You are Here > Home > My Money > Five myths about payroll tax deductions

Five myths about payroll tax deductions

Nov 26, 2020

Five myths about payroll tax deductionsThere are many myths and misconceptions about payroll tax in South Africa that simply won’t go away. Let’s look at a few of them and what the tax and labour laws actually say.

Myth 1: Salary is taxed differently from overtime or commission

No matter whether your employer calls what it pays you a salary, overtime or commission, it is taxed at the same rate on the payroll according to the standard PAYE tax tables. There will be a different code on the tax certificate to let SARS know what the payment is for, but there are certainly not different tax rates for different types of remuneration.

Allowances such as your travel allowance are also taxed at the same rate. However, only a portion of the allowance may be included in the tax calculation, depending on what the allowance is for. For example, either 20% or 80% of a travel allowance is included in the tax calculation on the payroll, depending on how much business travel you do.

Some payments, such as a retrenchment package, might not be taxed on the payroll because there is a once-off R500 000 lifetime exemption for lumpsum payments in respect of retrenchment, retirement or death. The employer must apply for a directive from SARS to determine whether you have used the exemption before.

Myth 2: Bonuses don’t get taxed

If you are one of the lucky few to get an end-of-year bonus this year, it is taxed at the same rate as other remuneration. To determine the rate at which you should be taxed on the payroll and calculate tax for the year, the bonus will be added to your annual salary. This will determine the amount of tax you should pay for the full tax year.

From there, it can subtract your usual annual PAYE deductions, based on remuneration received on a monthly basis, from the total to determine how much tax you should pay on your bonus and your PAYE for the month.

The table below is an example from the SARS Guide for employers in respect of employees’ tax. A monthly paid employee (below 65) received a salary of R28 000 and a bonus of R14 800 in October:

SARS table: tax on your bonus

Sometimes the bonus can nudge you into a higher tax bracket, and that portion of your income will be taxed at a higher rate. Bear in mind these calculations would usually be done automatically by your employer’s payroll software.

Myth 3: The employer must pay out all leave due

According to section 40 of the Basic Conditions of Employment Act (BCEA), each employee working an eight-hour day and a five-day week is entitled to 21 consecutive days of paid annual leave. Leave which 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 in a year, your employer does not have to pay the excess leave days when you leave the organisation. Your employer may, however, specify in your employment contract that the additional days will be paid out if you leave without using them.

You may also not sell days of your minimum leave to your employer. In other words, work your leave days to get paid more money. You may only sell leave exceeding the 15 days of minimum leave as per the BCEA.

Myth 4: A travel allowance (company or private vehicle) is treated the same

A travel allowance is provided to the employee to cover business travel expenses. In practice, the allowance is generally provided to an employee making use of their own private vehicle, but there is no requirement that it must be owned by the employee. The employee will be allowed a tax deduction against the travel allowance for the costs of business travel.

However, if a travel allowance is provided for an employer-provided vehicle (company car), no deduction will be allowed on assessment. It should be reflected on the payroll as a taxable allowance rather than a travel allowance.

A deduction for business travel will be allowed against the use of motor vehicle fringe benefit, on which the employee was taxed on a monthly basis.

Myth 5: An employee petrol card is taxed differently to a travel allowance

If the employee makes use of a company-owned petrol or garage card, in respect of a private vehicle, then the tax treatment on the payroll is exactly the same as when the employee would receive a travel allowance. The only difference is that the allowance and the taxable amount may vary by month.

By Yolandi Esterhuizen, registered tax practitioner & Compliance Manager at Sage Africa & Middle East.


Submit a Comment

Your email address will not be published. Required fields are marked *

Maya Fisher-French author of Money Questions Answered

Previous Articles

SARS issues guidance on crypto assets

On 27 August 2021, SARS provided further guidance on the correct tax treatment of crypto assets and how this must be declared in people’s tax returns. SARS published a document on its website entitled Crypto Assets & Tax. The publication should perhaps best be...

Self-service facility for GEPF members

Technology is making it easier for GEPF members and pensioners to keep track of their pension information and claims process. By downloading the new GEPF self-service mobile app onto your device, you can remove the frustration of standing in long queues at GEPF...

Video: Being rich vs being wealthy

In his book The Psychology of Money, Morgan Housel writes about the difference between being rich and being wealthy. He defines riches as an income you earn, because that allows you to take on the debt to buy that R800 000 car or R40 000 handbag. Wealth on the other...

High-risk land investment leaves angry investors out of pocket

Many South African investors who bought UK property developments through SA-based property marketing company SJ Capital, have seen no returns for over 11 years. Investigations have found that the investment is extremely high risk and that investors were not fully...

Listen: Top tips for financially savvy kids

Maya (@mayaonmoney) chats to certified financial planner Gugu Sidaki (@gugusidaki) about ways to skill our children so that they can better manage money as adults. Gugu is author of My 3 Piggies, a series of books for kids all about money. Also listen to this podcast,...

Treasury’s solution to early withdrawal

As part of its ongoing retirement reform process, National Treasury is proposing the introduction of a two-bucket retirement system to provide for shorter and longer-term needs. John Anderson, executive at Alexander Forbes, says it may work along the same percentages...

Video: Marriage and money

When couples marry, including Customary Marriage, they will automatically be married under community of property, unless they sign a separate antenuptial contract. This is seen as a way to protect women, especially those who stay at home to raise the family. The term...

The NSSF will not meet the needs of South Africans

While noble in its aim, the establishment of a National Social Security Fund (NSSF) is largely unworkable. In August, the department of Social Development issued a Green Paper on Comprehensive Social Security and Retirement Reform, which outlined a “super fund” to...

Life insurers see a 44% jump in death claims

Death claims statistics released recently by the Association for Savings and Investment South Africa (ASISA) have shown a massive 44% jump in lives lost with an overall increase of 64% in the value of claims paid compared to the previous year. Between 1 April 2020 and...

Video: Your money behaviour

Have you ever wondered how your money behaviour compares to that of your peers? Where do they save? What do they spend their money on and how much debt do they have? On this edition of Money Matters, we chat to Akash Dowra, Head of Client Insights at Discovery Bank,...

Pin It on Pinterest

Share This