the pay office supplies
accurate figures to accounting. Information supplied to the finance department
includes the total cost of employment, i.e. gross salaries and company
contributions, statutory liabilities and non-statutory arising from the payroll. This
information is supplied to finance through a general ledger interface that is
usually integrated to the accounting system or via manual journals done by the
payroll officers. Additional information that may be supplied by pay office to
finance includes provisions for leave, bonuses and overtime.

In addition to obligations to accounting, managing staff loans is also an

accounting related obligation. In several organisations, the pay office does also
administer the staff loans. At the end of the month or pay period, the pay office
will have to provide a reconciliation statement to finance department showing
the interest charged, deductions made and the balances. In most companies,
staff loans will fall into car, house, or welfare loan. Short-term loans can also be
provided and reconciled for by the pay office.

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Obligations to Audit

The pay office or salaries is by far the most audited section in the human
resources department by internal and external auditors or statutory bodies. This
is meant to ensure that statutory laws and company policies and procedures
are complied with in relation to employee benefits. This is understandable,
because the payroll costs take up the largest portion of business expenses.
The pay office must therefore assist the audit to ensure that all laid down
company policies and controls regarding payment of salaries and issuing of
loans are strictly followed. The pay office is expected to put in place reasonable
checks and balances with in it, which are in line with statutory and company
policies and that serves as health checks.

To provide information to audit department as and when required and cause

such information to be well stored and organised to be easily retrieved. In
several organisations, there is conflict between the audit department and pay
office. This is caused by the general lack of understanding of each other’s roles.
However, the two departments/sections must compliment and assist each other
to safeguard the company funds from fraud through the payroll.

Obligation to Employees

A pay office’s major obligation is to provide a service to the employees who is

the main client/customer within an organisation. To this end the payroll office is
obliged to process and accurately pay the amounts due to the employees.
Further to accurate processing, salaries must be paid on time. In paying
salaries, the adage “Expectation delayed is an affliction to the heart” holds
true. In fact, our experience over the years has shown that it is better to pay on
time even though the payment figures are wrong. The pay office must at all
costs avoid unnecessary delays and postponement of payday. When an
employee is not paid in time he/she might go on strike or might not provide a
full day’s work. Either way production will be affected. When production
declines, very few products will be delivered into the market.

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Obligations to the Employer

The major obligation to the employer is to ensure that employees are paid on
time.
Keeping the employees’ information confidential is fundamental responsibility
of any pay office. The pay office is perhaps the only office in an organisation
that holds sensitive information of all the employees. Good work relations in an
organisation can be compromised, if sensitive employee information is divulged
to persons who are not entitled to that information. In fact, any salaries officer
who cannot keep information confidential is guilty of breach of his/her terms of
employment and severe disciplinary action must be taken against the person.
Maintain and keep an up to date personal and employment data. If you are a
line manager and require information about employees in your department,
have you ever felt the frustration of not getting it or being given out of date
information?

The salaries office has an obligation to ensure and cause that up to date
information is kept. It is strange that in most companies, assets such as
company cars, and computers can be easily accounted for and full details
provided at the press of button and yet such is not the case with the human
resources. What makes the whole thing strange is that human resources are
the most key assets of production. The salaries department needs to be pro-
active in keeping employee information up to date. While it is easy to keep up
to date banking and pay information, personal data such as employee
addresses may not be easy to keep up to date. If a pay office is pro-active in
maintaining up to date data, then it must devise a mechanism to collect such
data. Some organisations have made it a requirement that every after, say six
months, they send out forms and employees asked to complete and update
their personal data. Whatever the system will be chosen, the important thing is
that employee information must be correct and relevant all the time. Some
human resources practitioners argue that this is the responsibility of the human
resources personnel, however a salaries administrator does play a big role in
ensuring that there is equity in employee benefits. In large organisations, it is
impractical for the personnel officer to keep track of changes in employee
benefits, in the absence of human resource management information system.
25 | P a g e
 This, though, is relatively easy for the salaries officer as he deals with benefits
payments every day and mostly because many organisations give
computerisation priority to payroll than to human resources function. The
salaries officer can easily spot disparities in benefits amongst employees. The
salaries officer will then have the obligation to communicate such anomalies to
the responsible personnel. To make any authorised deductions and cause
payment of such to creditors.

2.3 Obligations: External Stakeholders (statutory)

Payroll Office obligations to external stakeholders are mostly governed by legal

instruments and the obligations are in-form of employee deductions, employer
contributions and statutory returns.

Obligations to National Social Security Authority

Payroll obligation to the National Social Security Scheme are clearly stated in
the
NSSA Act. The payroll department, on behalf of the employer must;
- Cause the submission of all employee data to the registrar of NSSA
- Collect and make NSSA payments,
- Disburse and cause the application of NSSA pension benefits,
- Effect the payment of Workmen’s Compensation contributions
- Reconcile membership records and ensure such accuracy.
- Maintain records of deductions made, returns and payments submitted.

Obligations to ZIMRA

Every employer in Zimbabwe is required to abide by the requirements of the

Income Tax Act and the Finance Act. According to the Income Tax Act, every
employer (through the payroll department, is obliged to:
- Cause the accurate calculation of Pay As You Earn (PAYE) from earnings,
- Collect and make PAYE and related payments to Collector of Taxes.
- Ensure that the organisation does not default in tax payments and returns.
26 | P a g e
- The employer must cause and effect accurate upkeep of employee records.
Issuance of employee’s annual tax returns (P6s),
- Submission of the annual tax return (ITF16) to ZIMRA.
- Maintain proper records of deductions made, returns and payments
submitted.

On all the obligations above to Zimbabwe Revenue Authority accuracy and

timelines should be adhered to.
Find space to discuss about issues such as motoring benefit, elderly credit,
housing benefit etc.

Obligations to ZIMDEF

The Zimbabwe Manpower and Development Fund (ZIMDEF) is a fund

established in terms of the Manpower Planning and Development Act (Chapter
28:02) and is administered by the Ministry of Higher and Tertiary Education,
Science and Technology Development, whose Minister is the Trustee of the
Fund. The role of the payroll office is to;
- Ensure correct manpower levy has accurately calculated (1% of wage
bill) Refer to details in chapter 7.
- Ensure the manpower levy returns has been accurately completed and
submitted on or before the 15th of each month and based on the wage-
bill of the preceding month.
- The payment has to been remitted on or before the 15 th of each month.
Based on preceding month figures.
- Comply on deductions and of remittance of student government related
loans granted under the scholarship scheme established under section
sixty-three of Manpower Planning and Development Act.
- Maintain records of deductions made, returns and payments submitted.

Obligation to Ministry of Trade and Finance

To the Ministry of Trade and Finance Development, the payroll office is

responsible for accurate deduction and timely submission of standards levy and
returns. The Standards Levy is administered under the Standards Development
Fund Act [Chapter 14:19]. The payroll administrator should ensure;
27 | P a g e
- Cause accurate calculation of the correct levy.
- Quarterly returns and payments are submitted as mandated
- January to March
- April to June
- July - September
- October - December
- Payments should be made within 15 working days of the quarter end
contributions (late payments will incur a penalty fee of 15%).
- Produces accurate records, pay roll or any extract therefrom or copy when
an as required under the Act.
- To comply with compliance inspectors.

Obligations to Pension Funds

There is no legal obligation on an employer to set up or contribute to a pension

scheme expect provided for under the National Social Security Authority Act
and any applicable industry based occupational pension fund. For example;
Construction Industry Pension Fund. In such cases, the obligation of the payroll
office will be;

- To cause correct deductions and facilitate remittance of such premiums to

the respective institution.
- Submit accurate records or monthly schedules of premiums.
- Update the respective institution in the event new embers or on withdrawal
of a member.
- Refer to Chapter 5 on pensions administration.

Obligations to Medical Aid Service providers

The relationship between medical aid service providers and employees of an

organisation may highly precarious considering that it is based on health and
life of individuals. The failure to remit deductions effected from a member to a
medical aid service provider by payroll personnel may result to lose of life or
permanent injury to the member or member-dependants. Therefore, the payroll
administrator should ensure the following;

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- Ensure accurate and update records of a member are submitted to the
respective medical aid service provider timely (in the case the employer is
responsible for coordinating).
- Ensure timely submission of monthly schedules
- Ensure timely remittance of payment or facilitate through finance office.
- Medical aid service provider is notified on time when a member left the
organisation (ensure observation of membership rules in such cases).

Obligations to National Employment Councils

Employment Councils under Part VIII of the Labour Act (Chapter 28:01) and
are in two forms; voluntary and statutory. On either of the two employment
councils, the employer through the payroll office has the following mandate;
- Deduct the correct levy from both the employer and the respective
employees
- Submit the schedule or records of deduction and payment or facilitate such
payment to the respective National Employment Council as required by law
(usually dates of submission vary from Employment Council to Employment
Council).
- Update an Employment Council on variation of membership on monthly
basis.
- Maintain proper records with regards to members to the employment
councils and all transactions related to the same.
NB: The Employment Council should be registered.

Obligations to Trade Union organisations

Section 60 of the labour Act provide for rights of membership of registered trade
unions, same applies to employment councils. Section 52 of the labour Act
highlighted that “For the purpose of fulfilling its obligation to represent the
interests of its members employed or engaged in the undertaking or industry
for which it is registered, a registered trade union or employers’ organization
may, subject to this Act, levy, collect, sue for and recover union and association
dues. Therefore, payroll officers on behalf of the employer have the following
obligations;

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 - “by means of a check-off scheme or in any other manner agreed between
the trade union and the employees and the employer or employers’
organization concerned” deduct union dues form registered members of the
union to a registered trade union.
- Remit the deductions together with the membership schedule (which
include names, membership numbers, remuneration and amount deducted)
to the respective union as per trade union timelines.
- Comply by ministry guide in terms of trade unions due.
- Maintain accurate and proper records of trade union members.

Section 54 of the labour Act clearly express the implications of failure to oblige
to, “Any employer who fails or refuses to collect union dues and transfer them
to the trade union concerned in accordance with this section shall be guilty of
an offence and liable to a fine not exceeding level seven or to imprisonment for
a period not exceeding two years or to both such fine and such imprisonment”.

2.4 Obligations to other external stakeholders

The payroll department has many more obligations with other organizations
such as the banks. To the banks, it is important that the salaries information
submitted for processing is correct and that it is submitted on time. Other
organizations, such as retail houses may make their own requirements too,
however they are not mandatory, except in form of court orders.

2.5 Conclusion

The role of payroll office is critical to any organisation. In most organisation

payroll related costs constitute to twenty –five plus percentage of organisation
revenue and one of the major cost drivers of an organisation. For an
organisation to achieve internal and external integrity, a person of highest
integrity should be given the custodianship of employee benefits process.

30 | P a g e
To bridge the gap between the employer and employees and regulators, a
Payroll Officer need to be aware of and examine the “changing currents” in the
business.

 Exercise

Briefly outline the effects of the payroll department failing to meet its
obligations both to;
(i) the employer
(ii) the employee.
(iii) Zimbabwe Revenue Authority
(iv) NSSA
(v) Medical aid fund

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CHAPTER THREE: METHODS OF PAYROLL PREPARATION (8 hrs)

 Key Points
Overview
Traditional methods
- Manual preparation
Modern methods
- In house payroll software
- Assisted in House preparation
- Full outsourcing
- Assisted on- line method
Payroll preparation best practices
Payroll preparation method- Ideal approach
Payroll Calendar
Conclusion
 Exercise

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3.1 Overview

Every organisation has a mandate to process salaries or wages for its

employees timely and accurately under the Labour Act (chapter 28:01) Section
12 and 13; however, the approaches vary from one organisation to another and
sometimes guided by specific circumstances for each entity including the
availability of skilled staff, company size, number of employees, payroll
frequency, level of control the entity desires to have on its payroll data.

Efficiency in processing a payroll has become a necessity for every

organisation to achieve compliance and harmony at the workplace. There are
three methods of payroll processing which can be group into two; the traditional
method and modern methods, Real Business Solutions (2018).

3.2 Traditional methods

The traditional method was common before 21 st century and associated with
the manual system.

Manual preparation

Prior to 2000, most organisations in Zimbabwe were using the manual payroll
system. The system was characterised by use of wages/salaries books, which
were bought from bookshops like Kingstone. The books were standardised with
options from basic to net salary.

At the end of month, the Human Resources Officers would collect completed
attendance registers from respective employee clusters and having been
approved by the Supervisors. Once the payroll office received the attendance
register from Human Resources, they would then start filling in the
salaries/wages book with details of remuneration and deductions. All
transactions were recorded manually i.e. in the event an employee was absent
the number of hours or days to be deducted was done by use of a calculator.

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 Advantage of the manual system

- Less costly for small organisations.

Disadvantages

- Laborious – for large organisations

- Rate of errors too high
- Costly for large organisations

3.3 Modern methods

Learning House Publication (2004) highlighted that, the information Age was
characterised by a rapid shift from industrial revolution to an economy
influenced by information technology, witnessed major shift from traditional
approach for payroll processing to technology-based approach. Statutory and
financial organisations started demanding payroll related date inform of
electronic or network based. Zimbabwe Revenue Authority in 1999, introduced
the final deduction system and recommended organisations to make use of
computerised software’s on payroll processing.

Below are the most popular methods of payroll preparation;

- In house payroll software’s
- Assisted in House preparation
- Full outsourcing
- Assisted on- line method (web enabled).

In - house payroll software:

Associated by purchasing or renting payroll preparation software from a Payroll

Vendor for use on payroll processing. Some organisations with programming
experts can develop an internal software for use within the organisation. The
employer’s payroll office is responsible for data collection, input capturing,
processing, reporting and payments in liaison with other department with the
organisation that is; human resources officers, finance and information
technology.
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Characteristics of in-house payroll system

An in-house payroll system has the following characters;

 Efficient and economical as less costs are involved, compared to other
methods.
 Elimination of computation errors.
 The presence of audit trail menu for tracking of changes within the system.
 Records are easily maintained and accessible.
 Computation of transaction is faster compared to the traditional manual
system.
 The user has great flexibility on data capturing, processing and reporting.

Assisted In-House payroll preparation

Assisted in house payroll preparation is an enhanced in-house payroll

preparation whereby, an expert is engaged by an organization to assist on
critical areas of payroll preparation, with an aim of increasing quality of work
and minimizing risk exposure. In most cases where an assisted in-house
preparation is adopted the following professionals are mostly engaged; tax
professional, accountants or an IT practitioner. Organizations which adopt the
assisted in-house method are mostly small business, that may have no capacity
to have full time experts within the organization.

Characteristics of assisted in-house payroll preparation

Following are the characteristics associated with assisted in-house payroll

preparation;

- Less costly than full outsourcing.

- Role clarity is enhanced
- Low risk exposure due to clear separation of roles and expert
knowledge on payroll risk areas I.e. taxation computation, payments
etc.
- The engagement of the expert may be costly if roles and time is not
clearly defined.

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 - The assisted in-house payroll preparation may be referred to as a
hybrid of in- house and full outsourcing payroll preparation methods.

Full outsourcing

Full outsourcing method is whereby, complete payroll processes are done by a

consulting organization usually Bureau service providers; for example, Salary
Service Bureau (SSB) for the Zimbabwean government, Payserv Zimbabwe,
Payroll Resource Consultants, Confidepay, Belina Payroll etc. The Bureau
service provider provides the labour and software’s (either rented or owned).
Under the full outsourcing, the service provider prepares the payroll and
submits reports to the client organization.

In most cases under full outsourcing the employer (client) collects the source
data i.e. personal master file data, overtime, leave etc.

Validation of the payroll is usually done by the client organization.

The service provider prepares the payroll and delivers the reports to the client
organization based on agreement between the two organization. In some
cases, the payroll bureau organization may remit creditors payments on behalf
of the client organization.

The costs associated with payroll service provision may vary based on
agreement between the organizations, number of employees involved and
frequency of payroll processing.

Full outsourcing may be practical, in most arrangements, the client organisation

retains the data collection, review of the payroll and payment functions. Such
arrangement results to duplication of roles, hence may be costly to the
organisation.

3.4 Payroll preparation: best practices

The following are some of the best practices of payroll preparation;

- To reduce errors, payroll preparation frequency should be reduced to few

periods i.e. daily, weekly or monthly.

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 - The payroll preparation processes should be consistent on all intervals; i.e.
develop standard operating procedures.
- Categorise your payroll input into batches, based on nature and frequency of
transactions, if you are responsible for larges payrolls.
- Develop a checklist and mark off completed process as you progress.
- Timeliness is critical. Preparation ahead of time should be a lifestyle and last
minute rush avoided as they increase errors.
- Employee data should continuously be updated as and when received. Last
minute updates should be avoided.
- Payroll variance analysis - Consistently analyse employees’ attendance hours
and compare with previous periods.
- Data backup should be done consistently, every time when a change has been
made on payroll system. A minimum of two backups per period should be a
standard. i.e. on external drive or flash and resident machine.
- Records should be maintained in a secure and lockable place.
- Separate files for each payroll or tax period should be maintained.
- Password should be setup for each user on payroll software and level of access
should be based on functions. Passwords be should be changed periodically,
make use of reminders.
- Limitation should be maintained to excess computers with payroll systems or
records.

3.5 Payroll preparation method - Ideal approach.

It is desirous for organizations to consider the following when considering which
payroll preparation method to use.

- Choose the method or software’s that fits your organization needs

and vision i.e. size, budget and interface with other internal business
operating systems. Choose a method that cost less and best serves
your organization use.
- The method or software should be user friendly

Below are some features of good payroll preparation software:

Ideal payroll preparation systems should have some of the following features.

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 - Easy to install
- User friendliness
- Capacity to accommodate small to large number of employees and the
ability to accommodate future growth and expansion.
- Trouble-free on updating; even when using internet-based platforms.
- Flexible on backups and restore functions.
- Ability to produce statutory, monthly, quarterly and annually reports with
customized features.
- Less costly on support- preferable online or offsite support.
- Customizable to fit organization requirements.
- Flexibility on reports printing.
- Ability to generate reports or data to export in any preferred format or post
into an accounting software of choice.
- Compliant with internal polices and statutory requirements.

3.6 Payroll Calendar

A Quick Guide To Payroll Basics by Real Business Solutions Makers of Payroll

Mate, W2 Mate, and 1095 Mate ([Link]) highlighted that “payroll
calendars are an essential tool for payroll administrators, allowing them to
schedule tasks and see at-a-glance upcoming deadlines and requirements.
Yet, calendars are notoriously under-optimized tools. From limited integration
and sharing options to underwhelming templates, most payroll schedule
systems suffice as a visual layout of due dates but offer little functionality to
help teams execute. They tend to be used separately and subjectively, enabling
individuals to enter the tasks they want without facilitating collaboration or
allowing others to see progress”.

In an increasingly integrated and dynamic payroll world, however, this isn’t

good enough. It is not difficult to imagine the possibilities calendars could
provide if they were designed to be shared and standardized, which is exactly
what more advanced global payroll platforms are offering teams today.

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 Sample Payroll Calendar Format

Table 3-6.-1

Month Closing date Input Payroll Reporting Pay Accounting

& year of documents capturing Run dates (reconciliation
receipting and submissions
from validation to finance)
stakeholders

Jan 05th 16th 20th 25th 25th 30th

2019

Feb 06th 16th 19th 24th 24th 28th

2019

Mar 05th 16th 20th 25th 25th 31st

2019

In contrast, a payroll calendar that is part of the payroll management process

and optimized for all stakeholders becomes a collaborative tool for task
management. The ability by the respective officer to highlight tasks completed
gives the opportunity to all stakeholders to monitor the process and if
automatically linked set alerts to persons responsible for next process to be
ready. The use of events filters helps you to view tasks and activities by time,
type, due date and more, giving better insight into the volume of work required
at each stage and enables the responsible office to manage time better.

Important Insights on Payroll Calendar

Optimized payroll calendars feature allows greater visibility into the payroll
processes as per below;

- Helps to monitor time spent on each task of the payroll process and create
understanding of how long various tasks may take and how that time varies
across your payroll (for multi payroll processors).

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- The optimized calendars may help you to see concretely which payrolls are
more complicated and even identify why, which helps you plan your month
activities.
- Additionally, if something is taking longer than usual, you will know and able
to investigate it.
It may be difficult to understand how the activities are impacted by varying
requirements of each payroll. For example, for multi – payroll processors,
deadlines can stack up, making relatively straightforward activities difficult to
manage concurrently. However, a comprehensive view of all events helps to
schedule more precisely, allowing extra time and avoid compounded deadlines.

Payroll Calendar Benefits

Organisations with payroll calendars may enjoy some of the following

advantages;

- Increased visibility not only to the Payroll Administrator, but also the
manager and other team members.

- Advanced calendar tools include audit trails that keep a verified record
events and the time required to execute tasks.

- Managers can see which events require the most time and even how t
hose timeframes vary across locations or requirements.

- They get a practical perspective of which payrolls are the most

complicated or challenging, which helps ensure workloads are properly
distributed across the team and that individuals can get the support they
need for more difficult tasks.

- In the event of failure to perform by another team member, accessibility

of a standardized calendar allows other team members to step in.

- In the event of long absence, the manager can be able to quickly

reassign the task to another person

Once a payroll calendar is agreed by all stakeholders, (good to have it done

during budgeting period) approved by Senior Management and shared before
the beginning of the year or placed on notice boards helps to avoid
shortchanging other stakeholders within or outside the organisation.
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 Other benefits of use of payroll calendar tools;

- Mitigating conflict
- Improves relationship amongst stakeholders
- Promote team effectiveness
- Increases engagement

3.7 Conclusion

An organisation usually chooses a payroll preparation method based on its size,

budget and strategy. There is no best fit for all, but most organisations adopt a
hybrid payroll preparation methodology, either a manual and an in-house
payroll software, partial outsourced and in-house payroll preparation etc. For
efficiency and controls to be achieved a robust approach should be adopted
which aim at producing expected results at a short period with no errors and
risk exposure.

A payroll preparation method which does not support an organisation’s needs

and strategy is a recipe for disaster for both the organisation and its
stakeholders.

 Exercise

Compare and contract benefits of in-house preparation method and full

outsourcing. Based on your analysis, recommend the best approach to your
organisation.

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CHAPTER FOUR: PAYROLL RECORDS AND DATA MANAGEMENT (10 hrs)

 Key Points

Overview
Records Enabling Regulations
Benefits of a good Records administration programme
Record life Cycle Continuum Concept
Payroll Data
Data Classification
Data storage, security and confidentiality
Approaches to Data Security and Confidentiality
Data Verification, Certification and Control
Interface of Data with other Systems
Payroll Contingency and Disaster Recovery
Conclusion
 Exercise

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4.1 Overview

A record has been defined as “recorded information regardless of medium or

characteristics to depict on organization activities or transactions”. It can further
be defined as information created, received and maintained as evidence and
information by an organization or person, in pursuance of legal obligations or in
the transaction of business". (ISO 15489-1, 2001)

4.2 Records Enabling Regulations

Records administration in Zimbabwe for payroll professionals is guided by

various laws. Some of the notable statutory organizations used for records
management referencing by Payroll Officers are; Zimbabwe Revenue
Authority’s guided by the Income Tax Act (Chapter 23.06) Section 37B, which
highlight the following legal requirements;
- Employers should keep records for a minimum period of six (6) years
- The records during the period, be available and open for inspection by
ZIMRA officials.
- That records be available for retrieval, “in the original form or copied, by a
ZIMRA officer as may be required”.
- That in the event records are stored in a computer, ZIMRA officer (s) should
have access for inspection and/or be able to retrieve such records from the
computer or any other storage devices.
The law further emphasize that failure to maintain records as per legal
requirement, a penalty or prosecution may apply.

National Social Security Act (chapter 17:04) as supported by The Guide for
employers on Pensions and other benefits, published in November 1994 (Part
VI): “Record keeping by Employers, Periodic Inspections and Returns”,
requires employers to set up and maintain records for all their employees for a
period of at least five (5) years.

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 The Manpower Planning and Development Act (Chapter 28:02) Part VIII (60)
emphasizes on record keeping mandate of organizations.
According to the Manpower Planning and Development Act, any person or
organization who contravenes any provision of the law shall be “guilty of an
offence and liable to a fine not exceeding level five or to imprisonment for
period”

4.3 Benefits of a good Records administration programme:

Organisations with a good record administration system in place enjoys the

following;

- Increased efficiency and productivity;

- Protect organization from litigations;
- Availability of evidence of transactions for audit purposes and when required
by legal bodies;
- Preservation of the institutional memory of the organization;
- Facilitate continuity of operations in the event of a disasters
- To ensure that employment benefits be supported with authenticated,
maintained personal records.

Characteristics of records

Records are critical to organizations and such information presented to users

should be;
- Of high quality.
- Up to date
- Complete
- Sufficiently accurate for the required purpose
- Unambiguously understood
- Consistent
- Available when required.

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4.4 Record life Cycle Continuum Concept

The life of a record goes through phases, consisting of creation, classification,

maintenance and disposition.

- Creation Phase- the creation phase of a record involves records being

created, received and collected.
- Classification of a records is based on subject matter and category and
results allocation of file number.
- Maintenance period – the period is including; use, filling, duplication,
retrieval printing etc.
- Disposition phase of records life cycle include the assessment of whether a
records has reached its retention period. The assessment results to
disposition or retention.
- Preservation of records happens when, a record has been assessed and
determined that it’s a permanent records of the organization, therefore it
records archiving for future use. Most of payroll records used in payroll are
of permanent nature i.e. contract of employment, personal records, pension
deductions etc.

Records of temporary nature usually are stored, when the retention date is
reached, permission is sought from management to destroy based on
organization policy and statutory requirements.

Records Continuum Concept

The records continuum theory according to, Millar & Roper (1999) is seen as a
continuous process where one element of the continuum passes seamlessly
into another. The concept was developed after realization of the implied
weaknesses of the records life cycle concept, mainly on electronic records, led
to the development of the continuum concept. The continuum concept
embraces the view that records function simultaneously as organizational
collective memory right from the time of their creation

The Action of Record Care

Millar and Roper (1999) identified four action which persist throughout the life
of a record.
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 - Identification of records
- Intellectual control of records
- Provision of access to records
- Physical control of records
According to Millar and Roper (1999), the continuum principle highlight that the
difference between record and archive management does not need to be rigidly
maintained.

An organization should adopt an integrated records management system which

follows a records life cycle and also acknowledges the continuum concept of
caring for records.

4.5 Payroll Data

Payroll records or data like any other system comprises of input, processes and
output.

Payroll Input Data

Payroll data is classified based on the origin and/ or nature of the data. There
are two broad classifications of payroll related data, namely external and
internal data. The two divisions of data can further be grouped into transactional
and fixed data.

External data

External data in payroll office originate from outside the organization. There are
various organizations that provides data to payroll offices within the
organizations, which are; government organizations (ZIMRA, NSSA, Courts
etc.), financial institutions, which include banks, insurance companies, medical
aid institutions, legal aid societies, national employment councils and labour
unions. External data mostly is deduction in nature. Beside national
employment organization through collective bargaining agreements or court

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orders when disputes of payment arise between employer and employee, it is
rare for an outside organization to instruct an organization to pay its employees.

External data can further be divided into compulsory and non-compulsory;

Compulsory data mostly deductions because of court order (garnishees) and
employer is bound by to process for example;
- Maintenance garnishee orders
- Tax directives
- Other court orders

Non – compulsory salary data – the employer has a choice to accept or refuse
to process the deduction. For example;
- Voluntary individual insurance scheme
- Hire purchase deductions

Internal data

The data originates within the company either from employer or employees.
Internal data varies from company to company based on internal policies.
Organisations are at liberty to come up with any form of allowance and effect
lawful deductions against employee’s remuneration. Internal data forms the
bulk of payroll data.

Input Mix

The ratio of external to internal data varies from one organisation to another
and explicitly no rule governs data distribution. Organisations with high volume
of internal data have high workload per payroll officer, because trends are that
high percentage of data is generated within the organisations.

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4.6 Data Classification

Payroll data can be classified into two, namely; transactional and fixed data.

Transactional data
Volatile in nature and changes almost weekly or monthly based on payroll runs.
Examples of transactional data are; overtime hours worked and leave days
taken.

Fixed data

It is permanent in nature and rarely changes. Examples of fixed data is; name
of employee, identity number, date of birth, basic pay etc. Most fixed data is
captured in the master file parameters, whereas transactional data is captured
on payroll system’s input menu.

4.7 Data storage, security and confidentiality

Payroll data is highly sensitive and therefore it should be kept securely with
utmost confidentiality. The basis being that; payroll data mostly personal with
employment facts. Once payroll data has been collected, processed, reported
and accounted for, it is a requirement that is should be maintained securely
from access by unauthorized personnel. Payroll office should regard
confidentiality as an ethic.

Payroll information should be kept securely for various reasons, some

highlighted below;
- It is a statutory requirement as detailed in the Income Tax Act (Chapter 23.06)
Section 37B.
- Need for future reference.
- To promote organizational integrity

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Traditional data storage method

The traditional approach to data storage has withstood the test of time.
Traditionally, data storage was characterized by making copies of documents,
emails, photos and applications and then storing them in a lockable drawer,
safety deposit box or archive facilities. It is impossible for an organization to
operate without physical records.

Modern Ways of data storage.

Data storage poses many challenges to organisations. The advent of new

technology has brought new twist to data storage. One of the major challenges
of modern-day data storage is hackers.

Many organizations have had challenges with data storage. The new
technological advances have brought a new methods of data storage.

Optical discs

Optical discs are one of the most common storage means for payroll rated data.
Most people prefer writable Compact Discs and digital versatile discs of which,
Compact discs can hold data up to 700mbs whereas digital versatile discs up
to 4.7 Gigabyte. The blue- ray discs have a capacity of 25 gigabytes.

Advantages of optical discs:

- Low cost per discs
- portable

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Disadvantages of optical discs:

Below are some of the disadvantages of optical discs;

- Relatively shorter life span than other storage options
- Not as reliable as other storage options like external hard disc drive and
solid-state drive.
- One damaged disc in a backup set can make the whole backup
unusable.

External hard rives

Probably the cheapest and stores large sums of data, to one terabytes of
storage capacity. Advantages of hard disc drives over optical discs, are that
they are faster to read, write, and have a life span to eight years based on the
way they are handled. The limited lifespan makes them unreliable to people
who want to retain data for a long period.

Advantages of external hard drives:

Below are some of the advantages of external hard drives;

- Very good option for local backups of large amounts of data.
- The cheapest storage option in terms of dollars per Gigabyte.
- Very reliable when handled with care.

Disadvantage of external hard drives:

- Can be very delicate. May be damaged if dropped or through electrical

surge

Flash drives

Referred to as solid-state drives (SSDs) due the fact that, they are not
mechanical in reading and writing process. Small, makes them ideal for data
transfer between devices. However, they have a limited life span to around ten
years

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Advantages of flash drives:

Flash drives have the following advantages;

- Faster read and write performance
- More robust and reliable than traditional magnetic hard drives
- Highly portable. Can be easily taken offsite

Disadvantages of flash drives:

Flash drives can be associated with some of the following disadvantages;

- Still relatively expensive, when compared to traditional hard disc drives
- Storage space is typically less, than that of traditional magnetic hard disc
drives

Network attached storage (NAS)

Simply one or more hard drives plugged in a storage enclosure and connected
to a network Router or Hub through an Ethernet port.

Advantages of network attached storage:

Highlighted below are some of the benefits of network attached storage;

- Very good option for local backups, especially for networks and small
businesses. As several hard drives can be plugged in, and hold very
large amounts of data
- The drive is always connected and available to the network making the
Network attached storage a good option for implementing automated
scheduled backups.

Disadvantage of network attached storage:

Network attached storage are generally expensive than using single External
Hard Disc Drives

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 Cloud Storage

The future of data storage is cloud storage devices which include iCloud,
Goggle Drive, Microsoft One drive and Drop box. They cloud storage has
become most secure online data storage mechanism and its major advantage
is that data can be accessed anywhere as long internet connection is available.

Characteristics of cloud storage

Cloud storage has some of below characteristics;

- A very good offsite backup. Not affected by events and disasters such as
theft, floods, fire etc.
- More expensive than traditional external hard drives. Often requires an
ongoing subscription.
- Requires an Internet connection to access the cloud storage.
- Much slower than other local backups

4.8 Approaches to Data Security and Confidentiality

To achieve integrity in a payroll environment, the following should be practiced;

- Maintain a lockable environment i.e. filling cabinets, drawers etc.

- Loose documents should be kept in secured folders or files
- Soft copy spreadsheets with payroll information should be user protected.
- Passwords should not be shared – for computerised payroll systems or for
data on electronic media.

4.9 Data Verification, Certification and Control

The best approach to payroll data management is that, it must be validated and
certified. At each stage in payroll administration, data should be validated for
compliance, accuracy and authenticity. Payroll officers must ensure documents
for processing have gone through all stage of authorisation and validation. A
high rate of validation and enforcing authorisation, guards the organisation
against payroll fraud.

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4.10 Interface of Data with other Systems
Data from payroll office should be compatible for use by other various internal
and external stakeholders. To ensure compatibility the data should be
presented in such a way that, it is not difficult for use by other users on their
systems. For example; when using a payroll software, it should be able to be
interface with an accounting software, human resources management system
etc.

4.11 Payroll Contingency and Disaster Recovery

Disasters happen every day in our work places i.e. fire, theft etc. even though
insurance may be used to plan against such eventualities, we have never seen
avoidance of such disasters. In many life experiences relating to payroll
administration, computers disks at times failed when least expected i.e. when
disc has been submitted to the bank for processing of salaries. Eventualities
must be planned for; hence the need to have contingency plans for data
protection and recovery.

To mitigate against loss of information, which may result to disharmony

amongst employees’, below are some of the measures;
- Presence of manual system in place.
- Standalone payroll systems, though additional cost may be required.
- Storage of back up data offsite.
- Constant backups.

4.12 Conclusion

Records management should be able to provide an institution’s historical

memory, in helping the current decision making, which will shape the future of
organisations. Payroll personnel should understand the life cycle of records,
types and governing policies and statutes that guide creation, classification,
maintenance, use, disposition and preservation. Understanding of records

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management for payroll personnel help to effectively and efficiently manage
payroll related data.

 Exercise
1. With an aid of a diagram detail;
Detail record life cycle and explain the continuum theory to records
management.
2. What are the measures you can put in place to safeguard information in
your organisation, both hard copies and electronic

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CHAPTER FIVE: PAYROLL MANAGEMENT CYCLE (9 Hrs)

 Key Points

Overview
Data Collection
Payroll Input
Validation of Payroll Input
Payroll Run Stage
Reporting and Payments
Costing and Accounting
Conclusion
 Exercise

5.1 Overview

Any payroll practitioner should understand the payroll department processes

and what is involved at each stage. Payroll processing is not a click of a button
or a one-day event but coordinated functions which are successive in nature
and demand strict timelines both internally and externally. Payroll outcomes are
heavily penalised if accuracy and timelines is not achieved.

The assumption to many is “payroll is a click of button and payroll personnel

are underutilised”. The assumption is based on lack of knowledge with regards
to payroll administration.

The payroll management cycle topic will articulate set of phases involved in
processing the payroll irrespective of which method of preparation, software or
size of the organisation.

In general, there are four main phases involved in payroll processing. The
processes involved leads to, production of what many referred to as a “payroll”
from two words “pay” and “roll”. Pay meaning remunerate or compensate and
roll, cyclical or repetitive event. Therefore, a payroll refers to continuous
repetitive, periodic compensation of employment labour. The processing of

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 employment benefits is a recurring practice, however, contents in a cylinder
cannot be understood unless broken. The topic will outlay the stages involved
in the complete payroll cycle, as per below;

a) Data gathering
b) Data input
c) Input validation
d) Processing
e) Reporting and payments
f) Accounting

Figure 5.1
Summary of payroll administration periodic life processes.

• Data • Data Input &

Collection & Validation
compliance
- Receives & data - Computation, capturing
check nomendature and uploading of data in
payroll systems
- Review compliance to
company policy or Validation of captured data
statutory requirements -Approval of payroll
- Input schedules and Payroll
authorisation Run

- Journal posting - Production of reports

and returns
- Reconciling of
transactions - Submission of reports
- Facilitate payments
-
• Accounting • Reporting &
payments

5.2 Data Collection

More often the payroll office does not generate any source document for payroll
processing. The payroll office receives source documents from internal

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 departments, the practice in most organisations is that sources documents are
either produced or submitted to the Human Resources office which does the
initial validation and approval.

The various sources of data and variation of data require authenticity

verification, recording, classification and confirmation before initiating capturing
on system. All documents require proper authorisation before any capturing or
uploading happens.

5.3 Payroll Input

General Payroll Practitioners should the following key factors.

- Input compliance
- Classification of payroll input and authorisation
- Validation of payroll input

Input Compliance

Many times, compliance fails at this stage and this stage is the focus area of
auditors, as it is the origination of fraud i.e. ghost employees, non-existent input
(fictitious overtime hours, bank accounts etc.). The quality of payroll is
determined by the quality and compliance of source documents.

Review of source documents received against compliance with organisational

policies and statutory requirements is of paramount importance. Payroll officers
should be guided by internal policies and procedures which detail how input is
received, timelines of receipt, processes to follow when received and
registering documents received for future accountability.

Classification of Payroll Input and Authorisation

The first stage of data input is classification of input based on;

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-Source – is it internal or external (internal input has two sources; that is
employer or employees and eternal input either statutory organisations or non-
statutory) (refer to Chapter 4 on data classification)

- Frequency of receipt – both internal and external payroll input documents

are either transactional or fixed. Transaction input refers to input which changes
frequently and is voluminous in nature i.e. overtime. Fixed input data rarely
changes once captured for example personal data for an employee i.e. names,
registration documents, qualifications etc.

- Frequency of processing – usually the rate of processing or payment of

processing is also used for data categorisation. The grouping is based on either
it’s a weekly, monthly, quarterly or annual processing.

- Risk impact – the level of risk associated with input documents for payroll is
also used to classify data. Statutory input data is usually highly regarded due
to penalties associated when not adhered to.

Once the input has been classified, based on organisation policies it should be
authorised by management or representative before capturing on payroll
software. An input schedule should be prepared highlighting changes to be
effected on payroll; for example, number or list of new engagements,
terminations, remuneration changes, master data change etc. Basically, a
payroll reconciliation of employee numbers on payroll should be done before
input capturing. The purpose is to ensure correct number of employees should
be on payroll for the month.

To reduce rate of errors on capturing of input on system, computation of

intended transactions variations should be done prior to the actual capturing.

Guided by the requirements of the Labour Act (Chapter 28:01), for new
employees, the most important check on appointment letters relates to its
conforming to the below;

The Labour Act (Chapter 28:01) stated that; an appointment letter of

employment must:

1. Show the name and address of the employer and employee

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 2. State the amount of remuneration and its calculation and how it will be
paid
3. State the probation period if any
4. It must state the length of the contract, if it is of limited nature.
5. State the leave pay and its method of calculation.

Input Capturing and validation on payroll software

Capturing of input on the system has two complementary activities, namely,

data uploading and validation.

The capturing of data on the system has two methodologies, the manual
capturing, and systems driven. The manual process is whereby the payroll clerk
captures transaction by transaction on system. The system driven data upload
is whereby data is organised on a spreadsheet in a format required by the
system and uploaded in batch mode or single update mode. The mode of
processing is usually determined by the nature of data, volume of data and data
source.

A validation report is produced by the system, indicating irregularities or

alignment which may result to failure or success of the batch processing.

5.4 Validation of Payroll Input

Validation is the processes of reviewing information captured on the system
against the actual source documents or approved input schedules. Validation
is normally in two forms; manual and system driven validation.

The manual validation is whereby the payroll supervisor makes analysis of each
document used to capture input on the system against i.e. policy compliance,
calculation correctness, allocation of correct code (earning or deduction) and
probable outcome impact. Errors and adjustments are referred to the payroll
clerk responsible for correction. For processes integrity, the payroll supervisor
should not be allowed to adjust and make corrections on the system.

System driven validation of input is in form of audit trail reports analysis. The
audit trail reports are a function usually given to supervisors or managers for
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 them to be able to monitor variations or processes done on the payroll system.
Following options are some which may be used to validate changes done on
payroll system;

- Tracking by user
- By code
- By description
- By comparison to previous or future periods.

System driven validation makes it easy for the payroll manager to analyse
payroll movement by comparing previous period transaction against the current
and be able to interpret whether the input captured is correct. Further analysis
may be done in the event outcomes of the validation shows inconsistencies
between previous payroll, input and outcome.

Validation is basically a continuous process and the payroll manager or

supervisor should not wait upon receipt of actual input to validate. Poor
validation skills result to poor quality of payroll outcome.

Once validation process has been completed and the outcome is correct, the
final validation report should be approved prior to payroll processing. In other
payroll system the final validation report is same as the payroll run.

5.5 Payroll Run Stage

The payroll run process is mostly a short period, for computerised payrolls it is
activated by a pressing of a button. Timeline of payroll run depends on the
number of employees on the database and volume of data, connectivity (for
online based systems) and software. Usually is it takes minutes or a few hours.

The payroll run process may fail based on some of the following factors on
systems;

- Incorrect codes
- Incorrect set up of key parameters i.e. tax parameters
- Missing transactions

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 - Incompatible codes and transactions
- Database errors
- Negative income on some individuals.
- Lack of connectivity – for web-based payrolls.

When the payroll run has been completed the payroll, manager is responsible
for ensuring approval either on system, however good practice is to have an
approved hard copy for future reference, audit and in the event of eventualities.
The payroll manager should retain the approved original copy and copies may
be forwarded to finance department for payments planning and or human
resources for filling or referencing.

5.6 Reporting and Payments

The complete payroll run process is complimented by reports extracted from

the payroll system. The reports and their use vary from organisation to
organisation. Reports can be classified based on the intended users or statutory
requirement. Reports which are a statutory requirement are;

Statutory Reports

These can be grouped based on use and frequency; accompanying payments

which are usually informative. The reports accompanying payments are usually
monthly and quarterly.

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 Table 5-6-1

Name of Report Frequency Due dates

organisation

ZIMRA P2 Return – PAYE Monthly By the 10th day of

Summary the following month

ITF 16 report Annually 30th of January of

the following year.

NSSA P4A Form – NPS Monthly By the 10th day of

and WCIF the following month

P4C Return Monthly By the 10th day of

the following month

P16 return Annually 31st January of the

following year.

ZIMDEF Training levy Monthly by the 15th of the

remittance following month

Standard Standards levy Quarterly per quarter (15th

Development Report January 15th April
Levy 15th July 15th
October)

Remittance advice Monthly 10th of the following

month (however on
industry)

Zimbabwe Manpower Quarterly Within 21 days from

National Statistics statistics, quarterly date of issue.
Agency series of
(ZIMSTAT) employees

Disclaimer: Officers are required to continuously check with the respective

statutory organisation, to ensure total compliance.
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 The are other statutory report not highlighted above of importance. In addition
to above statutory reports, there are other reports required by various
stakeholders based on the relationship between the organisation and client or
service provider;

- Pensions remittance advice and monthly schedules

- Medical aid remittances advices and monthly schedules
- Funeral assurance remittance advices and monthly schedules.

In addition to the statutory reports highlighted above, a payslip to employees is

a statutory requirement as per the Labour Act. Employees are required to
receive their payslip on or before payday.

Other reports though not statutory but mandatory are as below;

Bank transfer schedules

Due to modern technology, banks no longer require hardcopies, but most

organisations are now submitting through Paynet system.

Some other internal reports

- Costing reports
- Coinage analysis (where salaries are paid in cash),
- Payroll summary
- Leave accrual and liability report
The list is not exhaustive and varies from organisation to organisation.
Additionally, reports may be printed according to request.

5.7 Costing and Accounting

In liaison with the Accountant, the payroll office is required on monthly basis to
provide reconciliations and costing reports to finance. The costing report detail
each transaction and costing centre. In other organisation the payroll office
produces an effort report, which detail the level of effort of each employee per
cost centre and the costing per each cost centre based on the level of effort
(mainly International Non-Governmental Organisations). The report in some
organisation is used by some to calculate productivity and future budgeting.
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 Based on the structure of an organisation, big organisations have payroll
accountants who are responsible for recording all transactions, payments and
reconciliations. The payroll office in other organisations is responsible for the
following accounting process;

- Journal writing and posting

- Salaries control reconciliations
- Payroll bank account reconciliation
Chapter 6 of the module details cost and accounting for payroll.

5.9 Conclusion

The payroll processing processes discussed above is the standard processes

involved in payroll administration; though vary from organisation to
organisation, to achieve high integrity within the payroll function separation of
responsibility is of paramount importance. No one person should be involved in
all the stages. Where capacity to employee is a challenge based on budgetary
constraints, involvement of other sections within the organisation may be ideal
or outsourcing critical services. The payroll process is a full month cycle, if
certain stages are neglected; the quality of payroll is compromised thereby
increasing risk exposure.

 Exercise

3. Briefly outline the payroll process in your organisation. Compare your

payroll process and outlined above.
4. State the payroll stage most prevalent to fraud, support your answer and
recommend measures to mitigate.

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CHAPTER SIX: INTRODUCTION TO PAYROLL ACCOUNTING (12 hrs)

 Key Points
Overview
Accounting concepts
Payroll Accounting
What is Payroll Accounting?
Payroll Accounting Cycle
Salaries Control Account
Conclusion
 Exercise

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6.1 Overview
Faul, M., Pistorius, C. W.I., van Vuuren, L.M. and Beer, C.S. (2005) described
accounting “as identification, measurement and recording of occurrences which
influence an enterprise’s financial position…” Payroll accounting is complicated
in the sense that some of payroll input received in payroll office may not be in
financial figures. The role of the Payroll Officers will be to interpret the
information into figures for it be captured and processed.

6.2 Accounting concepts

There are some basic and important accounting concepts and key words that
a payroll accountant or payroll officer should understand, and these include;

Business (or Economic) Entity Concept: Personal transactions should be

kept separate from business transactions

Going Concern Concept: On-going business with assets valued at cost or

other basis, not a business for sale with assets valued at FMV or assets and
liabilities valued on a liquidation basis

Time Concept: Fiscal Year may, or may not, coincide with Calendar Year

Cost Principle: Long-lived assets valued at cost minus depreciation (nominal

monetary units – e.g. USD), since this is an on-going business concern

Objectivity Principle: Assets are valued without bias, or respect to personal

opinions or emotions

Conservatism Principle: Take uncertainty & risk into account when making
accounting estimates.

Matching Principle: Expenses and revenue are recorded in the period in which
they are incurred or earned (requiring the accrual basis of accounting)

Realization Principle: Revenue is recognized (or realized), and reported when

earned

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 Consistency Principle: Transactions must be recorded in a consistent manner
(i.e. applies to principles, procedures & practices)

Materiality Principle: An entity may be able to violate another principle if

amount is deemed to be insignificant (i.e. to investor’s decisions).

Accounting basics - Laying the foundation Generally Accepted Accounting

Principles

Assets – property of the company or what the company owns, providing

economic benefit or value to the company over time.

Liabilities – what the company owes to others. These are debts to be paid in
the future and represent a claim against the company assets.

Equity – what the sole proprietor, partners, or shareholders can claim as theirs;
contributed capital (from the owners) and retained earnings (i.e. Which is equal
to Revenue – Expenses – Income Distributed).

Revenue – what the company earns from sales of goods or services for the
owner(s).

Expenses – the cost to the owner(s) to make the goods or provide the services.

6.3 Payroll Accounting

Payroll accounting entries are usually not taught in university accounting

courses. They are automatically recorded in the General Ledger after the
payroll cycle closes, and all the payroll data flows to the General Ledger. Payroll
accounting entries are not known because of entries being automated, and
many accountants are not familiar with the accounting entries. They are unseen
& unknown by many payroll practitioners, of which many are not versed in
accounting, or regarding the impact to the General Ledger. They are usually
discovered when problems in the General Ledger arise and detailed analysis
must be performed. They are usually interfaced with the general ledger via an
elaborate automated “Map” (i.e. each payroll earnings & deduction code is
“assigned” to a General Ledger Account).

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 Likewise, Payroll administration in general is confusing to most organisations
and some place it under Human resources and some place under the Finance.
However, because of its uniqueness, companies confuse this function. There
are a lot of accounts and figures that Human Resources people may fail to
understand and same applies to human resources elements finance people
may fail to understand. The Payroll Officer should have both accounting and
human resource attributes to be able to run such an important office. This is
because of its relationship with the financial matters of the business as well as
the Human Resources matters. Indeed, payroll practitioners must have a good
command of accounting.

Much details of accounting as a subject are not covered in this topic but we
shall however, concern ourselves on the basic principles. Accounting operates
under the principle of double entry. Hence the reason why in many instances a
reconciliation is a key activity of accounting. This is true also in payroll
administration. Payroll practitioners are many times called up on to do salaries
bank reconciliation, etc.

6.4 What is Payroll Accounting?

Payroll accounting is simply recording the payroll expenses of a business into

the general ledger.

Payroll accounting involves both expense and liabilities accounts such as

Taxes Payable, Pensions contributions, Medical and life Insurance Premiums
Payable, etc.

Accounting for those taxes can get a little complex (taxation of remuneration
Chapter 8). This article will show you examples of accounting payroll entries.

Let me start out by saying payroll is one area of business accounting that is
recommended getting professional help or using payroll software.

There are many statutory laws that regulate payroll processes.

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Managing timelines can be a hard task.

There can also be fees and penalties for improperly handling your payroll.

However, even if you have a payroll service provider, it is important to know the
basics of payroll accounting as you are the one that is ultimately responsible
for your payroll.

Payroll Accounting vs. Accounts Payable

To begin with, let me point out the difference between accounts payable and
payroll.

Accounts payable is a current liability account in your chart of accounts that

accounts for invoices that your business owes and pays.

Payroll is defined as the cost that your business accrues as part of paying your
employees. It is a current liability account too, but is recorded separately from
accounts payable entries.

Payroll is not just one account. It is made up of expenses and payroll payable
accounts, such as;

- wages
- salaries
- payroll taxes
- payroll withholding

Payroll Accounting Basics

Payroll accounting involves both expense and liability accounts.

Gross earnings are recorded using expense accounts such as salary or wage
expense. Net pay for your employees is recorded using liability accounts such
as net payroll payable, wage payable, or accrued wages payable.

Payroll liability accounts such as pensions contributions (social security and

medical aid) tax payable and income tax payable are used to record withheld
amounts owed to third parties.

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 The following is an example of some of the accounts you may set up to manage
and record your payroll:

 Salary or Wage Expense Account

 Income Tax Account
 Medical Aid account
 Pensions Contributions account
 Salaries/wages Payable (employee’s net pay or take-home pay

What is Included in an Employer Payroll Tax Expense?

Since the business withholds a portion of the employees’ wages, it does not
pay for all of them and as such, a portion of payroll tax is an expense to a
business. The payroll tax that is an expense to an employer includes the actual
employer contributions to Social Security and Medical aid plus any statutory
taxes i.e. Manpower levy and Standard Development levy.

What is Not an Employer Payroll Tax Expense?

Even though the employer is required to withhold contributions made by the

employee income tax, aids levy, Social Security contributions and Medical aid
are not going to be recognized as payroll tax expenses by the business since
they are paid by employee through deductions from their paycheck.

6.5 Payroll Accounting Cycle

Each pay period, your payroll needs to balance with the payroll expense
account in your ledger. The payroll reconciliation process helps you keep
accurate accounting records, which are necessary for tax filing and measuring
financial health. Payroll is frequently an inherent part of operating a business.
Employees require to get paid; taxes and benefits must be considered and paid
as well. Since payroll can be very complex and detailed, companies often
decide to outsource this function, but they still require booking payroll in their
accounting systems. Accounting for payroll typically involves numerous general
ledger accounts to capture data about expenses and liabilities, including payroll
payable and tax expense accounts.

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 Source
Documents

Financial
Journals
statements
Acounting
Cycle

Trial
ledger
balance

Figure 6-5.

Sources Documents-Recording Payroll Transactions

Collect your payroll statements and reports. To reconcile payroll accounts, you
require to compare them to outside documentation. You can also get bank
statements to confirm cash paid for payroll and taxes. Payroll Expenses are
Salaries & Expenses that can be recorded functionally (by department) and/or
by type of pay Increase the Expense and Increase a Liability (Salary Payable)
N.B An expense is recorded on the pay period end date not pay date

Journal Entries

A record of the transactions of a company during the accounting period as

compounded entries – made up of more than one debit or credit. These are
subsidiary Ledgers – Payroll Register - summarized and posted to the General
Ledger usually manually if there is no automatic integration. Payroll Expense
Transfer (PET) journals are to be used to make corrections to payroll expense

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 incurred through the Payroll system. Transfers should be one-time transfers
for corrections to payroll distribution due to clerical error. Payroll is integrated
with Sub Ledger Accounting, an accounting application that generates journal
entries for financial transactions

Payroll Journal Entry Examples

These general ledger entries can be used in a manual accounting system and
in a computerized accounting system.

In June, 2019, the Kunzwana Lobels had a weekly gross payroll of $10,000 with
the following deductions: PAYE $ 2,000, Aid Levy $60, NSSA $ 500, Medical
Aid $ 620, Pension deduction $ 1500, Funeral Assurance $ 145,

#1 – Payroll Journal Entry Wage, Payroll and Insurance

Table 6-5-1

Date Account names Debit Credit

3/1 Wage Expense 10,000

PAYE 2,000

AIDS Levy 60

NSSA 500

Medical Aid 620

Pension 1,500

Funeral Policy 145

Wages Payable
5,175

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When Kunzwana Lobels issues employees their wages for the most recent pay
period, they would post the following entry to decrease (debit) the Wage
payable account balance and payroll tax balance and decrease (credit) cash.

#2 – Payroll Journal Entry for Salary Payable

Table 6-5-2

3/1 Wage Payable 5,175

Cash 5,175

In addition to the wages and withholding in the previous payroll journal entries,
Kunzwana Lobels has incurred additional payroll liability expenses that must be
recorded. These expenses include their share of costs to employer on pension,
medical aid, Funeral and NSSA, ZIMDEF, NEC, Standards levy etc.

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#3 – Payroll Journal Entry Payroll company contributions

Table 6-5-3

3/1 Kunzwana Lobels nec Expense 10

Zimdef 10

Standards levy 3

Medical aid deduction 620

Pension Deduction 1,500

Funeral Policy 145

Kunzwana Lobels NEC Coy cont 10

Zimdef Coy Cont 10

Standards Levy Coy Cont. 3

Medical Aid coy cont. 620

Pension Coy Cont. 1,500

Funeral Policy Coy Cont. 145

When it comes time to pay the payroll payable such as Pensions deductions
and Income Tax Payable, you would simply debit the payable accounts you are
paying and credit cash.

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 Trial Balance

Run a trial balance report on the payroll accounts you want to reconcile;
balances must match with outside documentation. For instance, payroll liability
per payroll report must agree with the liability in the general ledger. Any
differences must be investigated --- most are due to mistakes in the general
ledger area.

Ledger

General Ledger – book of Final Entry. Regulate the general ledger for any
differences and inconsistencies. This is typically the last step in reconciling
payroll accounts. Subsequently the point of reconciliations is to guarantee that
accounts' balances are correct, when mistakes or errors are found, regulate the
accounts punctually. Make sure that the salaries expense account shows gross
pay, and that the tax expense account imitates only employer's taxes not
employees' withholding. These correct figures are posted into the accounting
system through journal or are automatically posted to the business accounting
system

Financial statements

Get reports from your payroll module if you are running payroll in-house.
Compare totals from module reports to balances in accounts in the general
ledger. If module reports designate that your year-to-date payroll tax expense
is $10,000, for instance, this amount must be the balance on your tax expense
account. If not, then you require to investigate the reason for the inconsistency
through looking at each individual month's expenses. The inconsistency could
be due to a mapping problem in the payroll module, causing data to be posted
in the incorrect accounts.

The number of control accounts varies from organisation to organisation.

Depending on the organisation’s accounting system, every employee
contribution may have a control account. Many organizations have the following
control accounts:
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 • Salaries and Wages Control
• Medical Aid Control
• Pensions Control
• Bank Account
• NSSA Control

6.6 Salaries Control Account

This is the main payroll account and operates on an impress system. Every
after each payroll run, the payroll department will have the total amount for the
wage bill (i.e. Gross salary and the company contributions). An equivalent
amount will be transferred from the finance department into this account. The
payroll department will then have to make all salary payments from this
account. After all the payments have been made, the salaries control account
should remain with a zero balance. Any outstanding amounts will have to be
reconciled for.
Below is an example of the entries that may be entered into the salaries control
account.

Table 6 6 1 below;
Salaries bank account
June 2019 Gross Salaries XXXX

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 Salaries control Account
June 2019 Gross Salaries xxxxx Medical Aid XXXX
Pension Deduction XXXX
PAYE deduction XXXX
AIDS Levy XXXX
NSSA deduction XXXX
Medical Aid Deduction XXXX
Funeral Assurance XXXX
Net Salaries XXXXX

In the example above, the total amount is transferred to the salaries control
account from the salaries bank account. From the Salaries control account, all
deduction and net salary payments are made out. The other control accounts
function in basically the same way as in the salaries control account.

Case study
In June, 2016, the Kunzwana Lobels had a weekly gross payroll of $10,000 with
the following deductions: PAYE $ 2,000, Aid Levy $60, NSSA $ 500, Medical
Aid $ 620, Pension deduction $ 1500, Funeral Assurance $ 145, calculate
Net Pay and post to relevant T- Account.

How do payroll accounting entries look like? Case study

Conclusions so far:

1. When a Payroll cycle closes, salary, taxes, Medical aid deductions, pension
Deductions, Net pay / benefits payable are considered as Liabilities until
payday, or until the taxes or benefits are due.

2. The total expenses that will impact the Income Statement are: A. $10,000
inclusive of all other employer payroll costs such as NSSA employers’
contributions, Pension employers Contributions, Medical Aid and Funeral
Employer Contributions. How much came out of the Company’s Cash Account?
4. What is the balance in the liability accounts after everything is paid?

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 A few points regarding accruals:

i. As the last day of a payroll period and the last day of an accounting period do
not occur on the same day, an accrual must be recorded for payroll expenses
through the end of the accounting period.
ii. The accrual is established to implement the Matching Principle, where
revenues, liabilities & expenses must be matched to the accounting period in
which they were earned or incurred.
iii. The accrual is an estimate generally based on daily payroll expenses &
liabilities.
iv. As the accrual is an estimate, it must be reversed during the next accounting
period when actual expenses & liabilities are recorded.
v. If an accrual is not recorded, then expenses & liabilities would be understated
in the current accounting period and overstated in the following accounting
period.

What do payroll accounting entries look like? Payroll accruals & reversals – the
“Matching Principle” in action:

Bank Reconciliation statements

Most payroll practitioners will at one time be required to do a bank reconciliation

statement. The principles of bank reconciliation are covered in greater detail in
financial accounting text books. The method shown here is for illustrative
purposes only. In practice the bank reconciliation may be much more complex.

Bank reconciliation format

Balance as per cash book XXXX
less unpresented cheques (XXXX)
Add Bank Charges and Interests XXXX
Unclaimed cheques XXXX
Balance per Bank Statement XXXX

Loan Accounts

Payroll administrators may at times be responsible for the administration of staff

loans. In which case they must be knowledge of the methods of calculating

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 interest. All loans given to employees must attract interest and should not be
below 8% (effective February 2019) as for the case of Zimbabwe. Loans
attracting interest below LIBOR rates, if given to an employee results to a loan
benefit.

The basic formula for interest calculation is:

Equation 6: 1
Principal x Rate x Time

Normally the cumulative interest method is used. Loan statements may also be
required from the salaries officer monthly. The details on the loan statements
must show the opening balance, the repayment, interest charged and the
closing balance. This is usually called the loan amortisation table

Other Third-Party Reconciliations

Having processed payroll, often a reconciliation is not performed (or not

performed well) between the processed payroll, the actual payments made to
employees and third parties; and the general ledger recorded in an employer’s
books. This lack of a solid reconciliation occurs for several good reasons:

- Confidentiality – the finance team performing the reconciliations are not privy
to detailed employee information (and senior finance don’t have the time to
do the recons themselves);
- Understanding – some of the issues that arise in payroll can be
confusing/complex either from an HR/tax perspective or from an accounting
perspective;
- Communication – the payroll may be processed by HR, but nobody
communicates with the person doing the recon to explain why specific
transactions have taken place;

The downside to either no reconciliation being performed, or a reconciliation

being performed badly leads to several risks for the business from an
accounting perspective:

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- Leave and bonus provisions are not recorded accurately
- The general ledger may balance, but employer contributions and fringe
benefits (double sided entries) may not have been coded and do not appear
on the general ledger
- The general ledger may assume that all nett pay and third-party payments
have been made and reflect no liability whereas some payments may not
have gone through properly (e.g. garnishees) or where payments have been
deliberately withheld until an issue is resolved
The balance sheet may not accurately reflect loan accounts, and employees
with negative net pay (never recovered)

Labour Costing

Labour Costing is the process of allocating the costs of employment to the

various departments within an organisation. The fact that we are allocating to
the various departments within an organisation pre-supposes that there are
cost centres in existence. Usually, this is the function of the Management
Accountant. The Management Accountant will ensure that the departments are
allocated with account numbers and will determine which accounting system
will be in use. Organisations want to know whether employee benefits expenses
are in to production or not, hence they normally introduce labour costing to
assist them in doing so. If there was no labour costing it was going to tell how
well it is doing in:
- Utilising employee resources.
- Which cost centres are contributing to the company’s growth and which are
not?
- Appraising the employee performance
- Evaluating the relative contribution of each employee to the company’s
profits and determining the acceptable levels of profitability for each
employee.

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6.7 Conclusion

Accounting principles should be observed in all payroll process to uphold

integrity. Reconciliations are a necessity in Payroll Accounting and errors which
affect the payroll ledger should be corrected in suspense account and journals
entries. Payroll bank account should always be reconciled against the ledger
and all errors attended to promptly.

 Exercise

1. Product A and B have standard Labour requirements of 2 hours and 3

hours respectively per unit. The standard wage rate is 3.00 per hour.
During April, 1,500 units of product A and 4,000 units of product B were
manufactured. Labour for the period amounted to 14,500 hours and cost
44,000.

Required: Compute the Labour variances.

- Study the 2 journals presented below and answer the questions that follow:
-

- Payroll Resource Trading

- Details of the waged bad deductions from weekly paid employees for week
ending 30 April 2018
Table 6.6.2
Employee Normal Time Overtime Med PAYE NSSA NEC
Aid
Hrs. Rate Hrs. Rate $ $ $ $

T. George 40 12 8 18 16 100 2,40 0,00

F. Dera 40 11 6 16 12 80 2,00 1,00
L. Napi 40 15 6 20 16 130 2,80 1,00
-

Bosmat Management Consultancy

Details of the wages and deductions from monthly paid employees from month
ending 30 April 2018.

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Table 6-6-3
Employee Gross Med Aid PAYE NEC

M. Mare 4 000 80 840 5

L. Powe 3 500 70 700 5
B. Matenga 3 800 76 800 0

The following balances inter alia were taken from the general ledger on 29 April
2018.

Pension fund 1 404

Medical Aid Fund 198
NSSA 22
Wages 8 010
Salaries ?

All employees contribute 10% of their gross income for normal time to the Fields
Pension Fund. Bosmat Management Consultancy contributes double the amount
contributed by the employee.

Bosmat Management Consultancy contributes 50% for every employee towards

the medical aid contributed by an employee.

Required
(a) Calculate the amount payable to the Fields Pension Fund on 30 April 2018
(b) The total contribution to the medical aid scheme as recorded in the Wages
Journal for the week ending 30 April 2018
(c) If the amount to be paid to NSSA on 30 April 2018 was $36.40, then Bosmat
Management Consultancy’ contribution will be how much?
(d) What is the amount that will be credited to the account ‘Creditors for Salaries’
at 30 April 2018.
(e) Calculate the amount that will be debited to the Salaries account at 30 April 18

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CHAPTER SEVEN: OVERVIEW ON APPLIED PAYROLL LAWS (8 hrs)

 Key objectives
Overview
Labour Act (Chapter 28:01)
Manpower Planning and Development Fund Act
Overview and Analysis of the Standards Development Fund Act
Overview of Pensions and Provident Fund Act
Income Tax Act & Finance Act
NSSA Act and WCIF
National Employment Councils & Trade Unions
Other Legal Instruments
 Exercise

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7.1 Overview

The chapter will cover various legislation that have an impact on the
administration of payroll in Zimbabwe. By its nature the payroll function deals
with legal instruments which require total compliance, failure to comply results
to severely penalties, hence costing the employer. Reference will be made to
the following, of which students are required to read and have an
understanding;
a. Labour Act (Chapter 28:01)
b. Income Tax Act (Chapter 23:06)
c. Finance Act (Chapter 23:04)
d. Manpower Planning and Development Act (Chapter 28:02)
e. National Social Security Act (Chapter 17:04)
f. Pensions and provident Fund Act (Chapter 24:09)
g. Workmen’s Compensation Insurable Fund Act
h. National Employment Council
i. Standard Development Fund Act (Chapter 14:19)

At the end of the chapter, it is expected that high understanding on payroll

related legislation will be evident.

7.2 Labour Act (Chapter 28:01)

On the Labour Act the emphasis will be on keys areas that have much bearing
on payroll practitioners on the day to day processing of the employments
benefits. Payroll Practitioners should have an understanding of the act and its
amendments, in particular the following Sections and Sub sections of the labour
Act

- Section 11: Employment of young persons

- Section 12: Duration, particulars and termination of employment contract
- Section12A: Remuneration and deductions from Remuneration
- Section 12B: Dismissal
- Section 13: Wages and benefits upon termination of Employment
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 - Section 14: Sick leave
- Section 14A: Vacation leave
- Section 14B: Special leave
- Section14C: Weekly rest and remuneration for work during public
holidays
- Section18: Maternity leave
- Section 20: Minimum wage notices
- Section 52: Right to union or association dues
- Section 53: Restrictions on payment of union dues by employers
- Section 54: Collection of union dues
- Section 125: Records to be kept by employers, principals and
contractors

Summary of above sections;

Under the Labour Act it is requirement for an employee to have a contract of

employment. A contract of employment may be in tow forms, namely; verbal or
written. It is recommended for employers to reduce all contracts of employment
into writing.

- Payslip is an entitlement on or before each pay day.

The Labour Act provides the basic tenets that must be applied to salaries and
wages payment. Salaries and wages must always be paid on the mutual agreed
day.

The deliberate failure to do so will be considered a serious breach of contract

by the employer.

The Labour Act states that “remuneration payable in money shall not be paid
to an employee by way of promissory notes, vouchers, coupons or in any form
other than legal tender”.

The value attributed to such remuneration should be fair and reasonable.

The labour Act limit employers from making any deductions from employee
salaries and wages unless based on following requirements;

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 - Unless authorized by statute i.e. Income Tax Act, National Social
Security Act etc.
- when an employee has been absent from work, amount proportion
to the absence.
- When there is a written consent from an employee.
- recovery of payments made in error.
- An advance salary - the amount of advance recovery shall not
exceed 25% of gross remuneration.
- Stop order facilities for contributions to insurance policies, pension
funds, medical aid societies, registered trade unions etc.
Total amount of permissible deductions to be made from an employee
remuneration in any pay period shall not exceed twenty –five percent of the
employee’s gross remuneration, except on terminal benefits.

7.3 Manpower Planning and Development Fund Act

The manpower planning and development fund act following chapters deals
with key issues affecting the processing of salaries and wages Section 5(1) 32
to 44, 53,54,55 and 65.

The Zimbabwe Manpower and Development Fund (ZIMDEF) is a fund

established in terms of the Manpower Planning and Development Act (Chapter
28:02) and is administered by the Ministry of Higher and Tertiary Education,
Science and Technology Development, whose Minister is the Trustee of the
Fund. The principal source of funding for ZIMDEF is a 1% training levy which
is calculated from the gross wage bill of employers under section 53 of the Act.
It also derives funding from interest earned from the fund's short-term
investments and from rentals of its properties. The stated broad objective of
ZIMDEF is to finance the development of critical and highly skilled manpower
through a 1% Training Levy paid by registered companies in Zimbabwe.
ZIMDEF contributions are payable by the 15th day of the subsequent
month. Late payments will incur penalty interest.

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ZIMDEF contributions are employer contributions only based on cost to the
employer of the employment of staff. The payment is based on 1% of the total
wage bill inclusive of allowances, bonuses, benefits, employer NSSA, Medical
Aid, NEC and Pension contributions. 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.

In summary 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.

Employment law relation to apprentices

Requirements for employers to recruit apprentices and disbursement of

allowances.

Coverage of ZIMDEF levy.

Employment laws relating to apprentices

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 Employment law relating to apprentices can be found in the Manpower Planning
and Development Act.

Basically, an employer must be registered as apprentice training institute before

being able to recruit apprentices. The prospective apprentices are also required
with the Manpower Training Board.

The act also stipulates that the employer shall cause the deduction of
government loans where he/she engages an ex-government college student.

Major issues affecting the payment of salaries and wages from the Manpower
Planning and Development Act can be found in the following sections:

Section 15 (1), 32 to 44, 53, 54, 55 and 65.

7.4 Overview and Analysis of the Standards Development Fund Act

With a few exceptions, employers are required to pay 0.5% of their quarterly
gross wage bill to the Standards Development Fund. The amount is payable
on all payments made by the employer on behalf of the employee, including
medical aid and pension contributions.

Chapter 14:19 of the Standards Development Fund provide for the

establishment of a fund to develop and promote the standardization of
commodities and services and for other related purposes; to provide for the
imposition of a levy upon employers or classes of employers for the benefit of
the fund; to provide for the recovery of such levy from such employers or
classes of employers; and to provide for matters incidental to or connected with
the foregoing. “Objects for which the Fund is established shall be the
development and promotion of standardization and quality control of
commodities and services. 9 Application of Fund Without derogation from the
generality of section eight, the Fund may be applied to— (a) research which is
calculated to promote the standardization or quality control of commodities and
services; (b) the acquisition of land, equipment, materials and other assets and
the construction of buildings in order to promote the objects of the Fund; (c) the
cost of any scheme which the Minister considers to be in the interests of
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standardization and quality control of commodities and services; (d) grants to
the Standards Association of Zimbabwe or to any other organization which, in
the opinion of the Minister, exists for the development and promotion of
standardization and quality control of commodities and services; (e) meeting
any expenses arising from the establishment and maintenance of the Fund; ( f
) the cost of proceedings referred to in section five; (g) any purpose which the
Minister considers to be in the interests of the development and promotion of
standardization and quality control of commodities and services

There is no legal obligation on an employer to set up or contribute to a pension

scheme. If your employer doesn't have a pension scheme or if you are an
'excluded employee', your employer will need to provide you with access to at
least one pension fund. When you pay into a workplace pension, your employer
contributes whilst the government contribute indirectly. The amount paid
depends on you’re the type of the pension scheme. Unlike other ways of saving,
a workplace pension means you aren’t the only one putting money in. Your
employer has to contribute too, as long as you earn a pensionable salary. You
will also get a contribution from the government in the form of tax relief. This
means some of your money that would have gone to the government as income
tax, goes into your workplace pension instead.

You are considered an 'excluded employee' if

- your employer does not offer an occupational pension scheme, or

- you are included in a scheme for death in service benefits only, or

- you are not eligible to join the scheme or will not become eligible to
join the scheme within six months from the date you began work, or

- you are included in a scheme that does not permit the payment of
Additional Voluntary Contributions (AVCs) by members.

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7.5 Overview of Pensions and Provident Fund Act
- Covered under chapter 9

7.6 Income Tax Act & Finance Act

- Employment Law Relating to Taxation is covered under taxation of
individuals’ chapter 8.

7.7 NSSA Act and WCIF

Covered under Chapter 9. (NSSA)

7.8 National Employment Councils & Trade Unions

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. 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 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
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 manage their own affairs, which brought about consistency between the
Zimbabwe Labour Act and International Labour Conventions (ILO), whi ch
Zimbabwe ratified. 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”.
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.

7.9 Other Legal Instruments

Overview of Court Orders and letters of administration

Court order comes in various forms based on person who approached the court
or the recipient.

Creditor withholding order

A remuneration withholding order is a lawful document, issued by a court of

law, directing an employer to garnish an employee's remuneration. The
withholding order is issued after a creditor approached a court of law and
granted a judgment against an employee. - payroll personnel should abide
by Court orders as failure is an offence.

Student Loan Garnishments

Students garnishment are issued by the ministry of higher and tertiary

education for student loans issued. Students loans do not expire until fully paid
up.

Family Support Orders

Maintenance orders are the highest priority order. There is not a limit on how
many child support orders can be accepted at a time. Each order is accepted

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 and processed in the order it is received. All orders are in place for withholding
until an amendment or termination is received

Income tax directives

Income tax directive is issued by the revenue authority under the income tax
act for past due PAYE.

Letter of Administration

A Letter of administration is a court order issued by Court authorising or

appointing a person referred to an “Administrator” or “Administratrix” to manage
or distribute the estate of a deceased person, who did not make such an
arrangement before death.
It is a requirement for Payroll Administrators or Human Resources Manager to
request such a letter from family members of a deceased before disbursing
benefits to beneficiaries. Failure to request a Letter of Administration from the
court may result to organisations disbursing funds to illegitimate beneficiaries.
7.10 Conclusion

Payroll related laws constantly change and the demand upon Payroll Personnel
to understand the evolving legislation is enormous. It is required that a Payroll
Administrator be in constant contact with relevant statutory bodies and other
stakeholders to alleviate avoidable compliance penalties. Organisations should
also facilitate and ensure that their payroll personnel are members of Payroll
Professionals Associations so that they receive adequate and timely
information with regards to their operations.

 Exercise
1. State and explain the purpose of key legal documents which should be
produced by prospective employees, employees or beneficiaries;
On joining an organisation
Registration to pension funds, medical aid etc
On claiming deceased person’s benefits
2. Outline the impact of the following legal instruments on the Payroll
Administrator’s office;
Labour Act (28:01), Manpower Planning and Development Act,
Court Orders.
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CHAPTER EIGHT: TAXATION OF INDIVIDUALS (20 hrs)

 Key points

Taxation Overview
Students Reference guide to Income Tax Act
Taxation in perspectives
Types of Taxes in Zimbabwe
Taxation formulas and definitions
Treatment of Certain types of remuneration
End of year adjustments
Conclusion
 Exercise

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8.1 Taxation Overview
‘There are only two things which are certain in life; death and taxes’ (Albert
Einstein)

The taxation of individuals covers the concept of gross income, taxable income,
tax rates, exemptions, allowable deductions and credits. Payroll Administrators
in organisations administer Pay As You Earn on behalf of Zimbabwe Revenue
Authority.

The module will help to develop an understanding to human resources and

payroll personnel with respect to the Zimbabwean taxation laws, computations
processes, procedures and their application in the taxation of individuals.

Key Areas of focus

- Define taxation and understand its importance in Zimbabwe.
- Outline Zimbabwean taxation framework for taxes administration.
- Application of tax principles in tax computation.

8.2 Students Reference guide to Income Tax Act

Income Tax Act Reference Sections or Sub-sections, which students are
required to ready and understand for full compliance to be achieved.

- Part II – Administration
- Part III - Income Tax
- Part V – Returns and assessments
- Part VIII – Payment and Recovery of tax
- Part VIIIA – Application of information technology to act.
- Part IX – General

Schedules

Below are the Income Tax Act Schedules which cover taxation of natural
persons;

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 - First Schedule: Amounts received or accrued by way of lump sum payments
which shall not be included in gross income
- Third Schedule: Exemptions from income tax.
- Sixth Schedule: Deductions in respect of contributions to benefit and
pension funds and the consolidated revenue fund
- Thirteenth Schedule: Employees’ tax.
- Thirty-Third Schedule: Tax on non-executive director’s fees.

8.3 Taxation in perspectives

- Taxation is a compulsory financial charge imposed on people by a

government.
- Taxation is a means whereby the state collects funds to pay for public
services.

Benchmark of a good tax system

Adam Smith (1776) in his “Wealth of Nations” recognized that the levy of
taxation should comply with certain basic criteria or norms and propounded the
following four canons (principles) of taxation.

- Equity - Everyone ought to contribute towards the support of the

government in proportion to their income.
- Certainty - The tax to be paid by each individual ought to be certain, not
arbitrary.
- Convenience -Taxes ought to be levied in such a manner and at the time
most convenient to the contributor.
- Economy - The collection cost of taxes ought to be as low as possible
NB: In the modern context –the principles above must also include the broader
principle of social justice and fairness.

What governs our Tax system?

- The Constitution – Supreme law.

- Legislation – Imposed tax laws.
- Courts – Clarify tax regulations, determined by interpretation. –
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 - Regulations & Notices – Public notices issued by ZIMRA stating
discretionary or delegated regulation, contains same weighting as
legislation.

Formulation of tax legislation

• Budget proposal (budget speach) to parliament.

• short term review of the economic, political, social and other circumstances
which have a bearing on the budget.
• Discussion of important items of the expenditure, basis for the items of
1 expenditure and expected outcomes of the policy objectives.
• highlighting sources of revenue to fund the expenditure - taxes form the
major portion of a state's revenue, hence analysis of proposed tax changes.

• After debate by parliament the budget document is refered to the standing

committee on Finance and Development and possibly to other committees
2

• Presentation of the draft taxation bill to the Head of state (President) for
signature appending
3

• Promulgated as an Act of parliament through publication in the Gavernment

Gazette
4

8.4 Types of Taxes in Zimbabwe

Direct Taxes – imposed on a Indirect tax - Imposed on a transaction.

person Collected by intermediaries on behalf of
ZIMRA

Income tax Value-Added Tax

Estate Duty Transfer Duty

Capital gains tax Securities Transfer Tax

Withholding Tax Customs and Exercise Duty

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Current Individual Tax Methods in Zimbabwe

Two recommended methods of calculations employment remuneration in

Zimbabwe; namely the traditional Pay As You Earn System (P.A.Y.E) and Final
Deduction System (FDS).

Pay As You Earn System

According to the Guide to the Final Deduction System (2002 edition) the Pay
As You Earn System (P.A.Y.E) was introduced in 1966, aimed at benefiting the
country with steady and constant revenue.

Characteristics of Pay As You Earn

- it enabled the employee to spread the tax over a period of twelve
months.
- employers would administer the Pay As You Earn System and ZIMRA
was responsible annual assessment.
- a lot of resources were tied on annual assessment, which included,
manpower on assessments, stationery on distribution of income return
forms, distribution of P6 booklets and P8 returns etc.
- man hours would be spent by employees flocking the ZIMRA offices,
making returns submissions, following up on assessments feedback and
following up on refunds or making shortfalls.
In simpler terms, a lot of resources were used on tax liability assessments.
Currently the Pay As You Earn System make use of periodic tax tables, the
following group of employees are however expected to continue submit tax
returns: -
- Employees who change employment during the year.
- Employees occupying a full time job in addition to a part-time job.
- Employees who terminate or are terminated from employment during the
year.
- Employees receiving some other pension.
- Employees who got employed during the course of the year of
assessment.

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 - Employees who are in receipt of some other non-employment income
that is not subject to P.A.Y.E.
- Employees who are asked to complete a tax return by the ZIMRA

Final Deduction Systems

The Final Deduction System (FDS) was introduced in January 2000, through
Finance Act no. 21 of 1999 and paragraph 20A of the Third Schedule of the
Income Tax Act. The Final Deduction System was one of the recommendations
of the Commission of Inquiry into Taxation in 1986. The FDS applies to the Pay
As You Earn [P.A.Y.E] of individuals and not to any other taxpayer who does
not fall under the definition of an employee e.g. companies

Benefits of the Final Deduction System

Below are the benefits of the final deduction system as per The Employer’s
Guide to Final Deduction System issued in 2002;
- Elimination of the burden of rendering tax returns for majoring of
employees.
- Ensure that PAYE withheld in any year of assessment, is the same as
the final income tax liability of the respective employee.
- Many organizations moved from manual payroll preparation to computer
based payroll preparation as the system works better under a
computerized payroll system. Hence elimination of tedious manual
payroll preparation for payroll personnel and year end completion of
manual tax certificates and reconciliations.
- simple, convenient and less expensive way of collecting tax as
compared to the old (PAYE) system of making some assessments at the
end of the year, making refunds or calling upon a taxpayer to pay for his
shortfalls on Pay As You Earn.
- Accuracy is achieved, correct amount of tax is calculated at any given
period.
- Refunds done promptly and periodically within payroll
- Allowable deductions and credit are applied as and when claimed.

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Payroll Practitioners should note that, though an employee can voluntarily
declare the other sources of income if they desire to have it included on
determination of tax liability, it is not a requirement for employer to know.

Distinctions between Traditional Pay As You Earn System (P.A.Y.E) and

Final Deduction System (F.D.S.)
Below are the differences between the final deduction system and Pay as you
earn as per The Employer’s Guide to Final Deduction System issued in 2002;

- P.A.Y.E is non-cumulative but the FDS is a cumulative method.

- When operating under the FDS, the employer is authorized to deduct the
tax credits of an employee but under the P.A.Y.E method, the employer is
under no powers to take into account any tax credits to which an employee
is entitled to.
- Under the FDS, an employer can adjust the tax liability of an employee on
a monthly basis, but under the P.A.Y.E system, the tax liability was only
adjustable at the end of the year of assessment.

There two recommended methods of calculating P.A.Y.E under the FDS

system, namely forecasting and averaging.
- Forecasting method -according to the guide to FDS, only regular income,
which include basic salary, fixed benefits etc. should be forecasted to the
end of tax year, whereas the irregular income like, overtime, cash in lieu
of leave, once off incentives should not.
- Averaging method – both cumulative regular income and irregular earnings
are included on annual projections.

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8.5 Taxation formulas and definitions

Framework for calculation of tax payable:

Gross Income- [Sect 8; Sect 10 & Sect 12 of ITA] xxx
Less: Exempt Income [Sect 14 as read with 3rd Schedule, ITA] (xxx)
Income xxx
Less: Allowable deductions [Sect 15] (xxx)
Taxable Income xxx
Apply tax rates (FA)
Gross tax xxx
Less: Tax Credits (FA) (xxx)
Net tax xxx
Add: Aids Levy (at 3% of net tax) xxx
Tax liability xxx
Less: Tax paid in advance / Provisional tax (xxx)
Tax Payable or Refundable xxx/ (xxx)

Gross Income, defined (G.I.)

Definition- “the total amount received by or accrued to, or in favour of a person

or deemed to have been received by or to have accrued to or in favour of a
person in a year off assessment from a source within or deemed to be within
Zimbabwe excluding any amount (not being an amount included in G.I. by virtue
of any of the following paragraphs in this definition), so received or accrued
which is proved by the taxpayer to be of a capital nature.” Income Tax Act
(Chapter 3:06) 8.1

Examples of gross income;

- Salaries

- Allowances

- Benefits

- Cash in lieu of leave

- Interest received

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 - Commission received etc.

Amount- means money or any property, corporeal (tangible) or Incorporeal

(intangible) having an ascertainable monetary value. For example; money,
groceries, rent etc.

Received by- means received by the taxpayer on his own behalf and for his
own benefit.

Accrued to -means due and payable to the taxpayer i.e. income

Received by or accrued to - where gross income accrues to a taxpayer in one

year of assessment but is received by him in a later year. The Commissioner
of Taxes usually adopts the accrual basis but may tax on receipt basis
depending on circumstances and on whichever happens first i.e. accrual or
receipt.

For the purpose of taxation of individuals, a person refers to a natural person,

which include minor children who receives income, are taxpayer on their own
capacity. In some cases, the parent of a minor child may be taxed on the income
of the child but then the requirements must be met.

Deemed to have been received by or to have accrued to a taxpayer

-Section 10

From a source within or deemed to be within Zimbabwe-Section 12

The gross income definition can be divided into three components;

- The general rule for residents of Zimbabwe

- The general rule for non-residents

- Amount specifically included in a person’s income

It is not a requirement that a person must actually receive an income before

inclusion for taxation in gross income, it can only accrue, deemed to have been
accrued or deemed to have been received. For example; a taxpayer invests in
a unit trust and opt to reinvest the annual interest and dividend earned, these
amounts were not received by him in cash. If the income is reinvested for his
benefit and it is therefore included in his gross income as it accrued to him.

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Exemptions

Exemptions are amounts defined under section 14 of the Income Tax as read
with the Third Schedule and also the Finance Act as amended from time to time
can stipulate absolute figures which can be excluded from gross income on
determining income to be taxed as per Minister of Finance and Economic
Development announcement in the annual national budget.

- Some income enjoys full exemption some only partial, e.g. bonuses.

Exempt income can be categorized in two ways; namely by the identity of the
recipient and nature of income.

Exemptions on individuals

List of exempt income in Zimbabwe as per Income Tax Act.

- Income received from a source outside Zimbabwe.

- Salary or allowances paid to the State President and to domestic
workers of the State President to the extent that the remuneration is paid
by him from his salary.
- Allowances paid to honourable members of parliament and the
ministers.
- Allowances paid to civil servants – salaries of civil servants are taxable.
- Allowances paid to the chiefs or village headman.
- Receipt of a scholarship or bursary.
- Alimony or maintenance received by a person.
- Allowance paid to the Councillor.
- Bonus or any performance related award, in respect of the first US $1000
(2018).
- Retrenchment package, in respect of a third of such package to a
minimum of US$10 000 and a maximum of US $20 000. (i.e. the ceiling
of retrenchment package is US $60 000 or as amended from time to
time)
- Student scholarship, as long as it is not payment for services rendered.
- value of medical treatment or of travelling to obtain such treatment which
is provided by an employer for an employee or the dependent of an
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 employee, whether provided in kind, by direct payment, by refund or in
any other manner whatsoever.
- Refunds from medical aid society or benefit funds
- The amount of any contributions paid to a medical aid society by an
employer on behalf of his employee. Such contributions do not stand as
credits to the taxpayer because he did not suffer the expense himself.
- Contributions to registered pension fund paid on behalf an employee by
his employer.
- Compensation for injury at work paid by an employer.
- Amount accrued as a benefit in respect of injury, sickness, death.
- Amount received by way of an entertainment allowance to the extent that
it is expended on the business of the employer.
- Pension receipt by an elderly person from the Consolidated Revenue
Fund or any approved pension fund.

Exemptions on elderly persons’ income

- The first US$3 000.00 per annum on rental income.

- The first US$3 000.00 per annum on income earned from bankers’
acceptances.

- The first US$3 000.00 per annum on income earned from interest on
deposits with financial institutions.

- Pension received from a pension fund or the Consolidated Revenue

Fund is exempt from Income Tax.

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  Exercise

Peter is 58 years old and works in the Ministry of Agriculture in Zimbabwe. He

received the following income during the year 2018. Calculate his Income.

Description $

Salary 12,000
Housing Allowance 2,000
Transport Allowance 1,200
Cash in Lieu of leave 500
Bonus 1000
Retrenchment package 15,000
Pension from government 500
Rental income 3,500
Bankers’ acceptances interest 1,200
Interest from POSB Zimbabwe 200
Interest from deposits with ZB 50

Allowable deductions [Section 15]

These are amounts that the Commissioner allowed to be deducted from the
income of an individual so as to arrive at the taxable income. Allowable
deductions reduce tax liability of an individual.

- Section 15(2)(a) of the Income Tax Act [Chapter 23:06] gives the general
deduction formula which states that:

Specific Allowable deductions - section 15

Pension contributions

• contributions made in the year of assessment to a benefit or an approved

pension fund or the Consolidated Revenue Fund.

• The maximum contributions allowable for 2019 Tax Year are $5,400 per
annum ($450 per month) and $2700 for contribution to pension and
retirement annuity funds respectively.

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Arrears contributions

• made by an employee in respect of past service with an employer to a

registered pension fund established by the employer.

• maximum allowable contribution is 8% of the person ‘s annual salary or

$1800, whichever is greater.

National Social Security Authority (NSSA)

• 3.5% of a person ‘s gross salary is deducted as NSSA, to a maximum

monthly insurable income of $700 for 2019 Tax Year. Total for both
employer and employee is 7% per month.

• Public service employees however contribute 3% with maximum

insurable earnings of $200 per month.

Subscriptions/Membership fees

• membership fees in any period to assessment, trade, technical or

professional association, are in full as an allowable deduction.i.e.
membership to IPMZ, IAC, ACCA etc.

• Subscription for entertainment to sporting or recreational clubs are not

allowed.

• Only qualified members qualify, students’ subscriptions to professional

bodies are not allowed.

Tradesman tools

• The costs of tradesman ‘s tools are allowed in full on purchase and on

replacement (if in terms of the employment contract).

• Only qualified tradesmen such as journeymen are eligible for such

deductions.

• Trainee and apprentices do not qualify for this deduction

Prohibited Deductions: Sections 16 of the Income Tax Act [Chapter 23:06]

This section specifies the expenses which should not be deducted in calculating
taxable income.
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 i. Cost of incurred by a taxpayer in maintaining himself, his family or
his establishment.
ii. Private expenses
iii. Tax levied upon the income of a taxpayer or interest on overdue tax
payable thereon.
iv. (g) contributions to unapproved pensions, annuities scheme
v. (l) The cost of any shares awarded by a company to an employee or
director.

Married in community of property

Income earned, except from carrying on a trade, for example salary or profit
from business activities, will be deemed to have been earned in equal shares
by the spouses married in community of property. Even if one part receives a
passive income i.e. rentals, dividend Therefore, if a couple is married in
community of property and earns any passive income, for example rental,
dividend, or interest income it will be deemed to have accrued equally to each
spouse.

NB: each spouse qualifies for his/her own interest exemption on amounts
received.

Tax Credits

A tax credit is a relief awarded to a taxpayer, on his assessed tax liability. A tax
credit reduces tax liability of the tax payer.

- Tax credits are provided for in the Finance Act or sometimes referred to
as the Charging Act and revised therein from time to time as may be
gazette by the Minister responsible of Finance and Economic
Development.

(a) Elderly persons (section 10)

An elderly person is a person who is 55 years of age and above.

- A credit of USD 75 per month or USD 900 per annum is applicable for
2018 Tax Year. To be eligible for the credit a taxpayer should have
attained the age prior to the commencement of the year of assessment.
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 - The credit is apportioned on a time basis if the period of assessment is
less than twelve months.

(b) Disabled person’s credit (section 13)

- A credit of USD 75 per month or USD 900 per annum is applicable to a

taxpayer who is either mentally or physically disabled to the satisfaction
of the Commissioner that he or she is disabled to a substantial degree.

- The credit is apportioned if the period of assessment is less than a

year

- A blind person is not regarded as disabled for the purpose under this
credit.

- The disability should be of permanent nature

- The taxpayer can claim a credit if himself, his spouse or child is

disabled.

- The credit cannot be claimed if the taxpayer was not at any time
during the period of assessment, ordinarily resident in Zimbabwe.

- The credit is granted in respect of each child of a taxpayer who is

mentally or physically disabled.

- A child includes a step child and lawfully adopted child.

Blind person’s credit – Section 11

- A credit of $75 per month or $900 per annum is awarded to a taxpayer

who is blind or whose spouse is blind.
- Any portion that is not utilized by a married blind person is allowed as
deduction against the tax liability of his or her spouse.

- The credit is not apportioned nor does it apply to a taxpayer‘s blind child.

Medical expenses and invalid appliances credit – Section 12

• 50% of amounts of medical expenses incurred by a taxpayer in the year

of assessment is deducted against his tax liability.

Medical expenses;

The amount of any payments made for the purchase, hire, repair, modification

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or maintenance of any invalid appliance or fitting which the Commissioner if
satisfied is necessary for use by a tax-payer or his spouse or any child or the
taxpayer as consequence of any mental or physical defect or disability.

Examples of invalid appliances –

- a wheelchair or any mechanically propelled vehicle which is specially

designed and constructed for the carriage of one person, being a
person suffering from a physical defect or disability; or

- Any artificial limb, leg callipers or crutch; or

- Any 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;

ii. The sum of any payments made for—

- Services rendered to a taxpayer, his spouse and minor children or one

or more of them by a medical or dental practitioner; and

- drugs and medicines supplied to a taxpayer, his spouse and minor

children or one or more of them on the prescription of a medical or dental
practitioner; and

- the accommodation, maintenance, nursing and treatment, including

blood transfusions and X-ray and laboratory examinations, tests and the
like, of a taxpayer, his spouse and minor children or one or more of them
in or at a hospital, maternity-home, nursing-home, sanatorium. surgery,
clinic or similar institution; and

- the conveyance by ambulance, including an air ambulance, of a

taxpayer, his spouse and minor children or one or more of them; and

Contributions to Medical Aid Societies

- Contributions made by the taxpayer for himself, or for the benefit of his
spouse or minor child, are allowed as a credit to the tune of 50% of the
amounts contributed.

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 - Members of medical aid should claim through medical aid and the employer
should apply 50% of the shortfall.

- A child includes a step child and lawfully adopted child.

8.6 Treatment of Certain types of remuneration

Gifts and voluntary payments - gifts and voluntary payments made by an

employer to an employee are items of capital nature therefore should be
excluded on gross income.

Golden handshakes - taxable in the hands of the employee- Section 8

Gambling receipts -gambling receipts are amounts of capital nature, unless

such receipts are won by a professional gambler they become income which
is taxable.

Prizes - is an amount of capital nature, an exception are prizes won as a result

of employment which are taxed.

Restraint of trade – amounts paid to a person to prohibit such person from

carrying out his or her trade, profession or imparting of knowledge is of capital
nature. Therefore, is not taxable in the hands of recipient nor is it deductible in
the hands of the payer.

Cash in lieu of leave (CILL) - This is a payment in compensation of leave days

accrued but not taken and is taxable (included in gross income).

Gratuity - Gratuity is taxable in full, unless paid on retrenchment together with

a retrenchment package (payroll office should apply for tax directive from
ZIMRA).

Commutation of amounts due under employment contract –when an

employer terminates an employee before expiry of contract and pays the
remainder of the contract, the total amount is due when it is paid.

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Retrenchment Package -

• A proposal retrenchment package is submitted to Ministry of Labour and

Social Welfare through the Retrenchment Board for consideration.

• The approved amount in gross income and only the approved package
is exempted to a certain extend (a tax directive should be applied for to
ZIMRA).

• Usually one third of the retrenchment package is exempt subject to a

minimum of USD 10 000, and to a maximum exemption of USD 20 000
for 2015 tax year.

Fringe Benefits

• A fringe benefit to an employee over and above the employee’s salary

• It can be in form of money or in kind.

Passage benefit – expenses of a journey taken by an employee, spouse or

child whereby the cost is meet by employer.

- The travel undertaken should be related to taking up or termination of

employment or any other travel made by an employee, spouse and/or
children that journey is not made for the purpose of a business
transaction of the employer.

- First journey by an employee on taking up employment and a first

journey on termination of employment are exempted.

- the benefit is apportioned on time or usage basis in the event the journey
is undertaken for dual purposes.

Housing benefit – housing benefit are taxable in the hands of employee

• The benefit shall be valued based on open market rentals for a house
that is located within a municipal area, if the house is not within the
municipal area the benefit is measured as, the greater of 12.5% of the
employee ‘s salary or 7% of the cost of construction.

• If it is based on conditions of service to stay in a company house, there

is no benefit to you.
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 • Members of staff of a mission hospital or rural clinic are exempted on
accommodation allowance, transport allowance and the value of
quarters or residence.

• For the purpose of the exemption, a mission hospital or rural clinic is

private hospital or rural clinic owned, operated or sponsored by a
religious body or a rural district council.

Furniture benefit – arises when an employee is given permission to freely use

of furniture, the value of the benefit is deemed to be 8% of the cost of furniture.

School fees benefit - the cost of the fees payable becomes taxable in the
hands of the employee.

- Whereby the employer operates a school and the employee’s child

attend that school without paying fees or enjoys discounted fees, the
foregone fees become taxable benefit in hands of the employee.
When the benefit is in respect of a waiver, of the whole or any portion of fees,
levies and boarding fees of a member of staff who is a teacher or non - teaching
for any child which is a student of that school or another school is considered
gross income in the hands of the employee.

- effective, 1 January 2013, half of such benefit is exempt to the employee

and applicable to a maximum of three children of the taxpayer.
Motoring benefit – in the event an employee granted use of vehicle, benefits
is based on deemed motoring benefits and in reference to engine capacity.

- The benefit arises where an employee uses the vehicle for private
purpose

Currently (2019) following benefits apply;

Engine Capacity Deemed motoring

benefit
Less than 1500cc $3,600
1500 – 2000 cc $4,800
2000 – 3000cc $7,200
Above 3000cc $9,600

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The deemed cost is prorated in the event of use which is less than a year.

Sale of a motor vehicle to an employee;

• If THE employer sells a motor vehicle to an employee, whether during or

on termination of employment, the benefit to the employee is determined
by the following formula:

• A – B,
Where;
• A = the market value of the motor vehicle:
• B = cost at which the employee acquired the motor vehicle:
- When the motor vehicle was acquired before the 1st of January 2009,
the cost represented by B in the formula shall be the final balance shown
on the balances of the employer ‘s books.

• In the event the vehicle is disposed to an employee above 55 years, no

benefit arises.

Interest benefit- An interest benefit arises if an employee is granted an interest

free loan or a loan on which interest is charged below the prevailing London
Interbank Offered Rate (LIBOR). LIBOR is a standard interest rate at which
major global lend to one another in the international interbank market for short-
term loans and serves as an internationally accepted key yardstick interest rate
that shows borrowing costs between monetary institutions. LIBOR is also used
as a basis for consumer loans in countries around the world.

- No benefit arises if the loan extended to the employee does not exceed
USD 100.
- A Loan extended to an employee for educational or technical training or
medical expenses for the employee, spouse or children is however,
exempt from tax.

Share options Schemes

Amounts received by an employee on disposal of shares offered to an

employee pursuant to a share option scheme by his or her employer is gross
income.

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Formula to determine income:

A-(B+C)

Whereby;

A = the value of shares at the time of exercise of the share option scheme;

B = value of shares offered to the employee pursuant to the share option

scheme;

C – representation of figure B to which the inflation allowance is applied, to

which allowance is to be determined by the following formula:

- ((D - E) x B)/E

- Whereby;
- D is the figure for the All-items Consumer Price Index issued by the
Central Statistics Office at the time the employee exercises the share
option;

- E is the figure for the All-items Consumer Price Index issued by the
Central Statistics Office at the time when the shares were offered to the
employees pursuant to a share option scheme.

NB. The share option benefit is tax exempt where the employee share
ownership scheme or trust has been approved by ZIMRA

Entertainment allowance -amount received by way of entertainment allowance

from employer are taxable in the hands of the employee to the extent that such
amounts are not expended on the business of the employer.

Export processing Zones employees

- The exemption is partial and is limited to 50% of the total taxable income
(inclusive of the benefits) of an employee.

- Applies to licensed investor who are taxpayer, who manufacturers and

exports at least 80% of their produce and are holders of an export license
issued by the Ministry of Industry and Commerce.

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Subsidized or free meal, the following applies

- When an employer provides free or subsidized meals to employees, the

benefit is taxable in the hands of employee.

- The benefit is on form of cost to the employer, reduced by amounts

recovered from an employee.

- If the employer runs a canteen as part of his business there is no benefit

in the hands of the employees.

- Where the meals are acquired from outside the business of the
employer, the benefit is taxable.

Other benefits

- Based on the definition of gross income most of benefits which accrue

to an employee are taxable except of medical aid and medical expenses
paid on behalf of the employee by the employer, are taxable.

Some of these benefits include the following: -

- Use of telephone and cell phone.

- The provision of domestic workers including gardeners.

- The provision of security services

- The provision of clothing with the exception of protective clothing

- Fuel coupons - Taxable in the hands of employees if given to employees

who are not enjoying a taxable motoring benefit.

NB: The good practise when it is not clear to the employer on how to proceed
with granting an employee an allowance or benefit, guidance should be sought
from ZIMRA. Preferably in writing.

Pension receipts - these a receipt paid to employees who attained the

pensionable age in the year of assessment.

(a) Pension (s) received on retirement

- pension amounts are included in gross income of an individual and taxed

as received.
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 - Only portions of pension contributions that were not allowed as
deduction exempted from taxation.

- Where a lump sum is paid on retirement, 1/3 the pension entitlement is

exempt, the exempt part is known as pension commutation.

- A pension commutation is a receipt of capital nature.

(b) Pension received on withdrawal from a pension fund (before retirement age)

- Applies when a person dies, resigns from employment, or if the

employee is made redundant or if the employer closes down his
business.

- entitled to a refund of his pension contribution, by way of a lump sum

receipt.

- A lump sum amount is subject to taxation.

8.7 End of year adjustment

At the end of the year of assessment, that is, 31st December of each year, an
employer is required to determine the tax excess or shortfall in respect of each
employee and make a final tax adjustment before remitting the tax to the
Commissioner. If a final tax adjustment is made, the term FDS becomes self-
explanatory.

8.7 Taxation: Administrative Issues

In taxation administration all stakeholders Zimbabwe Revenue Authority,
employers and employees have their respective rights and obligations.

Obligations of an employer

The employer is responsible for the collection of tax and remitting it to the
ZIMRA by the 10th of the month following the withholding of P.A.Y.E. It is the
responsibility of the employee to supply the employer with appropriate
information affecting his tax liability position. Other obligations include: -

- To make adjustments to P.A.Y.E.

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- To issue P6 forms to employees.
- To keep employees’ payroll records for inspection.

ZIMRA obligations
- To assist employees and employers with any enquiries relating to P.A.Y.E
- To carry out periodic audits.
- Providing education to employees and employers on the operation of the
FDS.
- To provide the necessary forms.

Employee’s obligations
- To be honest and accurate in their submissions.
- To furnish information as required by the employer regarding their tax
liability.

Rights of Employers
- The right to be issued with a P6 Form after the year-end.
- The right to have P.A.Y.E correctly calculated.
- The right to be issued with payslips showing accumulated earnings,
accumulated deductions, accumulated credits and accumulated P.A.Y.E.
- The right to be refunded any P.A.Y.E paid in excess of the amount that
should have been deducted.

Audits areas of interest;

- Promptness of tax remittances to ZIMRA.
- Accuracy of tax computations.
- Verification of deductions and tax credits awarded to employees.
- Verification of contracts of employment.
- Verification of benefits.

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 Employer Administrative responsibilities

Obligations are obliged to register within 14 days of becoming an employer.

Some of the obligations include:

- correct calculation of PAYE in accordance with the tax deduction tables
- Remittance of PAYE deducted to ZIMRA within 10 days after the end of
the month during which the amount was withheld.
- Maintain accounting records for a period of at least six (6) years.
- Submit ITF 16 return which contains details on annual earnings,
deductions, credits and PAYE for each employee within 30 days after
the end of the year.
- You will note that failure to withhold any amounts which you are required
to withhold renders you liable to the amounts due as well as penalties
and interest.

8.8 Conclusion

Taxation is a key sensitive area in payroll administration, as a result it receives

attention from employees, employer and the Commissioner General. On the
employees’ part, taxation is felt because it affects the net disposable income of
an employee. On the employer the heavy penalties associated to none
compliance on computations, returns and payments may heavily affect
profitability and business continuity. For the Commissioner General the
attention is on non-compliance by employers as many personnel responsible
to administer taxation within organisations are also interested stakeholders, the
temptation of tax evasion. For integrity to be achieved from all interested
parties, it is the responsibility of payroll personnel to ensure that accuracy in
computation of tax, timelines on submission of returns and payments and lastly
ensure that records are well preserved, should highly be achieved.

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  Exercise on taxation

1. What does FDS stands for?

2. You have been approached by Peter, a businessman operating a butchery

in Mumak, employing 5 workers. He has recently heard of the FDS and is
eager to introduce the system at his business, but is not conversant with the
system. As a prominent Tax Advisor, he has finally decided to seek your
advice.

Required

Write a report to Peter explaining to him, how the FDS is operated.

3. Explain the treatment of the following items under the FDS.

i. Pension contributions.
ii. NSSA contributions.
iii. Medical expenses.
iv. Contributions to a medical aid society.
v. Elderly persons’ credit.
vi. Annual membership subscriptions to ACCA.
vii. Blind persons’ credit.

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CHAPTER NINE: INTRODUCTION TO PENSIONS ADMINISTRATION (8 hrs)

 Key Points

Overview
Overview of legislation governing pension in Zimbabwe
Pension Scheme
Types of pension schemes
The structure of Zimbabwean Pension Industry
Administrative issues on Pensions
Conclusion
 Exercise

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9.1 Overview

A pension is a stream of income that is paid usually when one attains retirement
age, but it can also be paid to a dependent be it a child widow/widower upon
the death of a member of the pension fund. In other words, a pension is a type
of insurance against old age, reduction or loss of income to a member of the
pension fund. A pension fund encompasses a collection of investment assets
which comprises of financial assets (such as money-market securities, bonds,
loans, equities, and collective investment vehicles), real assets, derivatives,
and alternative investments (Blake, 2006).

9.2 Overview of legislation governing pension in Zimbabwe

There are six Acts that govern pension Administration in Zimbabwe and the
include;

National Social Security Authority Act Chapter 17:04

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. At the moment NSSA is administering two schemes: Pension and Other
Benefits Scheme and Accident Prevention and Workers’ Compensation
Scheme, although, in an endeavor to provide a more comprehensive social
security package for the Zimbabwean society, groundwork for the introduction
of more schemes is underway. The National Social Security Authority (NSSA)
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was created by an Act of Parliament: The National Social Security Act (Chapter
17:04) of [Link] Act empowers the Minister of Public Service, Labour and
Social Welfare to establish social security schemes for the provision of benefits
to all employees. NSSA is mandated to administer every scheme and fund that
is established in terms of this Act.

Role of Payroll Administrators:

Payroll Administrators have a role to;

- Ensure deductions and contributions are effected accurately and timely.

- Submission of correct returns and records timely
- Update employer database accurately and timely
- Maintain a record in respect of every employee and shall at all
reasonable times produce such records to NSSA inspectors on demand

Pension and Provident Funds Act, Chapter 24:09

AN ACT to provide for the registration, incorporation, regulation and
dissolution of pension and provident funds and for matters incidental to
or connected with the foregoing.

Pension Review Act, Chapter 16:03

AN ACT to provide for the review of pensions payable from the Consolidated
Revenue Fund and for the increase of such pensions; and to authorize
amendments to the War Victims Compensation Act [Chapter 11:16].

Local Authorities Employees (Pension Schemes) Act [Chapter 29:09].

AN ACT to provide for one or more pension schemes for employees of local
authorities or of the Local Authorities Pension Fund and the dependants of such
employees; to provide for the continued operation of the Local Authorities
Pension Fund and the establishment and powers of a Management Committee
to manage such Fund; to establish a Board of Trustees and to confer functions
and impose duties on such Board; and to provide for matters connected with or
incidental to the foregoing.

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Administration and role of Insurance and Pensions Commission

The Insurance and Pensions Commission (IPEC) is a statutory body

established in terms of the Insurance and Pensions Commission Act [Chapter
24:21], to regulate the insurance and pensions industry with the objective of
developing the industry for the protection of insurance policyholders and
pension fund members’ interests.

Currently, IPEC regulates the Private Occupational Pension Schemes and the
Individual Pensions Policies. The Commission commenced its operations in
2005 after it was weaned off the Ministry of Finance and Economic
Development. The Commission is accountable to the Ministry of Finance and
Economic Development.

Its Vision is to provide "A stable, safe and sustainable insurance and pensions
industry through regulatory excellence by 2022." Its mission is “To supervise,
regulate, develop the business and operation of insurance companies and
pension funds for the protection of policyholders and pension scheme
members."

Functions and Powers of the Commission

The functions of IPEC in terms of Section 4(1) of the Insurance and Pensions
Commission Act are as follows:

1. to register insurers, mutual insurance societies and insurance brokers in

terms of the Insurance Act [Chapter 24:07] and, subject to that Act, to
regulate and monitor their business;
2. to register pension and provident funds in terms of the Pension and
Provident Funds Act [Chapter 24:09] and, subject to that Act, to regulate
and monitor their management and administration;
3. to monitor the activities of insurers, mutual insurance societies, insurance
brokers and pension and provident funds to ensure that they maintain set
standards and ensure compliance with the Insurance Act [Chapter 24:07]
and the Pension and Provident Funds Act [Chapter 24:09], as the case
may be;

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 4. to provide information to the public on matters relating to insurance and
pension and provident funds and to encourage and promote insurance and
investment in such funds;
5. to advise the Minister on matters relating to insurance and pension and
provident funds; and
6. to perform any other function that may be conferred or imposed on the
Commission in terms of this Act or any other enactment.

Players in the Insurance and Pensions Industry

- Pension funds
- Fund Administrators (Other than Life Insurance Companies)
- Insurance companies
- Brokers
- Multiple agents
- Loss Assessors

9.3 Pension Scheme

It is an arrangement under which an employer and/or an employee make
contributions into a pool of funds set aside for a worker's future benefit. The
pool of funds is invested on the employee's behalf, and the earnings on the
investments generate income that is used usually used to pay a pension upon
retirement, death or termination of employment or upon the occurrence of such
events as specified in the law or the document establishing the pension
scheme. It has favourable tax treatment compared to other forms of savings.
Employers set up pension funds because they offer significant tax advantages,
assist employees in saving for their retirement, aid employers hiring the type of
employees they want, increase productivity, and they can be used as a
severance pay to help restructure the workforce by promoting younger
employees to positions of greater responsibility occupied by older employees.

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9.4 Types of pension schemes
A pension scheme can be designed as a defined benefit scheme (DB) or
defined contribution (DC) or a combination of the two types (hybrid).

Defined Benefit scheme

A DB scheme is a pension scheme where the retirement benefit payable is

based on a pre-determined formula. The defined benefit fund promises a
guaranteed income to the retiree which is determined by a formula devised by
actuaries. The formula is found in the pension rule book which governs how the
defined benefit fund is managed and each pension fund has a unique formula.
The guaranteed income can be a fixed monetary value for example US$10,000
per year given to the retiree if he/she is alive, and it can also be a percentage
of the ultimate salary before retirement.

Defined Contribution Scheme

On the other hand, a DC scheme is a pension scheme where contributions into

the scheme are pre-determined implying that the benefit is uncertain as it will
depend on accumulated contributions, investment earnings and expenses of
running that fund. A defined contribution fund operates as a collection of
individual investment accounts which depends on contributions (employer and
individual) to the account during the career lifetime and the investment returns
earned from investing the contributions. On retirement, the income would be
the amount which an individual has accumulated in the individual investment
accounts.

Hybrid Pension Scheme

A hybrid combines the features of both the defined benefits and defined
contributions schemes

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9.5 The structure of Zimbabwean Pension Industry
The Zimbabwean Pensions Industry may be categorized into four main classes,
which are:

Occupational Pensions Schemes

These funds are set up by employers for the benefit of their staff. The majority
of these are DC schemes. Occupation pensions fund can either be self-
administered or insured funds. The distinguishing feature between the two is
that for self-administered funds, the assets of the fund are registered in the
name of the fund while for an insured fund, assets are registered in the name
of the insurer who makes certain promises to members of the fund.

The trustees of the self-administered funds are ultimately responsible for the
investment decisions and performance of the fund. There are two main forms
of self-administered funds. That is those that own and control their respective
administrative structures; and those that outsource administration services from
life insurers or professional pension fund administrators. Such funds can be
umbrella schemes that bring together various sponsoring employers under one
fund. These are mostly industrial based schemes that are formed through the
collective bargaining process.

Insured funds are usually small funds whose assets are pooled together and
invested in the name of the life insurance company that administer them.
Investment decision are done on behalf of the funds by the insurance company.

Personal Pension Plans (Individual Schemes)

These are pension plans that are set up by life insurers targeting individual
members not necessarily tied to any employer or any formal setting. Such
schemes are ideal for those in the informal sector.

Public Service Pension Scheme

This is a pay-as-you–go defined scheme that caters for civil servants. The
scheme was established by an Act Parliament. This scheme is not regulated by
IPEC. The State Service Pension Scheme was established by Government to
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 provide for the payment of pensions, gratuities and other benefits to or in
respect of those employed by the State on retirement, discharge, resignation,
death or other means of termination of service.
The Scheme comprises of the following sub-schemes

- Presidential Pension and Retirement Benefits Scheme

- Judges Pension Benefits Scheme
- Parliamentary Pension Scheme
- State Service (Uniformed Forces) Pension Scheme
- Civil Service (Pension) Schemes
- Officers of Parliament (Pension) Scheme

9.6 Administrative issues on Pensions

The below administrative matters on pensions covers computations, benefits,
withdrawals and claims, retirement and role of Pensions Managers.

Computations of Pensions

It depends. If you are a member of a defined benefit pension scheme, you will
receive a specified level of income that is worked out according to factors such
as your final pensionable salary and years of pensionable service. If you have
a defined contribution pension scheme, you build up your own pot of money.
The value of this pot can go up or down but over the long term, pension savings
usually grow, and you can benefit from several tax advantages. When you
retire, the amount of money you receive will depend on how much it costs to
buy a pension at that time.

In line with international best practice, pension funds should provide their
members with benefit statements. A benefit statement shows how much a
member is entitled to, based on contributions made to date. Members can also
ask their pension fund to give them benefits projection statement. This
statement shows an estimate of how much a member will be entitled when they
reach retirement age. It should be noted that a benefit projection statement is
based on several assumptions hence the amount of pension a member will get
cannot be projected with certainty.

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Remitting of pension deductions to the pension administrator

Why pension schemes were introduced?

The main reason for a pension scheme is to save for retirement, but as a social
protection instrument, a pension scheme also offers benefits when one loses
employment because of ill health, death or just decides to take up other
activities.

Pension Scheme Managers

The Board of Trustees is the one responsible for the management and control
function of the scheme. Trustees appoint fund managers, administrators or
qualified individuals to perform the duties of a fund manager and administrator.

Death Benefits of Pensions

If you die while you are still an active member of the fund, your dependents or
nominated beneficiaries will be entitled to your pension money subject to the
rules of the fund and the laws governing pensions. Apart from the pension from
the scheme, some schemes also offer death benefits in addition to accumulated
pension. For those who have retired and are already receiving a pension it will
depend on the terms and conditions in the contract that they will have entered
with the pension provider. Some contracts have arrangements where they pay
pensioners a regular income until death upon which the pension ceases. On
the other hand, some contracts are such that a member is paid a pension for a
certain period wherein if a member dies before the end of that period,
nominated beneficiaries will be entitled to get the pension until the
predetermined period lapses. For such contracts, if one outlives the period
specified in the contract they will cease to receive the pension.

We encourage that member check with their scheme’s administrator or pension

provider to find out what death benefits are payable to them under their scheme.

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 Early Retirement and Retirement benefits

It depends with the rules of a fund. If the rules allow that after pensionable age,
deductions be made towards pension, then those rules are applied, or else
deductions are stopped.

Pension transfers

Yes, it is possible. You communicate your intention with your former

administrator and it can be done, and documentation of transactions is
traceable for future reference.

Pension Claims

Pension benefits can only be claimed when one of the following events occurs:
- When you have reached normal retirement age as per the rules of your
pension fund;
- When you have resigned or have been dismissed;
- When you have retired early;
- When you have been retrenched;
- When you leave employment for medical reasons; and
- When the fund member has died.

9.7 Conclusion

Payroll personnel should be familiar with pensions administration processes

and requirements, in order to competently execute their roles. Deductions
should be accurately processed in line with the enabling Act, schedules and
remittances be timeously submitted to Pensions Fund Administrators and
records preservation be a priority. In times of retirement and withdrawal by
pension fund members, accurate information should be provided timely in order
to safeguard the value of pensions for withdrawing and retiring members.

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  Exercise
1. Discuss the differences between a Defined Benefit Scheme and Defined
Contribution schemes. Give examples of the Schemes in Zimbabwe.
2. Detail mandatory forms required on:
- NSSA registration
- Records update by employer
- Retirement

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CHAPTER TEN: PAYROLL PRACTICALS (9 hours)

The process may involve a live performance of the payroll processing cycle using
a computerised payroll package.

10.1 Setting up & data Input (Masterfile)

Setup your company data and employees’ data inside the software
- Ensure you have setup your company information inside your payroll
software. - - Prepare your master file input – capture or upload data from
excel spreadsheet or other sources. (all steps to be followed.) The following
should be captures;

- name (s) of employee

- reference documents i.e. national identity number, passport etc.

- address

- bank accounts

Attention should be given to the following;

- Payment frequencies, which the system will use to determined tax

computations.
- Transaction codes set up as to whether they are pre-tax or after-tax
deductions
- Pay attention to regular hourly pay set, overtime, cash in lieu of leave
code etc.

10.2 Validation process

Discuss validation tools such as audit trail as validation process. Review the
hard copies of input documents and applicable computations. Perform system
validation by ensuring what has been captured complies and assigned correct
code. Make use of the audit trail option.

10.3 Process actual live payroll

Once the validation process has been completed process the payroll
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10.4 Reporting and payments
Extract reports as per your company policy;
- Payroll summary report
- Detailed payroll report
- Payslips
- Bank transfer report
- Remittance advice report for NSSA, ZIMRA, ZIMDEF, NEC etc.

Prepare order for cheque or payment requisitions for withheld deductions to

appropriate payroll creditor. The frequency of remittance advice and respective
payments depend on the amount withheld and frequency.

File the required returns with the appropriate authority.

10.5 Payroll Direct Deposits

Payroll direct deposits refers to the process of depositing the employees’ net
salaries into their bank account. Most if the organisations in Zimbabwe make
use of the Paynet system.

Benefits of using this method include:

- Confidentiality – traditional paychecks or cash payments are handled by

many people before the intended beneficiary receives the payment, unlike
direct deposit.
- Reduction of fraud, for example forged signature, stolen checks and
Shortages in the event of cash payment.
- Reduction of stationery costs - Saves paper and envelopes (go green).
- Timely deposits – ensures timely deposits of funds into the recipient
employees bank accounts.
- Reduction of employee legwork of going to the bank to deposit or cash the
checks (go green).
- Ensuring the employee gets paid timely if he/she was off or on vacation at
payday, without having go to work just to pick up the check or cash.

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10.6 Period end procedures

10.7 Accounting
- Journal preparation and posting
- Salaries control Reconciliations
- Salaries Bank account reconciliation

10.8 Year-end Payroll requirements

Following are some of the requirements employers need to comply with at year-
end:
- ZIMRA – ITF16 report – a reconciliation of tax deducted and paid for a year of
assessment.
- Employees Tax certificates
- NSSA P16 report

 Final Examinations

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CHAPTER 11: REFERENCES

Blake, D. (2006). “Pension Finance”. Pensions Institute. British Library.

Capacity to Change: Data, Information Technology, and Payroll Needs in

Alternative Compensation Systems September 2012 Lauren Bivona 1000
Thomas Jefferson Street NW Washington, DC 20007-3835 202.403.5000 | TTY
877.334.3499 [Link]

Hopkins, G. (2017) The role of payroll in the gig economy (Presentation during
South African Payroll Association 2017 Conference. [Link]

Faul, M., Pistorius. C.W.I., van Vuuren, L.M. and Beer. C.S. (2005)
Accounting an Introduction, 3rd Edition. Johannesburg, South Africa:
Butterworth Publishers (Pvt) Ltd

Finance Act (Chapter 23:04)

Learning House Publications Limited (2004). Mastering Payroll Management

Publishers Tholikhambi Inc. RSA in collaboration with Learning House
Publications Limited.

Insurance and Pensions Commission Chapter 24:21

Income Tax Act (Chapter 23:06)

Learning House Study Resource Centre (2004) Pensions Administration

Labour Act: Chapter 28:01: Government Printers

Manpower Planning and Development Act (Chapter 28:02)

Millar, L. and Roper, M. (1999), Preserving Records: Managing Public Sector

Records: International Records Management Trust, 1999.

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National Social Security Act (Chapter 17:04). [Link]

National Social Security Authority (1994) Guide for Employers on The Pensions
and Other Benefits Schemes

Real Business Solutions Makers of Payroll Mate, W2 Mate, and 1095 Mate
[Link]: (2018). A Quick Guide to Payroll Basics

Pensions and provident Fund Act (Chapter 24:09)

The Institute of Payroll Professionals (2007:04) Payroll Competence

Framework: [Link]

Workmen’s Compensation Insurable Fund Act. [Link]

Standard Development Fund Act (Chapter 14:19)

Zimbabwe Revenue Authority: Guide to the Final Deduction System (FDS)

(2002).

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