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The Payroll Process in Uganda

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Payroll processing refers to all activities directed to the management of compensation to a company’s employees. The process usually involves gathering total employee working hours, managing the benefits, deductions and distributing employee pay for the period.

A few companies prefer using payroll software systems to help them manage this process. However, many companies, especially some in East and Central Africa, prefer using third party payroll processing services and rightly so. Such services offer efficiency, reduced errors in calculation that lead to penalties, improved data security and reduced stress.

The payroll service industry has been growing in Europe and North America. In the US alone, this industry has been increasing annually at 4.2%, generating $48.4 billion in revenue. This concept is quickly gaining traction in fast-growing African economies such as Kenya, South Africa, and Uganda.

And while using payroll software might seem straightforward, there are many behind the scene activities that take place. For instance, a company needs to have a proper employee tracking system, followed by a deeper understanding of tax returns. For such reasons, organizations prefer using services from third-party entities.

The following article sheds light on everything you need to know about Uganda’s payroll process, including employee deductions and payroll schedule. But first, let’s dive a little deeper into the meaning of payroll processing.

What is Payroll Processing

Payroll processing refers to all procedures taken to ensure employees are rightfully and legally paid at the end of a payroll period. These procedures include multiple activities that ensure pay is calculated while considering tax, company benefits, and deductions.

How Does Payroll Software Work?

Payroll software is an application used to help with the overall payroll process. It helps with organizing and automating employee payments. After determining an employee’s gross income, the payroll software automatically calculates deductions, including retirement savings, taxes and insurance. Afterwards, the software automatically makes the deductions, and a check is later drawn, or money is directly deposited into the agreed bank account.

How Does Payroll Outsourcing Work?

Payroll outsourcing is a process by which businesses hire external firms to process their payroll. Payroll outsourcing can vary from provider to provider. However, after deciding which provider you want to work with, you will need to provide information about your employees and existing payroll practices. The provider will also ask for your pay periods, pay rates, benefits, information about deductions and other garnishments.

The Payroll Process in Uganda

Step 1: Establish the Employer Taxpayer Identification Number

Simply known as the TIN, the taxpayer identification number is a unique ten-digit number issued by the Uganda Revenue Authority (URA) to help workers meet their tax obligations.

Apart from filing tax returns, this number entitles Ugandans to import/ export goods claim tax benefits, access bank loans, process land transactions above USH50 million, and acquire licenses.

Companies are encouraged to hire employees with TINs to help them with tax returns. Besides, getting one is free, and individuals receive this number within two to 21 working days.

Step 2: Gather as Much Information as You can About Employee Taxes

Before you can start processing your payroll, employees must fill out tax forms for allowances and other tax requirements. It would be best to gather all information relating to this country’s tax obligations. With that said, here are a few brief pointers to give you an idea of the country’s legislation.

  • Income Tax- Ugandans must fill out taxes on their income. Non-citizens are only required to file taxes on income gained in Uganda. Tax rates vary from 0%-40%, as employees are taxed monthly using the ‘Pay-As-You-Earn’ system.
  • Employment Income- This income includes any benefits provided by an employer, termination benefits, payment and other private or personal expenditures reimbursed by a given employer, leave pay, overtime payment, commission, gratuities, wages, salaries, bonus payments, allowances and any discounts. As an employer, you have the responsibility to withhold PAYE, only to make it within 15 days after the end of the month
  • Local Service Tax- Also known as LST, this form of tax is levied on the employee’s gross earnings when calculating taxable income. It should be paid within the first four months of the Governments financial year.

Step 3: Choose an Employee Payroll Schedule

Once you have all the relevant tax or legal information, the next thing you should consider doing is setting up a payroll schedule. A payroll schedule determines many factors, including the length of your pay period and how often you should pay your employees.

The most common payroll schedule in Uganda are payments made on a monthly basis. However, other companies are known to pay employees on a weekly, biweekly or semi-monthly basis.

You should choose a schedule that works best for you or your company. Employees have varied delivery methods as some prefer paper checks while others prefer direct deposits.

it is important that you first understand this schedule before setting up a payroll schedule. Remember to have a schedule that factors in tax dates, and holidays. These actions have to be done at the start of each year.

Step4: Calculate the Gross Salaries/ Wages

After setting up a payroll option, you should now calculate each employee’s gross pay. Different countries have different ways of calculating payroll. The universal way involves multiplying the number of hours an employee has worked by their hourly rate. Remember to include bonuses, and extra shifts worked.

Step 5: Work out Employee Deductibles

Payroll deductions, commonly called deductibles, are funds withheld from an employee’s paycheck for tax, insurance, retirement savings or garnishments. Some are mandatory others are not.

It would be in your best interest to work out payroll deductions to determine which ones should be made before-tax and those after-tax; as such tend to get complicated.

In Uganda, employers must contribute 15% of an employee’s monthly salary or wages to NSSF (National Social Security Fund). Non-residents who’ve worked in Uganda for more than three years are required to make contributions to NSSF as well.

Here are some examples of common payroll deductions; taxes, social security (national social security fund), healthcare, insurance, and other benefits.

Step 6: Work out Your Employees Net Pay

The net pay simply refers to the gross income minus all the relevant deductions. The balance is commonly referred to as the take-home pay or employee’s net pay. Once that has been established, you can pay them based on their schedule’s payday.

Ugandan’s prefer direct deposits made to their bank accounts. Various options in the country allow seamless payment to employees.

Step 7: Keep All Payroll Records and Make the Necessary Adjustments

Once all the checks are out of the door, the next thing that you should consider is updating your payroll. The main reason for keeping payroll records for all your employees is to ensure compliance with the relevant regulatory bodies such as the Uganda Revenue Authority.

Payroll records will show that you have correctly withheld deductions, including NSSF, taxes and other deductions. However, payroll records are important for other reasons as they could help you calculate any employee benefits such as retirement or insurance.

Other Considerations Affecting Payroll in Uganda

Here are other factors that you should consider when processing payroll.

  • Employee Working Hours and Overtime

Uganda forbids employees from working for more than six consecutive days without rest. Additionally, the maximum number of hours permitted every week should not exceed 56 hours, 10 hours per day.

  • Employment Contract

Employment contracts in Uganda can be made either through writing or word of mouth.

  • Minimum Wage

Uganda’s employees are entitled to a minimum wage of 6000 Ugandan shillings per month. However, this rate is yet to be revised as this bill was enacted in 1984. This does not make any economic sense.

  • Leave Entitlements

All employees are entitled to a week’s leave after working four consecutive months. Leave days also extend to public holidays. Workers who have completed a full month of employment are entitled to a month of sick leave with full pay. However, after the second month, the employer is at full liberty to terminate the contract.

Uganda’s female workers are entitled to full wages for 60 days during maternity leave. Additionally, they are entitled to four weeks after childbirth or miscarriage. Male employees are allowed a minimum of four working days during the birth or miscarriage of their child.

What are Some of The Payroll Options in Uganda?

There are various options available to you as you expand into Uganda. Here are different payroll options in Uganda

  • Internal

Large companies are known to have enough resources to run their internal payroll. First, it would be best to assess your company’s resources to ensure you have the money and staff to handle your payroll.

When internally processing your payroll, you should consider using payroll software. Payroll software refers to an on-premises or cloud-based application that automates payments to employees.

Remote

COVID-19 has accelerated remote work and brought about the future of work even in Uganda and Kenya. This option is ideal for companies that can’t run their payroll but do not want to outsource. However, when you choose this option, you must adhere to the right laws in Uganda.

Local outsourcing Company

Outsourcing companies are third party organizations designed to perform services that in-house employees traditionally performed. This is by far the most convenient way of processing payroll.

You should consider outsourcing your payroll function to a top and reputable outsourcing firm based in the region, such as Flexi Personnel.

How to Choose a Payroll Provider in 2021

Business owners are responsible for paying their teams or employees on time and as agreed. This process is commonly referred to as running payroll. However, the payroll process is a complicated one. For this reason, many firms choose to outsource payroll.

Outsourcing payroll is convenient as it helps avoid errors while staying in compliance with the relevant tax authorities, in this case, the Uganda Revenue Authority. However, with so many payroll providers in the market, getting one that fits your business requirements might be challenging.

Here are some tips to help you choose the right payroll provider for you.

  • Consider the Core Features of the Payroll Services

Before settling for a payroll provider, you should start by looking at the core features of the payroll services. Businesses have different requirements and needs. For instance, you might prefer a service that only automated your payroll. On the other hand, some might prefer a service that comes with all features.

A good place to start is by researching top payroll providers in your region. As you do so, consider the urgency of your business needs. Many payroll services offer a wide range of services, from the most basic plans to advanced plans.

  • Payroll Software Pricing

Price is the biggest determining factor when deciding on a payroll provider, and rightly so. Remember, no business is looking to spend money on unnecessary payroll processing. Consider the cost of the payroll provider and match it against the service being offered.

  • Tax Compliance Updates

Most payroll providers must offer tax services while doing other deductibles such as social security and health insurance. However, remember the effectiveness of such services is only as good as your compliance.

  • Experience and Portfolio

You should only consider a top payroll provider who has the experience and the portfolio to back it up. Experienced payroll providers tend to uphold top-notch levels of professionalism.

How Long Does It Take to Process Payroll?

Many factors affect the duration of payroll processing. It could take several hours, depending on your company size and software in question. It could take even longer if you are manually processing your payroll. Automated payroll significantly reduces the time used in processing the same.

Verdict

Payroll processes in Uganda should make the entire process easier, quicker and efficient for all business owners. Consider the above tips if you choose to process payroll internally. However, there are many advantages that your business could realize if you choose a payroll provider. Such advantages include reduced errors, improved efficiency, and compliance with revenue authorities. Payroll providers also allow you to focus on business development.

Are You Looking for Payroll Services in Uganda?

Are you in the market for a payroll provider? You should only consider a payroll provider with experience offering a service package that meets your needs at a reasonable cost.

Flexi Personnel is a top tier payroll provider offering payroll management services in Uganda. Our payroll and tax administration spectrum includes tax administration, employee benefits and annual tax filing among other services.

We are experts in supporting both local and expatriate payroll management in Kenya, Uganda and other countries, all whilst ensuring compliance with the necessary payroll tax legislation in every country of service delivery.

We would like to work with you on your next project. Feel free to contact us at Flexi Personnel for payroll services and other HR solutions.

Get started today!