Payroll tax — what workers and employers need to know
Some finer details to be aware of to stay on the right side of labour laws.
Payroll tax typically refers to the percentage of tax deducted from your salary by your employer, who then pays it to the South African Revenue Service (SARS) on your behalf.
Yolandi Esterhuizen, the director of product compliance and a registered tax practitioner for Sage Africa and the Middle East, says regulations can be complicated and change nearly every tax year.
Income tax rate for all forms of remuneration is the same
Many employees believe that SARS treats salary, overtime and commission differently. Though each type of remuneration may have a different code on the tax certificate, they are all taxed at the same rate on the payroll according to the standard PAYE tax tables. The current tax table is below.
However, Esterhuizen notes that there are some exceptions when employees might be taxed differently:
- If the employee has an allowance, it will be taxed at the same rate. But only a portion of the allowance may be included in the tax calculation, depending on what it’s for.
- Payments such as a retrenchment package might not be taxed on the payroll because there is a one-off R500,000 lifetime exemption for lump-sum payments regarding retrenchment, retirement or death. The employer must apply for a directive from SARS to determine whether the employee has benefited from the exemption before.
Year-end or performance bonuses will be taxed at the same rate as any other income.
If an employee receives an end-of-year or performance bonus, it will be taxed at the same rate as other remuneration. The bonus will be added to the employee’s annual salary to determine the rate at which they should be taxed.
Esterhuizen notes that sometimes the bonus can nudge you into a higher tax bracket, and that portion of your income will be taxed at a higher rate.
Your employer only needs to pay you for your legal minimum leave entitlement if you resign.
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According to the Basic Conditions of Employment Act (BCEA), employees who work an eight-hour day and a five-day week are entitled to 21 consecutive days of paid annual leave (or 15 working days). Leave that has accrued to the employee under this entitlement, but was not taken, must be paid out to the employee on termination.
“However, the BCEA does not regulate what should happen with annual leave that exceeds the minimum specified in the act. If you accrue more than 15 working days a year, your employer does not have to pay the excess leave days when you leave the organisation,” Esterhuizen says.
Your employer may, however, specify in your employment contract that the additional days will be paid out if you leave without using them. It is common for employees to demand payment for leave days not used, but employees are not allowed to “sell” a portion of their 15-day leave entitlement to receive more money from their employer.
Travel allowances for the company and private vehicles must be dealt with differently
Generally, an employer gives an employee a travel allowance provided the employee covers business travel expenses. This allowance is usually offered to an employee using their own vehicle, but the employee is not required to own it. The employee will be allowed a tax deduction against the travel allowance for business travel costs.
However, no deduction will be allowed on assessment if a travel allowance is provided for an employer-provided vehicle. It should be reflected on the payroll as a general taxable allowance rather than a travel allowance. Esterhuizen says a deduction for business travel will be allowed against the use of the motor vehicle fringe benefit.
If the employee uses a company-owned petrol or garage card for their private vehicle, then the tax treatment on the payroll is the same as when the employee receives a travel allowance. The only difference is that the allowance and the taxable amount may vary from month to month. DM168
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