Learning Unit 1 | US: 109994 NQF Level 5 Worth 15 Credits Ascertain Gross Pay |
Unit Standard Purpose | This unit standard is for learners in the payroll profession, or those seeking to enter the payroll profession, who wish to enhance their payroll competencies. Learners who are competent in this unit standard will be able to determine the formation of gross pay entitlement. The qualifying learner will be capable of: · Demonstrating an understanding of gross pay. · Determining basic entitlements. · Determining fringe benefits values. · Processing additional pay and allowances. |
Learning Assumed to be in Place | It is assumed that the learner has the following knowledge and skills: · Communication at NQF Level 3. · Mathematical Literacy at NQF Level 3. · The Unit Standard “Demonstrate an understanding of statutory legislation and requirements relating to payroll administration” at NQF Level 4. |
Session 1 SO 1 | Demonstrate an understanding of gross pay. |
Learning Outcomes (Assessment Criteria) | · The compilation of gross pay is understood and explained. · Different ways of defining gross pay as per various statutes is understood and explained. · The implication of various definitions on calculation of gross pay is understood and demonstrated. |
Gross pay is an individual’s total earnings throughout a given period before any deductions are made. Deductions such as taxes, medical contributions or retirement funds are not accounted for when gross pay is calculated.
Employers determine the amount of gross pay each employee earns when they set the employee’s salary. However, gross pay also includes additional sources of income, such as overtime pay and bonuses.
For this reason, calculating gross pay becomes more complicated when there are multiple sources of compensation, but there are formulas that can help you calculate gross pay easily.
To calculate gross pay for a salaried employee, take their total annual salary and divide it by the number of pay periods within the year. If a business pays its employees once a week, then you would have 52 pay periods in a year, if a business pays its employees monthly then you would have 12 pay periods.
When an employee accepts a new job offer, the negotiated salary is typically a figure determined before tax, which is known as the gross pay. The first payslip received includes the net pay amount after tax. Gross wages equal the amount before tax whereas net pay is the sum after tax. Net pay is also commonly referred to as “take-home” pay.
It’s common practice for a new employee to accept an offer based on gross pay. It’s harder for an employer to make an offer based on net pay because each employee’s tax, medical aid and pension/provident fund deductions differ.
| Determine basic entitlements. |
Learning Outcomes (Assessment Criteria) | · Details of employees’ basic pay rates and contracted conditions are verified for accuracy and authorization. · Variations in working hours are checked for accuracy and authorisation. · Employees covered by positive payrolls are clearly identified and relevant details are correctly inserted. · Rates for overtime payments are checked against agreed scales for each type of employee affected. · The treatment of permanent allowances and enhancements is correctly identified with respect to tax, unemployment insurance fund, skills development and pension/provident deductions. · All permanent entitlements and enhancements supplementary to basic pay are identified and input correctly, to payroll. |
All data entered into the payroll system for every payroll cycle needs to be reviewed and verified for both accuracy and integrity.
Ensure raw data is stored and an audit trail of checks are kept for record purposes.
Category | Line Item | Possible Checks / Validation |
Income | Basic Salary or Wages | Verify New Personnel |
Verify Basic Salaries / Rate of Pay with HR or against contract. | ||
Travel Allowance | Verify Travel Allowance Value against Offer of Employment / Contract. | |
Verify Taxation % (80% or 20%) with Employee / HR. | ||
Overtime | Verify Eligibility against contract. | |
If Eligible – Is, it calculated accurately. | ||
Other Allowances | Verify Eligibility against contract. | |
If Eligible – Is, it calculated accurately. | ||
Commission | Verify Eligibility against contract. | |
If Eligible – Is, it calculated accurately. | ||
Bonus | Verify Eligibility against contract. | |
If Eligible – Is, it calculated accurately. | ||
Incentive | Verify Eligibility against contract. | |
If Eligible – Is, it calculated accurately. | ||
Statutory Deductions | PAYE | Ensure Employee Tax is set to standard or as necessary. |
Ensure the Payroll System is on the latest version. | ||
Ensure PAYE is accurately calculated / consider Pro-Rated Calculations | ||
UIF | Ensure the Payroll System is on the latest version. | |
Ensure the Payroll System legislative limits are accurate and up to date. | ||
Statutory Contributions | SDL | Ensure the Payroll System is on the latest version. |
Ensure the Payroll System legislative limits are accurate and up to date. | ||
Main Agreement Deduction / Contributions | Pension Fund | Ensure % Allocations and calculations are as per the latest Gazetted Main Agreement Amendments. |
Provident Fund | Ensure % Allocations and calculations are as per the latest Gazetted Main Agreement Amendments. | |
Union Fees | Ensure deductions are as per the Union Agreement Forms. | |
Bargaining Council Fees | Ensure % Allocations and calculations are as per the latest Gazetted Main Agreement Amendments. | |
Sick Pay Funds | Ensure % Allocations and calculations are as per the latest Gazetted Main Agreement Amendments. | |
Non-Statutory Deductions / Contributions | Medical Aid | Ensure Deductions | Contributions | Dependent’s are in line with Employee Application and Updated Fee Schedule from the respective Medical Aids. |
Ensure the Medical Aid Tax Credit is applied to the latest Tax Tables. | ||
Provident Fund | Ensure Fringe Benefit is linked to the correct Tax Code. | |
Ensure the correct rules are applied as per the Fund Rules. | ||
Pension Fund | Ensure Fringe Benefit is linked to the correct Tax Code. | |
Ensure the correct rules are applied as per the Fund Rules. |
In order to facilitate a seamless reconciliation at the end of the tax year, it is important to ensure that your payroll is reconciled on a monthly basis.
It acts as a payment declaration in which the total payment is declared with the allocations for PAYE, SDL, UIF and ETI (if applicable). A unique payment reference number (PRN number) is used to link the payment to the payment allocation. Payments must be made before or on the seventh day of the next month. If the 7th falls on a weekend or public holiday, PAYE, SDL, UIF and ETI the payment must be made before or on the last business day before the weekend or public holiday.
In terms of the Fourth Schedule to the Income Tax Act, an employer must submit a tax certificate to SARS at the end of the tax year for every employee as defined above. IRP5(a)’s must be issued for those employees from whom employees’ tax has been withheld during the tax year, and IT3(a)’s for those employees from whom no employees’ tax has been.
withheld. Employers are not allowed to issue employees with their tax certificates until the EMP501 reconciliation is completed and copies of both the return and the tax certificates have been submitted to SARS.
The employer can submit the EMP501 reconciliation through –
The EMP501 must reconcile the following values in order to be successful –
SARS may levy a penalty of up to 10% of the total amount of employees’ tax due for the year of assessment if the submission of the EMP501 return and tax certificates is not done by the last day of the filing season.
The BCEA provides that an employee’s annual leave cycle is the 12-month period following their appointment date.
How much leave is an employee entitled to in South Africa?
The entitlement is 21 consecutive days annual leave on full remuneration, in respect of each annual leave cycle, and if an employee works a five-day week, then this is equal to 15 working days, or if the employee works a six-day week then it is equal to 18 working days.
In terms of the BCEA, annual leave is paid leave and an employee is entitled to the same number of days that they would normally work in three weeks. Practically, this means that an employee’s minimum annual leave entitlement is calculated by multiplying their regular working days by three – i.e., if an employee works five days a week, they are entitled to at least 15 days annual leave each year (5 x 3 = 15). An employer may always grant the employee more leave than the act prescribes.
An employee is entitled to accrue a portion of their annual entitlement each pay period. This accrual continues during paid absences including maternity leave and long-term illness. This is calculated by dividing their annual entitlement by the number of pay periods in the year:
A monthly-paid employee working five days a week will be entitled to a minimum of 15 days of annual leave a year, which is calculated as 5 x 3. This result in an accrual rate of 1.25 days a month, which is calculated as 15 / 12 = 1.25.
A fortnightly-paid employee working three days a week will be entitled to a minimum of 9 days of annual leave a year, which is calculated as 3 x 3. This results in an accrual rate of 0.35 days a fortnight, which is calculated as 9 / 26 = 0.35.
A weekly-paid employee working seven days a week will be entitled to a minimum of 21 days of annual leave a year, which is calculated as 7 x 3. This results in an accrual rate of 0.4 days a week, which is calculated as 21 / 52 = 0.4.
Generally, within the First Six Month of employment the following calculation applies:
1 day of leave for every 17 days worked: or 1 hour of leave for every 17 hours worked.
(a) at the employee’s rate of remuneration immediately before the beginning of the period of annual leave; and
(b) in accordance with section 35.
(2) An employer must pay an employee leave pay—
(a) before the beginning of the period of leave; or
(b) by agreement, on the employee’s usual pay day.
A sectoral determination has been issued, regulating which amounts must be included in the calculation of annual leave pay, and which amounts must be excluded. The same the sectoral determination also regulates the method of calculation of the severance pay.
Calculation of Remuneration in terms of Section 35 (5) of the Basic Conditions of Employment Act, 1997 (Act 75 Of 1997)
The Minister of Labour issued a determination in Government Notice 691 dated 23rd May 2003, stating that the following method of calculating employee’s remuneration for the purposes of annual leave in section 21, payment instead of notice in terms of section in 38 and severance pay in terms of section in 41 of the Basic Conditions of Employment Act. This determination became effective on the 1st of July 2003.
An employee is entitled to take all leave accumulated at any point in their cycle, on consecutive days. In the absence of an agreement to the contrary, annual leave is taken at a time that suits the employer.
An employer may not force / allow an employee to take annual leave during their notice period prior to termination of employment.
If an employer has a period of annual shutdown, they may stipulate that annual leave has to be taken to coincide with this. If an employee has exhausted their annual leave before this time, the shutdown period may be treated as unpaid leave.
The employer is prohibited by section 20 (11) from paying an employee for annual leave except upon termination of employment.
Sections 22 (1) through 22 (4) are reasonably clear. During every 36 months cycle, commencing from the first day of employment, the employee is entitled to be given paid sick leave equal to the number of days he normally works in a six-week period.
Therefore, if the employee works a five-day week, then his sick leave entitlement in every 36 months cycle is 30 days on full pay. If he works a six-day week, then his entitlement is 36 days on full pay.
During the first 6 months of employment, the employee is entitled to only 1 day paid sick leave in every 26 days worked. Any sick leave days taken during the first six months of employment is deducted from the full 36 months entitlement.
On the first working day of month number 7, the balance of the full entitlement kicks in and is available to the employee. The employee can use those sick leave days at any time required over the next 2,5 years, or if it is the second cycle, over the next 3 years.
Employers must note that the sick leave is not 10 days per year, or 12 days per year, or 0, 83 days per month.
It is 30 days (or 36 days) in every three-year cycle. If the employee uses up all his available sick leave at the beginning of the cycle, or during a cycle, then he has no more sick leave available for the balance of those 36 months – and therefore any further requirement will be taken as unpaid leave.
Employers are not advised to allow more than the statutory 30- or 36-days sick leave. If this allowance is increased, employers can rest assured that the employees will make good use of it.
Subject to section 23, an employer must pay an employee for a day’s sick leave: the wage the employee would ordinarily have received for work on that day; and on the employee’s usual pay day.
Payment for sick leave is calculated at the employee’s normal wage rate or normal salary. To convert monthly payment to a daily rate, the monthly gross before deductions is divided by 4.3, which gives a weekly rate, and in the weekly rate is divided by 5 which gives a daily rate. The daily rate is divided by the number of hours ordinarily worked in a day, to arrive at an hourly rate.
Weekly wages are simply divided by 5 to arrive at a daily rate. An agreement may reduce the pay to which an employee is entitled in respect of any day’s absence in terms of this section if: the number of days of paid sick leave is increased at least commensurately with any reduction in the daily amount of sick pay; and the employee’s entitlement to pay for any day’s sick leave is at least 75 per cent of the wage payable to the employee for the ordinary hours the employee would have worked on that day; and for sick leave over the sick leave cycle is at least equivalent to the employee’s entitlement in terms of subsection (2).
Some employers reach agreement with the employees that payment for sick leave will be at, for example, 75% of the employee’s normal wage.
In return for the employee’s agreement, the sick leave entitlement is then increased by 25%, thus allowing employees 37.5- or 45-days sick leave in every three years cycle.
Firstly, only an employee who has worked for longer than four months with the same employer, and who is employed on more than four days per week with the same employer, qualifies for family responsibility leave.
This class of leave replaces what was in the past known as paternity leave, special leave, compassionate leave or any other name that it was known by.
Family Responsibility Leave now covers specific requirements – anything not mentioned in paragraph 27(2) does not qualify for family responsibility leave.
The provisions cover instances where:
The death of the employee’s spouse or life partner; the death of the employee’s parent, adopted parent, grandchild, grandparent, or brother or sister.
Note that the employee only qualifies for family responsibility leave in cases of illness only if it is the employee’s child or adopted child that is sick.
No other incident of illness is covered under the section – the illness of the employees’ spouse or life partner, the illness of his/her parent, grandparent, brother or sister, cousin, brother-in-law, mother-in-law, or anybody else is not covered under family responsibility leave. The employee must use annual leave for that purpose.
Similarly, the occasion of the death of a person only qualifies for family responsibility leave if the death is one of the persons named above. The death of any other relatively is not covered by family responsibility leave. Those occasions must be treated as annual leave.
This section also makes no provision for Family Responsibility Leave upon the adoption of a child – employees must use annual leave for that purpose.
Should a public holiday fall during a period whilst an employee is on annual leave, and the public holiday falls on the day on which the employee would ordinarily work, then the employee is entitled to an extra day annual leave for each such public holiday.
Public holidays – Section 18 – Basic Conditions of Employments Act
(1) An employer may not require an employee to work on a public holiday except in accordance with an agreement.
(2) If a public holiday falls on a day on which an employee would ordinarily work, an employer must pay –
(a) an employee who does not work on the public holiday, at least the wage that the employee would ordinarily have received for work on that day.
(b) an employee who does work on the public holiday–
(i) at least double the amount referred to in paragraph (a); or
(ii) if it is greater, the amount referred to in paragraph (a) plus the amount earned by the employee for the time worked on that day.
(3) If an employee works on a public holiday on which the employee would not ordinarily work, the employer must pay that employee an amount equal to–
(a) the employee’s ordinary daily wage; plus
(b) the amount earned by the employee for the work performed that day, whether calculated by reference to time worked or any other method.
(4) An employer must pay an employee for a public holiday on the employee’s usual pay day.
(5) If a shift worked by an employee falls on a public holiday and another day, the whole shift is deemed to have been worked on the public holiday, but if the greater portion of the shift was worked on the other day, the whole shift is deemed to have been worked on the other day.
Determine fringe benefits values. | |
Learning Outcomes (Assessment Criteria) | · All relevant fringe benefits are identified and correctly applied to employee records. · Proper authorisation is obtained in accordance with company policy. · All relevant fringe benefits are applied in accordance with current statutes. |
The term fringe benefit refers to payments made to employees in a form other than cash. A taxable benefit is deemed to have been granted by the employer to the employee if such benefit is granted as a reward for services rendered or to be rendered.
Where any associated institution in relation to the employer grants a benefit to an employee as a reward for services rendered, it constitutes a taxable benefit deemed to be granted by the employer to the employee.
The Income Tax Act specifies in the Seventh Schedule how to calculate the value of the benefit that accrues to the employee for employees’ tax purposes. The Commissioner uses market value for some types of benefits, cost price for others and special formulae for the rest.
For the purposes of this section, a partner in a partnership is deemed to be an employee of the partnership.
A taxable benefit arises where an employee acquires an asset consisting of any goods, commodity, financial instrument, or property of any nature (other than money), either for no consideration or for a consideration that is less than the value of the asset.
The value of the taxable benefit is the market value of the asset at the time the employee acquires the asset, less any consideration given by the employee. The cost of the asset must be used instead, where:
No value is placed on:
Long service is defined as an initial unbroken period of service of at least 15 years and any subsequent unbroken period of service of at least 10 years.
No value is placed on immovable property used for residential purposes that is acquired by the employee, provided the following conditions are met:
A taxable benefit arises where an employee has been granted the private or domestic use of any asset either free of charge or for a consideration that is less than the determined value of the use. The value of the taxable benefit is the determined value of the private or domestic use of the asset, less any consideration given by the employee for its use during that period and any amount spent by him on its maintenance or repair.
The determined value is either:
The calculated value is an annual value that must be apportioned to each month in the tax year.
No value is placed on the asset if:
This paragraph does not apply to clothing.
Use of the employer’s motor vehicle or accommodation is dealt with separately.
(Paragraph 7, Seventh Schedule)
A taxable benefit arises where an employee is granted the right to use the employer’s motor vehicle. Private use includes travelling between the employee’s place of residence and his place of work, as well as other private travel.
The determined value of a motor vehicle which is acquired or manufactured by the employer before March 2015 is:
From March 2015, the value to be used as the determined car value is the retail market value as determined by the Minister in a regulation. The regulation is only applicable to vehicles acquired or manufactured from March 2015. Please refer to Government Gazette 38744 and 42961 for more information.
Maintenance plan is defined as a contractual obligation undertaken by a provider to underwrite the costs of all maintenance of that motor vehicle, other than costs related to top-up fluids, tyres, or abuse of the vehicle. The obligation is for at least 3 years and 60 000 kilometres from the date the provider undertakes the contractual obligation and may terminate when either condition is met.
Depreciation of 15% according to the reducing-balance method is allowed for each completed 12-month period from the date the employer first obtained the vehicle or the use of the vehicle, to the date the employee was first granted the use of the vehicle. This means that an employee who had the use of a vehicle, then stopped using the vehicle and later started using the vehicle again, must be taxed on the determined value that was calculated the first time and is not entitled to any further depreciation.
The fringe benefit value placed on the private use of a motor vehicle for each month or part of a month during which the employee was entitled to the private use is:
The fringe benefit value placed on private use is reduced by any consideration given by the employee, other than consideration in respect of license, insurance, maintenance, or fuel cost.
Where the employee has the use of the vehicle for part of a month, the amount for private use, must be determined in the same ratio as the number of days the employee had the use of the vehicle to the total number of days in the month.
An operating lease is a rental contract which includes all the following conditions:
No value is placed on the private use of the employer’s vehicle if:
No reduction on the fringe benefit value is allowed if the vehicle is temporarily not used for private purposes.
For PAYE purposes, SARS requires the deduction of PAYE from 80% of the fringe benefit value, unless the employee uses the vehicle at least 80% for business, then SARS requires the deduction of PAYE from 20% of the fringe benefit value. The full use of motor vehicle fringe benefit value must be disclosed on the employee’s tax certificate against code 3802 or 3816.
A taxable benefit arises when an employee has been provided with a meal or refreshment or with a voucher entitling him to a meal or refreshment either free of charge or for a consideration less than the value of the meal or refreshment. The value of the taxable benefit is the cost to the employer less any consideration paid by the employee.
No value is placed on the meal if:
Residential accommodation provided to an employee either free of charge or for a consideration that is less than its determined rental value gives rise to a taxable benefit. The residential accommodation may be furnished or unfurnished, and it may be provided with or without fuel, power or water.
The value of the taxable benefit in respect of residential accommodation must be the determined rental value less any consideration paid by the employee.
The rental value to be determined is an amount calculated using the following formula:
(A – B) x C/100 x D/12 where:
A = remuneration proxy (excluding residential accommodation fringe benefit)
B = R87 300 from 1 March 2021 (subject to certain exclusions)
C = 17 unless the accommodation consists of at least 4 rooms
= 18 if unfurnished and power or fuel is supplied by the employer
= 18 if furnished and no power or fuel is supplied by the employer
= 19 if furnished and power or fuel is supplied by the employer
D = the number of completed months in the year of assessment during which the employee is entitled to the accommodation.
The meaning of a “room” for the purposes of the above formula has been interpreted by SARS as being a “separate part of the inside of a building”.
A “room” does not only include bedrooms, but all rooms such as bathrooms, toilets, living rooms, bedrooms, kitchens and studies. Each “room” in an open plan area that is clearly distinguishable must also be counted as a separate room.
If the employer supplies the employee with residential accommodation, and
The formula must be applied where the employee has an interest in the accommodation.
No value is placed on any accommodation provided in South Africa to an employee who is away from his usual place of residence in South Africa.
No value is placed on accommodation provided to an employee whose usual place of residence is outside South Africa:
The accommodation will however be taxable:
The value of any holiday accommodation provided by an employer is:
(Paragraph 10, Seventh Schedule)
The value consists of the employer’s cost in rendering such a service less any amount paid by the employee, unless the employer’s business is to convey passengers by sea or air where travel to destinations outside South Africa is valued at the lowest fare payable less any amount paid by the employee.
No value is placed on:
(Paragraph 11, Seventh Schedule)
A taxable benefit arises when a loan/debt has been granted to the employee:
The benefit value is the amount of interest determined by calculating the interest at the official rate of interest, and deducting the interest actually paid, and may be applied on a regular basis, or at the end of the tax year.
The official rate of interest is equal to the repurchase rate plus 1%.
No taxable value is placed on the low/interest free loan:
Be aware that under certain conditions, loans granted by employers fall under the provision of the National Credit Act. It is recommended that employers remove their exposure to the Act by outsourcing the granting of loans to financial institutions whose business it is to provide loans.
A taxable benefit arises when the employer pays the contributions of an employee to a medical scheme if the employee is not retired from such employer, irrespective of the employee’s age. The value of the benefit is equal to the value of the monthly employer contribution.
An employee is retired if the employee leaves the employment of such employer due to superannuation (reaching normal retirement age according to the rules of the employer’s superannuation fund), ill-health or other infirmity.
This taxable fringe benefit must be taken into account as remuneration for employees’ tax purposes and is deemed to be a medical aid contribution paid by the employee.
Employers are required to report employer medical scheme contributions against the following codes:
Where an employer paid medical costs in respect of any medical, dental or similar services, hospital services, nursing services and prescribed medicine on behalf of an employee, his spouse, child, other relative or dependant, such payments are regarded as taxable fringe benefits.
No value is placed on:
This taxable benefit arises where an employer pays any premiums towards an insurance policy which is directly or indirectly for the benefit of the employee or his or her spouse, child, dependant, or nominee. When an insurance policy is in the name of the employer (employer-owned), this paragraph is applicable, and the employee should be taxed on the fringe benefit. This paragraph only applies to products supplied by an insurer.
This paragraph does not apply in respect of an insurance policy that relates to an event arising solely out of and in the course of employment of the employee.
In the case where the policy is in the name of the employee (employee owned), it falls within the scope of release from debt fringe benefit.
A taxable benefit arises when the employer contributes to a retirement fund (pension, provident or retirement annuity) on behalf of the employee.
The fringe benefit will be deemed to be paid by the employee for income tax purposes. There will be no fringe benefit if the employer contributes towards a retirement fund on behalf of an
The value of the fringe benefit is determined by the type of retirement fund.
There are three types of funds: defined contribution, defined benefit and hybrid funds.
This is a fund which consists solely of defined contribution components.
Contributions towards this fund can be directly linked to the benefit the member is entitled to.
The fringe benefit value is equal to the actual employer contribution towards the defined contribution fund.
Defined benefit funds have retirement benefits that are calculated according to the rules of the fund where the value of the contributions to the fund may not be an accurate reflection of the benefits that may be received by the retirement fund member.
The monthly fringe benefit value is calculated with a formula:
X = (A X B) – C
Where;
X Represents the fringe benefit amount to be determined.
A Represents the fund member category factor in respect of each employee. This is obtained from the fund.
B Represents the retirement-funding income of the employee (see ‘retirement funding income’).
C Represents the sum of the amounts contributed by the employee to the specific fund in terms of the rules of the fund in respect of the year of assessment.
This will only include the actual employee contribution and not the deemed employee contribution.
The additional voluntary contributions made by the employee or “buy- back” to purchase additional years of service is not included in the value of ‘C’.
These funds consist of a combination of components (defined contribution, defined benefit, underpin and/or risk components).
The value of the fringe benefit is calculated with the same formula which is used to calculate the fringe benefit for a defined benefit fund. The fund calculates a category factor which takes all the components into account.
This factor is applied to calculate the monthly fringe benefit.
Retirement funding income (RFI) is the amount of remuneration taken into account in the determination of the contributions made by an employer (or the fund itself) to a pension or provident fund. It includes the full value of a travel allowance and a public office allowance if these allowances are taken into account to determine the contribution.
A taxable benefit arises when the employer contributes towards a scheme or fund administered by the bargaining council for the benefit of the employee. The value of the benefit is equal to the value of the monthly employer contribution.
Employers are required to report the contributions against the following codes:
This taxable benefit arises when the employer has
The taxable value is the amount the employer paid or the amount of debt from which the employee was released.
Note that any subscriptions paid to a professional body by the employer on behalf of the employee has no taxable value as long as the membership of such body is a condition of the employee’s employment.
Session 4 SO 4 | Process additional pay and allowances. |
Learning Outcomes (Assessment Criteria) | · All relevant temporary entitlements are identified and correctly applied. · Payment of temporary entitlements is checked for proper authorisation in accordance with organizational requirements. · The treatment of all temporary pay and allowances are correctly identified with respect to statutes and contractual deductions. · Where variations in gross pay arise, the appropriate action is taken to apply the terms of statutory and organizational payment schemes. |
An allowance is granted to an employee where the employer is certain that business related expenses will be incurred by the employee, but where the employee does not have to account for expenses to the employer. The value of the allowance is based on the expected business-related expenditure.
An advance is paid in lieu of business expenses an employee will incur and for which the employee must provide proof to the employer. The value of the allowance is based on the expected business-related expenditure. The difference between the advance and the actual expense will be recovered by either the employer or the employee.
A reimbursement is a repayment by the employer to the employee for business-related expenditure incurred by the employee on instruction by the employer and is subject to proof of the expenditure.
A travel allowance is granted to an employee in respect of travelling expenses for business purposes. This is a fixed allowance that the employee receives every pay period, regardless of actual business kilometres travelled in that period.
Private travel includes travelling by the employee between his place of residence and his place of employment or business, as well as any other travelling done for his private purposes.
Any travel expenses paid or reimbursed (other than a reimbursement for actual business kilometres travelled) by the employer, whether paid for directly or by issuing a garage or petrol/fuel card, are regarded as a travel allowance.
For PAYE purposes, SARS requires the deduction of PAYE from 80% of a travel allowance, unless the employee uses the vehicle at least 80% for business, then SARS requires the deduction of PAYE from 20% of a travel allowance. The full travel allowance must be disclosed on the employee’s tax certificate against code 3701.
Reimbursements calculated using the actual business kilometer’s travelled are not regarded as being a travel allowance, regardless of the rate per kilometer used or the distance travelled. From March 2018, 100% of the portion of the Reimbursive travel allowance that exceeds the prescribed rate per kilometer (rate per kilometer for the simplified method, fixed by the Minister of Finance by notice in the Gazette) is included in remuneration and subject to PAYE.
The portion of the reimbursive travel allowance that does not exceed the prescribed rate per kilometer is excluded from remuneration and not subject to PAYE.
Report the full reimbursive travel allowance on the tax certificate against code 3703 if:
Report the full reimbursive travel allowance on the tax certificate against code 3702 if:
Report the reimbursive travel allowance on the tax certificate against code 3702 and 3722 if:
The value for code 3702 is the portion of the reimbursive travel allowance that does not exceed the prescribed rate per kilometer and is not included in remuneration.
The value for code 3722 is the portion of the reimbursive travel allowance that exceeds the prescribed rate per kilometer and is included in remuneration.
It is to the advantage of an employee who is required to travel for business purposes to have a realistically estimated travel allowance paid to him during the tax year.
If the allowance is too low, it is possible that the travel expenses claimed on assessment will exceed the allowance. If business travel expenses are claimed that are more than the allowance, only expenses up to the amount of the allowance will be granted, and the employee will be effectively penalized.
If the allowance is excessive and not based on realistic estimates, it can be seen by SARS to be an abuse and disallowed as a travel allowance.
The calculation of a realistic travel allowance should be done in the same way that SARS will assess the allowance at the end of the tax year. Three elements are required to calculate the travel allowance:
The determined value of the vehicle is the original purchase price including VAT but excluding finance charges and interest. Use this value to look up the position of the vehicle used for the travel in the table.
The rates per kilometre are divided into three components on the schedule, namely fixed cost, fuel cost and maintenance cost.
The fixed cost element covers the cost of depreciation, loss of interest, licensing and insurance for the year, and must be divided by the total kilometres (private and business) travelled in the tax year to give a fixed cost rate per kilometre.
The fuel and maintenance costs are given as a rate per kilometer and must be added to the fixed cost rate per kilometer only where the employee bears the cost of these items.
This calculated allowance is an annual value. It is further suggested that an additional value is added to the allowance in order to accommodate a variance from the estimated kilometres used in the calculation.
Note that if the employer reimburses the employee for business kilometres travelled in addition to granting a travel allowance, then the value of the annual travel allowance as calculated above should be reduced by the estimated value of the reimbursements.
If the employee retained supporting documentation (i.e. proof of actual expenditure and/or a logbook of business kilometres travelled), then the actual expenditure can be claimed on assessment, but limited to the value of the allowance. The actual number of business kilometres travelled is used to calculate the claim and the prescribed rate per kilometre can be used, or actual costs can be used to determine a true rate per kilometre.
If no supporting documentation is retained, the employee will not be able to claim any expense on assessment.
The claim is always limited to the value of the travel allowance (which for assessment purposes is the total of codes 3701, 3702 and 3722).
In order to qualify for a subsistence allowance, the employee must be required to spend at least one night away from his usual place of residence in South Africa. Subsistence allowance payments are excluded from remuneration and are never subject to PAYE, irrespective whether the actual payment exceeds the limits.
Payments that exceed the limits will be assessed by SARS.
The following are the deemed expense amounts for subsistence allowances for the 2021/2022 tax year:
Travel within the Republic:
Travel outside the Republic:
Subsistence allowances for local travel up to the values of R139 and R452 per day or part of a day must be reported against code 3714. If the value of the allowance exceeds these daily limits, the full value of the allowance must be reported against code 3704.
Subsistence allowances for travel outside South Africa up to the values indicated in the schedule per country must be reported against code 3714. If the value of the allowance exceeds these daily limits, the full value of the allowance must be reported against code 3715.
Codes 3704 and 3715 must also be used if the employer pays any of the actual costs in terms of which the allowance was granted. Employers should in fact reduce the daily limit by the value of the actual costs paid by the employer.
An employee may be given a subsistence advance in lieu of nights the employee will spend away from his usual place of residence. The employer has to reconcile the advance by the following month. If the employee did not travel as intended, the advance has to be repaid to the employer or the advance must be taxed in full as a general allowance or salary.
A taxpayer may be entitled to receive reimbursements or advances by the employer in respect of meals and/or incidental costs incurred by the employee if the employee spends a day or part of a day away from his usual place of employment/work for work purposes. This will be exempt from income tax if –
The maximum amount for expenditure in respect of meals and incidental costs for 2021/2022 is R139 per day/part of a day
Arbitration awards are generally awarded due to unfair dismissal, termination of the employment contract prior to the expiry date or due to unfair labour practices. Amounts paid due to unfair dismissal and early termination of the contract is remuneration and is taxable on the payroll.
Amounts paid due to unfair labour practice might be included in remuneration.
Apply for a directive on arbitration awards using application form IRP3(a).
The taxable portion of the award must be taxed as a periodic/annual earning and reported against IRP5 code 3608. The non-taxable portion of the award must be processed against IRP5 code 3602.
In practice, these directives might be issued indicating the PAYE amount to be withheld from the arbitration award. In this case, reflect the lump sum against code 3907 and the PAYE against code 4102.
Gratuities due to Retrenchment, Retirement or Death
Employer paid gratuities due to the retrenchment, retirement or death of an employee is taxed according to the same rules as retirement fund lump sums. Retirement fund lump sum benefits and severance benefits are subject to a cumulative exemption of R500 000. The employer is required to apply for a directive in order to establish the PAYE amount to be withheld. The gratuity must be paid out against IRP5 code 3901, and the tax according to the directive against IRP5 code 4115.
Backdated salaries may relate to current and prior tax years. Tax on the total amount must be determined in relation to the current tax rates.
The portion of the back pay that relates to the current tax year, must be reported against IRP5 code 3601. The employer is required to apply for a directive in order to establish the PAYE to be withheld from the portion of the back pay that relates to any prior tax year. The portion of the back pay that relates to any prior tax year must be reported against IRP5 code 3907 and the tax according to the directive against IRP5 code 4102.
In order to facilitate the employee’s assessment, the employer must provide the employee with a schedule indicating the value of remuneration and its apportionment to applicable tax years.
All items that are exempt from income are also exempt from remuneration for PAYE purposes, and include:
In addition to the above, the following items are also exempt but must be reported on the payroll.
The value of a special uniform given by an employer to an employee or so much of an allowance made by the employer to the employee in lieu of any such uniform, as is reasonable, is exempt from income, provided that as a term of his employment, the employee is required while on duty to wear the special uniform and it is clearly distinguishable from ordinary clothing. The amount paid as an allowance must not be subjected to employees’ tax and must be reported against code 3714 on the tax certificate.
Expenses may arise as a result of the transfer of an employee from one place to another.
The following expenses borne by the employer (incurred by the employer or reimbursed by the employer) are exempt from tax:
If the employer pays for the following two items, these amounts are subject to employees’ tax, and must be reported on the tax certificate against code 3713 (Other allowances – taxable):
Certain remuneration of a person who is outside South Africa for purposes of rendering services for or on behalf of his employer for a period which is in aggregate more than 183 full days during any 12-month period, and which includes a period of more than 60 full continuous days during that 12-month period, is exempt from income tax to a limit of R1.25 million for the tax year.
Foreign employment income exceeding the R1.25 million limit for the tax year is included in remuneration and subject to PAYE. Foreign employment income must be reported against the foreign employment income codes on the tax certificate. This exemption is subject to certain exclusions.
Compensation paid in respect of the death of any person where that death arises out of and in the course of the employment, will be exempt from income tax if it:
An IRP3(a) directive application form must be submitted to SARS irrespective of the amount that will be paid.
The tax portion according to the directive must be reflected against IRP5 code 4115 and the lump sum payment is reflected against IRP5 code 3922.
For each variable (Once-off) Income transaction there should be a proper Authorized Instruction accompanied by a Payroll report that reconciles back to the instruction, filed for quick access, review, audit and record purposes.
End