What is an EMP501? - Employer Reconciliation Explained
As a business owner, you usually have numerous issues to deal with at any given time. Not only do you have to ensure that the business is operating smoothly on a day-to-day basis, but you also have to manage the finances of the company and ensure that you remain compliant with the South African Revenue Service (SARS) at all times. It can all become a bit overwhelming at times and most employers simply don’t have the resources to address many of these issues properly. A company is responsible for its own business tax, and also has to ensure that the various taxes and levies that affect the employees working at the company are paid diligently. With regard to staff, one of the documents that SARS requires an employer to submit is called an employer reconciliation declaration, also referred to as an EMP501.
An employer reconciliation is a detailed report of employees earnings at a company. The EMP501 has to be submitted twice in a financial year and an employer is tasked with ensuring the accuracy of this report. Employers are required to submit a monthly report, called an EMP201, on the various taxes and levies paid by employees. Deductions such as Pay-As-You-Earn (PAYE), Skills Development Levy (SDL) and Unemployment Insurance Fund (UIF) are collected by the company and paid over to SARS as part of the EMP201. However, this monthly report reflects only the total amount that is owed to SARS and does not reflect how much each individual staff member contributes towards the total. This is why a business is required to submit an EMP501 biannually. The employer reconciliation declaration is a much more detailed report that should indicate exactly how much each employee contributed towards the various deductions.
Companies are required by law to submit an EMP501 twice during the year of assessment. There are certain things that need to balance for your submission to be successful: your monthly EMP201 declarations need to add up to the total of the payments made to SARS, then your EMP201 payments must also balance with your IRP5/IT3(a)s generated.
This means that your payments throughout the year need to be reflected accurately in the EMP501 for your submission to be successful. The whole procedure can become quite overwhelming and a business owner simply might not have the time or expertise to process all the information correctly.
What compulsory information do I need to supply?
SARS requires determined information be provided for the employer as well as the employee. This information is generally captured and maintained on the payroll system where an interim submission file is extracted and imported into SARS e@syFile.
Prior to extracting the file out of the payroll system, the information needs to be checked and confirmed. Most payroll systems will validate all information for the reconciliation and will have a report detailing any information that is either missing or incorrect. SARS e@syFile will fail an import if certain information is missing and/or incorrect, however the details of these are specified in an exception report.
The important information required for the submission includes, but is not limited to:
- Company Information:
- Company Name
- PAYE Reference number
- SDL Reference Number
- UIF Reference Number
- Trade Classification
- SIC Code
- Physical Address of the Employer
- Postal Address of the Employer
- Reconciliation Contact Person details
- Employee Details:
- Employee Number
- Name and Surname
- ID Number, Passport and Country or Asylum seeker permit number
- Income Tax Number
- Residential Address
- Postal Address
- Work Address
- Work Telephone Number
- Banking Details
- Tax Directive Numbers (if applicable)
What financial information do I need?
A reconciliation on all financial values should be completed to ensure the values being submitted to SARS are correct and balance to the values submitted on the Monthly EMP201.
The values declared on the EMP501 must reconcile back to payments made to SARS.
When am I ready to create my file?
If you are making use of a reputable Payroll and HRIS application, you will be able to validate the data prior to submitting or creating your electronic extract. Once there are no more exceptions, or only exceptions which could be valid, the file needs to be exported out of the payroll system and imported into SARS e@syFile.
Is it possible to add data / employee details?
Additional IRP5’s can be captured manually into e@syFile post importing your payroll file. Once all certificates have been captured, e@syFile will together with the imported information calculate the certificate totals for the EMP501.
The monthly liabilities, payments and ETI (if applicable) needs to be captured into e@syFile where the final figures and reconciliation values will be calculated. If there is a difference between the certificate totals and payments and liabilities captured from the EMP201, a valid reason for the difference is to be completed before submitting to SARS.
Once the reconciliation has been completed, it can be submitted to SARS electronically via the e@syFile application. No manual or electronic (via CD/flashdrive) submissions will be accepted at a branch anymore, all submission need to be made through e@syFile electronically.
These terms might seem difficult to digest at first, but once you grasp these basic financial terms, you will feel more empowered when next you communicate with your respective bookkeeper/accountant.
For any help you may need for your businesses accounting, contact us here today!