14 November 2012

Zambia: Managing SMEs


THIS week, we continue looking at business management in Small and Medium Enterprise (SMEs).Today we look at salary administration among SMEs.

Salary expense is one prominent feature appearing on the general structure of business expenses. Therefore it is of paramount importance that the administration of salaries is given the place that it deserves.

Keeping of salary records in the business is not only important to the business owners, but also to the Government who are stakeholders in any registered business through agencies like Zambia Revenue Authority (ZRA) and National Pension Scheme Authority (NAPSA).

Most of the SMEs in the country are operating their business on break even cost analysis meaning that the businesses are just barely surviving and therefore making very little profit if not none at all.

And because of this obtaining scenario, most SMEs are struggling in making payment for salaries for the workers.

However, for the business to continue operating must ensure that it makes the salaries available to its workers at a due date to make them happy. Alongside paying the net salaries, the business must ensure that it also channels the deductions such as Pay As You Earn (PAYE) and National Pension Scheme Authority (NAPSA) contributions to make up a gross pay.

One experience that I have come across in my interaction with SMEs is that employees in these business setups have always questioned their employers whether money deducted from their salaries such as PAYE and NAPSA contributions have been channeled to the relevant authorities on time.

The lack of transparency in this area has left heated conflicts with the employees and relations have been stained over this matter.

Because most of the SMEs are operating their businesses on shoe string budget; that is barely surviving, making little profits and that businesses are operated on tight cash flow procedures and when time of paying salaries comes, they simply calculate net pay salaries of each employee and pay out leaving out statutory obligations such as PAYE and NAPSA contributions in the business accruing on monthly basis.

However, these situations do not go well with the businesses, because such deductions which are considered as part of employee's salaries must be channeled to the relevant authorities.

Paying out net pay salaries to the employees at a due date do not completely shake off the salary obligations for that month, but also at the same time money deducted from the employees must be channeled to the relevant authorities and then complete the monthly obligations.

Deductions such as salary advances and personal loans are personal obligations which we are not talking about, but here we making reference to the statutory obligations as mentioned above.

It is important for the entrepreneurs to understand that once the month goes by and that the deducted statutory obligations remain in the business, they immediately become business liabilities and that the Government agencies have legal obligations to recover them with penalties charged.

The other inconvenience is registered on the employee whose deducted NAPSA contributions are never channeled to the Authority. The authority's records show no contributions on behalf of the employee and the build up to the pension for such an employee becomes a very big problem.

It is against this background that this article is written to give suggestion on how the problems outlined above can be overcome by SMEs.

It is further to remind the SMEs that once a deduction is registered on the employee's pay then that money does not belong to the business but to its intended purpose.

It is advisable for a serious business to consider opening a salary's account alongside a main business current account. When opening a salary account a business should purpose this account to receive a gross pay transferred from main account in readiness to debase salaries to workers and also to write cheques to ZRA for PAYE and to NAPSA for contributions.

I must mention here that in a case of writing a cheque to NAPSA the employer must also contribute half of the amount as that one contributed by the employees and this amount must also be paid by the employer in the salary account as payroll expense.

This account immediately it is used must have a zero balance waiting for a repeated transactions slated for the following month. The bold decision must be taken by the business owners to do this.

It is very important for the business entrepreneur to understand that when an employee is contracted as a worker with a gross pay outlined in the contract, that amount must be paid out in full by ensuring that the statutory deductions are channeled to the relevant authorities.

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