Introduction: A Costly Oversight
Imagine losing over a million rand due to payroll errors. This was the reality for an employer in the automotive parts sector (Sector 7). Their payroll administrator unknowingly deducted provident fund contributions from employee overtime—violating MIBCO regulations.
The result? A staggering R1.1 million lost over three years. Here’s the full story and a framework to ensure you don’t make the same mistake.
The Story: How It Happened
The Context
The employer ran a 7-day-a-week business with 75 employees, many earning significant overtime each month. These operations led to overtime deductions and contributions included in provident fund calculations—a mistake against MIBCO rules.
The Error
Employee Deductions: Monthly overtime averaged R3,000 per employee. A 7.5% deduction for provident funds added up to R8100 per employee over three years, resulting in R567,000 of lost employee income.
Employer Contributions: An 8% employer contribution based on overtime led to an additional loss of R604,800 over the same period.
Total loss? R1,171,800 over three years
The Consequences
Employee income was incorrectly reduced.
Employer contributions were inflated unnecessarily.
Payroll records became inconsistent, with salaries fluctuating below minimum wage thresholds in some months.
The Discovery
After discrepancies arose in payroll and MIBCO returns, the employer sought a second opinion from Three One Solutions. A thorough review uncovered the fundamental issue: overtime is not subject to provident fund deductions or contributions.
Framework: Avoiding Payroll Errors
Here’s how businesses can ensure compliance and avoid similar mistakes:
Understand MIBCO Rules
Train Payroll Administrators
Conduct Regular Audits
Use Reliable Systems
Seek Expert Guidance
Resolution: The Turning Point
Once the payroll administrator attended the MIBCO workshop, they learned the proper procedures, stopping further losses. Three One Solutions helped the employer reconcile past errors and establish a compliant framework moving forward.
Key Takeaway
Payroll mistakes cost money—but you can avoid them. Train your team, audit payroll, and get expert help to protect your business.
While employees earned less, the money went to their retirement fund, which helps them later. But this mistake hurts the employer.
The oversight means higher contributions and big penalties. What helps employees now costs employers more—a clear case for careful payroll management.
Don't Wait for a Million-Rand Mistake to Act!
Contact Three One Solutions today for a professional review of your MIBCO statements and payroll deductions. Visit www.threeonesolutions.com to learn more or sign up for our workshops.
