One common reason why HRs generally claim that payroll processing in Nigeria is stressful lies in the lack of information about the subject and insufficient resources for proper payroll management.
This article sheds some light on how organizations should approach payroll management in Nigeria. We’ll cover payroll challenges, best practices, statutory deductions, and the role of HR in payroll.
What Is Payroll Processing?
Payroll processing refers to the organized procedure of managing employee financial data, calculating and disbursing employee salaries, and ensuring compliance with taxes and other statutory requirements.
A payroll process typically aligns with a set pay cycle i.e. monthly, weekly, or bi-weekly, depending on your organization’s policy.
What Are the Steps Involved in Payroll Processing?
A typical payroll process can be segmented into 3 steps:
- Pre-payroll activities
- Payroll processing
- Post-payroll activities
Each stage has tasks that generally remain unchanged regardless of whether you run payroll for remote, in-house, or hybrid teams. The different activities that make up each stage are outlined below.
Pre-payroll Activities
These are the tasks that must be completed before actual payroll processing.
Key activities include:
- Company registration with local authorities to obtain necessary compliance documents.
- Develop a payroll policy that outlines how your payroll process will be carried out.
- Collect necessary data needed to process payroll. These include employee information, hours worked, leave balance, and performance data.
- Verify your data to ensure payroll accuracy.
- Settle on a payroll system to run your payroll. You can use an in-house payroll processing platform like Pade or outsource your payroll needs to an agency.
Payroll Activities
This is the core stage where actual payroll calculations take place. The steps involved include:
- Calculating employee gross pay.
- Computing payroll taxes and other deductions.
- Determining employee net pay.
- Ensuring your payroll goes through a strict approval process.
- Disbursing salaries to employees via their chosen payment method.
Post-payroll Activities
Your payroll process doesn’t end after salaries hit your employees’ accounts. The important tasks that still need to be carried out include:
- Issuing payslips to employees.
- Ensuring payroll compliance by submitting withheld taxes and filing mandatory reports.
- Keeping payroll records.
Read also: The top 10 payroll processing platforms that will help you automate each payroll processing stage.
What Are the Common Challenges Organizations Face When Running Payroll?
The biggest stumbling blocks organizations face when trying to innovate their payroll operations include
- The complexity of global or multi-state payroll.
- Integration with HR systems.
- Compliance and regulatory changes.
- Data accuracy and security.
The Complexity of Global or Multi-State Payroll
It’s never an easy task managing payroll for organizations that have a global or multi-state presence.
You often have to deal with multiple payroll systems, currencies, and compliance requests.
Add your responsibility towards meeting employee needs to this mix and your payroll operations can quickly become confusing.
To avoid this, you need to coordinate your payroll operations using a single system of record like Pade.
This allows you to manage every aspect of running payroll on a single platform so that you can properly administer employee salaries and have a holistic view of your organization’s payroll details.
Integration With Other HR Systems
Payroll computation often involves input from other HR systems such as time and attendance, performance, and benefits.
Unless you can achieve a free flow of information between these systems, your payroll is likely to be error-prone.
You need to achieve data synchronization between your systems to maintain the integrity of your information.
There are two common ways organizations go about this.
- They buy and stitch together multiple HR software to handle the different aspects of HR. This could work, but apart from the obvious fact that you’d be paying for multiple subscriptions, you’d also have to worry about platform interoperability and system updates. So the second option…
- Use an HR platform that helps you manage all your HR operations on one platform. This way, you don’t have to worry about manual data transfer and platform compatibility.
Compliance And Regulatory Changes
Compliance is a vital component of your payroll process. But it can be a lot to stay on top of, with regularly changing requirements and the multitude of tasks that need to be done.
In this case, a payroll system that automates repetitive tasks like calculating and withholding employee taxes can become invaluable. You know that every employee’s statutory deductions are being computed correctly and this makes it easier for you to fulfill your compliance obligations.
Data Accuracy And Security
Another challenge many organizations face when trying to improve their payroll is keeping their payroll data accurate and secure.
Payroll errors will cost your organization time, money, and legal consequences. And it won’t end there.
Employees expect to get paid accurately and on time. And one sure way to frustrate your people is to make errors that affect their salaries.
Pade is an automated payroll platform that helps organizations maintain the integrity of their payroll data. Request a demo with one of our payroll experts to see how Pade can help your company.
What Are the Payroll Best Practices That Every Company Must Follow?
In many organizations, payroll has become something that takes time and resources. We’ll explore some best practices that will take the pain out of payroll.
- Automate your payroll.
- Create payroll policies for your payroll processing system.
- Create a strict payroll approval process.
- Take note of important payroll processing dates.
Automate Your Payroll Process
An efficient payroll operation depends on your team’s ability to handle repetitive payroll tasks, month after month.
From time and attendance tracking to tax withdrawals and Leave balance updates, there are so many payroll variables that you need to get a handle on.
However one of the biggest advances in HR is the creation of automated payroll software.
Rather than manually run your payroll, use an automated payroll software to take over tasks such as benefits administration, time tracking, tax calculation, payroll reports, and record keeping.
Create Payroll Policies For Your Payroll System
A payroll policy helps anyone in your department run payroll without any drop in standard. A typical payroll policy contains information on:
- Employee compensation
- Benefits and deductions
- Payment schedule
- Payment method
With Pade you can easily create payroll policies that govern how you run your organization’s payroll each pay cycle.
Create A Strict Payroll Approval Process
Your payroll approval process should involve several employees with different ranks.
After you pick out the employees who will be involved in your process, draw up guidelines that cover what to do when there are changes to be made to your payroll.
If you already use an automated payroll system like Pade, you can automate your payroll approval process and ensure that qualified people approve your payroll.
Take Note Of Important Payroll Processing Dates
It is best practice to keep track of important payroll processing dates to avoid missing out on deadlines. These dates are not kept secret. Some important dates include:
- Payday: Depends on your organization.
- PAYE Returns: 10th of every month.
- Withholding Tax Report: 21st of every month.
- Value Added Tax Report: 21st of every month.
Managing Payroll With Spreadsheets
Without a payroll automation platform, you’re left with manual payroll management. This often involves the use of spreadsheets to record and calculate employee salaries and statutory deductions.
Unfortunately, using spreadsheets for payroll management comes with a lot of challenges.
Spreadsheets rely on manual data entry which increases the chances of typos and miscalculations.
Also, if you work with multiple collaborators and make frequent payroll changes, it can be easy to lose track of the most recent version of your payroll leading to confusion and potential errors.
Other reasons why it is not a good idea to manage your payroll with spreadsheets are:
- Spreadsheets may struggle to handle large data volume which makes scaling difficult.
- Spreadsheets have limited integration capabilities with other HR systems which makes data reconciliation difficult.
- Spreadsheets do not offer robust security features and are therefore susceptible to unauthorized access and data breaches.
Payroll Statutory Compliance In Nigeria
Statutory remittances are legally-backed deductions required of organizations.
There are two categories of statutory deductions:
- Payroll Contributions
- Employer Deductions
Payroll Contributions
Payroll contributions are statutory remittances that are deducted from the employee’s salary. Examples of payroll contributions include:
Pension Contributions
The formula for remitting pension contributions is 8% Basic, Housing, and Transport (BHT) allowance from an employee’s salary while the organization contributes 10% of BHT. Note that if your organization decides to bear the entire pension contribution, the minimum rate is 20%.
Pay As You Earn (PAYE)
This is the personal income tax of an employee. It is calculated as follows:
- First NGN 300,000 🠆 7%
- Next NGN 300,000 🠆 11%
- Next NGN 500,000 🠆 15%
- Next NGN 500,000 🠆 19%
- Next NGN 1,600,000 🠆 21%
- Above NGN 3,200,000 🠆 24%
National Housing Fund
This is calculated as 2.5% of Basic salary from the employee’s payroll.
Employer Deductions
These are statutory remittances made by your organization and are not deducted from employee salary.
Examples of employer deductions include:
Industrial Training Fund (ITF)
If your organization has more than 25 employees, you are mandated by law to remit 1% of your annual payroll cost.
Nigeria Social Insurance Trust Fund (NSITF)
You are also required to remit 1% of your organization’s monthly payroll cost.
What Is the role of HR In payroll Processing?
HR’s role when it comes to payroll is multi-faceted.
Here are some key aspects:
- HR collects and maintains accurate employee information including personal details and tax information.
- HR oversees the tracking of employee working hours, attendance, and Leave, all of which are crucial for payroll calculation.
- HR is involved in the creation and communication of payroll policies.
- HR addresses and resolves payroll-related issues.
- HR collaborates with finance to ensure that payroll transactions are accurately recorded in the records.
- HR ensures seamless integration between payroll and other systems so there is a flow of accurate and up-to-date employee information.
At the end of the day, you hold the knowledge of employee details and are essential to making sure that payroll activities align with organizational policies.
Conclusion
Payroll isn’t just a function that your organization has to carry out well.
For your employees, it is their reward for the effort they put into the company and their means of livelihood.
You can’t have an inefficient process behind that responsibility.
Remember that the tools you use to execute your payroll strategy will determine how well your strategy plays out.
The right-fit automated payroll platform will take the stress out of managing your payroll.
Want to find out if Pade is the right fit your your company? Request a demo with our payroll experts here.
