May 2012
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HRTorQue REPORTER

Does an employee accumulate annual leave during maternity leave?

Author: Melany Bydawell
The Basic Conditions of Employment Act states that employees accumulate 21 days leave during a twelve month cycle. If an employee takes a period of four months unpaid leave during this period, their annual leave entitlement continues to accrue.

However, employees who are granted unpaid leave for other purposes, such as an extended overseas holiday, would not accrue annual leave during this period of unpaid leave.

Family Responsibility Leave

Author: Melany Bydawell
We receive numerous questions around an employee's entitlement to Family Responsibility Leave, its provisions and when it is made available to an employee.

An employee shall be entitled to three days per annum, after being in fulltime employment longer than 4 months, on request, when the employee's child is born or sick or for the death of one of the following: spouse or life partner, parents, adoptive parents, grandparents, children, adopted children, grand children and siblings. Management may request proof of such absence. Employees who work less than 4 days a week for one employer do not qualify for Family Responsibility Leave.

The cycle begins from the date of reporting for duty and ends one year later and any leave which may not have been taken during this period does not get carried forward.

Fringe Benefits: Voyager Miles

Author: David Beattie
The issue of Voyager miles is again on SARS' radar because of the fringe benefit implications involved.

It is common practice for employees who travel extensively on business to accumulate significant Voyager miles in their private capacity. Even if the employee initially pays for the ticket cost and is then reimbursed by the employer, this is regarded as a liability to the employer, with the Voyager miles belonging to the employer. If the employee is able to use these Voyager miles for their personal travel, they would be regarded as having received a fringe benefit, with the value of this fringe benefit being the actual cost of that flight.

It is imperative that the employer treat these benefits as a fringe benefit in the month that the benefit is received by the employee. Should the employer fail to comply they could be given a penalty equal to 10% of the cash equivalent of the value of the taxable benefit.

Home Offices - The 4 Requirements that Must be Met

Author: David Beattie

The 4 Requirements that must be met to Qualify for a Tax Deduction

For home office expenses to constitute allowable deductions, they must meet the following 4 requirements:

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They must not be of a capital nature (improvements to the property)
They must be directly related to the part of the house used for the purposes of trade (i.e. the office part only).
This part of the house must be used regularly and exclusively for the purposes of the trade. Setting up a work area in the lounge / dining room would not constitute a 'home office'.
If the employee is in employment, the income received must be mainly in the form of commission (mainly meaning more than 50%). The employer must also not provide the employee with an office in which to perform their duties.

Body Corporates, Employees and Managing Agents

Author: Karen van den Bergh
During the past two months we have consulted to a number of Body Corporates / Home Owner Associations around issues with their employees.

We have found that whilst the Body Corporate / Home Owner Association and the Employees are clear and happy to state that there is an employment relationship between them, there is no contract or letter of appointment. Secondly, the Body Corporate has never registered as an employer with SARS and the Department of Labour, despite having employees for a number of years.

Upon further investigation it was also discovered that when the Body Corporate had changed from one Managing Agent to another, the Managing Agent had assumed the "administrative" responsibility for the employee. The Managing Agent had merely absorbed the employees into their processes and invoiced the client for their services. The Managing Agent then submitted declarations to SARS for PAYE, SDL and UIF on their own registration numbers and paid over the contributions as if the employees were employed by their organisation.

In the case of COIDA / WCA returns, the employees' earnings were declared on the Building Administrators WCA / COIDA returns. They did not take over the employment, nor did they appear to accept responsibility for any claims relating to CCMA awards, retrenchments etc. They did not prepare a letter of employment, nor did they have a meeting with the employee to explain that they now work for another entity.

It follows that when an employee's services are to be terminated for any reason including misconduct, retrenchment etc, legally the employer is the Managing Agent and not the Body Corporate to whom the actual services have been provided. When the employees are dismissed or leave the service, they are entitled to receive a Certificate of Service and UI 19 documents stating the starting and end date of employment with their 'employer'. The Body Corporate cannot complete these documents as they are not registered and the Managing Agent can only complete the documents from when they took over the management and started making payments to the Department of Labour for these employees.

This practice obviously prejudices the employees as their full service / credits for UIF are not accurately declared and they will not qualify for their full benefits when claiming. The only recourse is for the Department of Labour to take this up as a complaint on behalf of the employee concerned.

If an employee is injured on duty, the problem is far worse because the actual employer is not registered and therefore cannot claim for an employee injured on duty. They would therefore be vulnerable with relation to civil claims for medical costs and loss of income.

If your Body Corporate or Home Owners Association is in this position you are at risk from a legal and financial perspective and should address this situation immediately.

Tips - Are they taxable?

Author: David Beattie
In the past there has been some confusion about whether gratuities in the form of tips earned by waitrons, which have been handed to their employer for "safekeeping" and paid later into the waitron's bank account, were regarded as remuneration or not.

In terms of the Income Tax Act, PAYE must be withheld when an "employer" pays "remuneration" to an "employee". These terms are defined in the Fourth Schedule to the Income Tax Act and apply only for the purpose of that part of the Income Tax Act. An employee is defined as, amongst other things, any person who receives remuneration whilst remuneration is defined and includes, amongst other things, any bonus, or gratuity. An employer is defined as, amongst other things, any person who pays or is liable to pay remuneration. In other words, there must be a flow of remuneration from an employer to an employee before PAYE must be withheld.

The SARS Ruling, which was published on 14 February 2011, confirmed that where an employer (restaurant owner) holds tips received from customers in safekeeping on behalf of the waiters and then transfers that money to the waiter's banking account, no PAYE need to be withheld by the employer. The SARS Ruling, which is valid until August 2015, comes as no surprise as there is no flow of remuneration from an employer to an employee, as is required in terms of the Fourth Schedule to the Act. Here, there is a flow of money (tips) from a customer to the waitron, whereas the employer merely holds the monies on behalf the beneficial recipients (the waitrons).

It is however surprising that this SARS Ruling was interpreted by some as meaning that these 'tips' are not taxable at all. In consequence, SARS issued a clarifying note to the Ruling confirming that the Ruling applies to the non-withholding of PAYE and does not mean that 'tips' are not taxable.

Quite independent from the PAYE withholding obligations, discussed above, is the gross income definition and in particular paragraph (c), which includes in gross income any amount, including any voluntary award, received or accrued in respect of services rendered. This paragraph brings within its ambit all amounts received as a quid pro quo for services rendered. The only question to be answered is whether the tips are received in respect of services rendered. If the answer is yes, the tips fall within the ambit of gross income. Quite clearly, the tips are received in respect of services rendered by the waitron and therefore they are taxable. Of course, in the absence of a paper trail, it will be difficult for SARS to police the taxation of tips and it will be up to the honesty of waitrons.

Medical Tax Credits

Author: Karen van den Bergh
Since the introduction of the Medical Tax Credits (MTC) in March 2012, there continues to be a number of queries coming in from clients which, for the benefit of all our clients, are dealt with below:
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The MTC can only be deducted from the employees' tax due if:
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A contribution to a medical scheme is paid (i.e. a legitimate scheme!). This is irrespective of whether the contribution is made by the employer, the employee, or its split between them. If the employee makes the full contribution then suitable proof of membership / contribution should be provided by the employee to the employer.
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The Employee must be under the age of 65 (on the last day of the tax year).
Where the Employee is employed for only part of a month, the full MTC for the month can be deducted from his/her tax due. This could create a situation where, should the employee work for another employer for the remainder of that same month, a double MTC deduction could occur. This will be solved if the employer makes use of the "annualisation" principle in the payroll. In any event, the total MTC deducted for the year will again be validated by SARS at assessment time and any MTC over the allowed limit for the year will be recovered from the employee / taxpayer by SARS.
The MTC is "non-refundable", which means that an employee's tax can never be in a negative situation (i.e. where the MTC applicable is more than the tax due in a period). This also then means that the shortfall in MTC credit (i.e. the unapplied portion of the MTC) can in effect be carried over to the next month within the same tax year. Here again this is where the concept of "annualisation" comes in. However - a MTC unapplied portion cannot be carried over from one tax year to the next.
Some effects of the new "MTC" vs. the previous "reduction of taxable earnings" methods:
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The new system favours lower income earners whereas the old system favoured high income earners.
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Under the old system, to a person who paid tax at the marginal rate of 40%, a cap amount deduction would have been worth 40% of the deduction, whereas for a person who paid tax at 18%, the deduction would have only been worth 18%.
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In the new system, everyone gets the same benefit as it is an amount deducted directly from tax due as opposed to a reduction in taxable earnings.
The value of the MTC that was actually applied against the Employee's tax due is stored in a new code, namely 4116. Clients don't have to do anything here as our systems automatically handle this in the background. Clients only need to use this if a manual tax certificate is being created (i.e. outside the system).
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The MTC must not be applied to tax due where a directive has been issued which results in the tax on retirement lump sums or severance benefits that is calculated in accordance with any of the two special lump sum tax tables. The two being:
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Retirements funds i.r.o. lump sums paid by the fund (these are generally not issued to "normal" employees)
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Directives issued to employers in respect of a severance lump sum paid by the employer
For employees who are over the age of 65 and still working (i.e. still employed) - they still get the full medical contribution as well as any medical expenses incurred as a deduction. So the full medical aid contribution paid (or deemed to have been paid) by the employee must still be deducted from the employee's taxable income (i.e. as was done previously). In essence this compensates the Employee for not getting the MTC.
Disabled employees or employees who have disabled dependants are entitled to an additional MTC (up to 4 times the amount that exceeds their medical aid contribution) as well as all expenses related to the disability - but not on a monthly basis - only on assessment. This is due to older payroll systems not being able to manage this process monthly. So in most cases the employee incurs the cost monthly but is only able to claim these costs (or appropriate portion of these costs) at assessment time.

Cheque Payments

Author: Karen van den Bergh
SARS has now confirmed that as from 16 July 2012, cheque payments over R500 000 will no longer be accepted by the banks. In addition, banks will also no longer accept "split" cheques (i.e. where the total payment is broken down into a number of smaller payments thus enabling companies to get around the R500 000 single cheque limitation).
 
These changes are in addition to the implementation of the SARS payment rule (1 June 2011) which stipulates that SARS will not accept a cheque payment for more than R100 000.

Residential Accommodation

Author: Karen van den Bergh
A reminder that, effective 1 March 2012, the value of "B" in the prescribed formula (for calculating the taxable value pertaining to the residential accommodation benefit) has been increased to R63 556 (up from R59 750 last year).

Registering your Domestic for UIF Purposes

Author: David Beattie
Should you have any questions regarding this issue or require assistance with the registration process please contact Dave Beattie on 031 582 7410 or [email protected]. The cost of this process is R450 plus VAT.

We have recently had a spate of queries relating to the registration of domestic workers for UIF purposes. In many of these cases, employers have been negligent in the management of the UIF affairs relating to their domestic workers and it is just a matter of time before they are tackled by officials from the Department of Labour. It is therefore imperative that employers deal with this issue as a matter of urgency.

The labour relationship between employer and domestic worker is specifically covered by Sectoral Determination 7. The first step in this process is registering the domestic worker for UIF purposes. The document that needs to be used is a UI 8D. This document provides the Department of Labour with the employer's personal and residential details. The second document that must be completed is the UI 19. This document confirms the personal details of the domestic worker and the applicable rate of pay. These forms must be submitted together to the employer's local Department of Labour.

Once notification is received that the employer has been registered for UIF purposes, the employer must decide whether they intend to make monthly or annual UIF payments. It is certainly much easier to make these payments annually. If the employer chooses to go this route they are required to write to the Department of Labour requesting authorisation to do so. If this permission is granted the employer will be required to submit a return and make a payment for the period 1 March to 28 February by 7 March (7 days after the end of that period).

If the employer decides to pay monthly, their return has to be submitted by the 7th of the following month. Under either option the information is submitted on a UI 7 form. The employer must reflect both the employer's 1% and the employee's 1% on this document. It is advisable to fax the return, with the proof of electronic payment, to the Department of Labour. Alternatively, hand-deliver the return with the proof of payment attached to your local Labour Office. It is imperative that the employer retain a copy of the return and proof of submission.

Contact the HRTorQue Team

Head Office (Durban)
Phone: 031 564 1155
Fax: 031 564 1228
Email: [email protected]
Website: www.hrtorque.co.za
Address: 163 Umhlanga Rocks Dr, Durban North
 
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Sales
Melany Bydawell: 031 582 7425 / 083 441 5618
[email protected]

Payroll & HR Administration
Karen van den Bergh: 031 582 7413 / 082 891 1722
[email protected]

Human Resources / Employee Relations
Melany Bydawell: 031 582 7425 / 083 441 5618
[email protected]
 
Employment Equity & Skills Development
Melany Bydawell: 031 582 7425
[email protected]
Nicky Hardwick: 031 582 7418
[email protected]
 
Tax
Dave Beattie: 031 582 7410
[email protected]

Payroll Third Party Administrator
Kacey Chetty: 031 582 7409
[email protected]
 
Accounts
Cheryl Naidoo: 031 582 7408
[email protected]

Dispatch
Karl van der Merwe: 031 582 7407
[email protected]