How is severance pay calculated?
  1. Housing or accommodation allowance or subsidy; or housing or accommodation received as a benefit in kind (any housing or accommodation allowance or subsidy paid in cash, or the value thereof if paid in kind, is deemed to be part of remuneration).
  2. Car allowance or the value of provision of a company car (this does not apply in those instances where the employer provides a vehicle to the employee so as to allow the employee to travel to and from work, with no other private usage of the vehicle by the employee).
  3. Any cash payments made to an employee, except those listed as exclusions in 6 below.
  4. Employer’s contributions to medical aid, pension, provident or similar funds or schemes, must be considered as part of the employee’s remuneration and must be included when making calculations in terms of this notice.
  5. Employer’s contributions to funeral or death benefit schemes also form part of remuneration and must be included in the calculation of remuneration.
  6. The following items do not form part of the employee’s remuneration for the purpose of these calculations:
    • any cash payment or payment in kind that is provided in order to enable the employee to work (for example, equipment, tools or a similar allowance, or the provision of transport or the payment of a transport allowance to enable the employee to travel to and from work only).
    • a relocation allowance
    • gratuities, for example tips received from customers, and gifts received from the employer.
    • share incentive schemes.
    • discretionary payments not related to the employee’s hours of work or performance, for example a discretionary profit-sharing scheme.
    • an entertainment allowance
    • an education or schooling allowance.
  7. The value of payments in kind must be determined as follows.
    • a value agreed to in either a contract of employment or collective agreement, provided that the agreed value may not be less than the cost to the employer of providing the payment in kind; or
    • the cost to the employer of providing the payment in kind.
    • (Employers who provide accommodation to the employees, or any other benefits in kind, are advised to enter into a written agreement with the employee regarding the value of the accommodation or other benefits provided in kind.)
  8. An employee is not entitled to a payment or the cash value of a payment in kind as part of remuneration if:
    • the employee received the payment or enjoyed, or was entitled to enjoy, the payment in kind during the relevant period.
    • in the case of a contribution to a fund or scheme that forms part of the remuneration, the employer paid a contribution in respect of the relevant period.
  9. If the payment fluctuates, it must be calculated over a period of 13 weeks or if the employee has been in employment for shorter period, over that period.
  10. A payment received in a particular period in respect of a longer period (e.g. a 13th cheque) must be calculated pro rata.
  11. This schedule applies only to the minimum payments that an employer is required to make in terms of the Basic Conditions of Employment Act, 1977.

It should be noted that where the employee’s remuneration fluctuates regularly, the calculation of payment for annual leave must be based on the employee’s average earnings for the previous 13 weeks. The average will of course, include commission and or overtime paid for.

Contact us for all your labour, HR, payroll and income tax requirements.

How much severance pay do you need to pay?
What is a Sectoral Determination and is it binding?

A sectoral determination controls the terms and conditions of employment for employees in that particular sector. It may set minimum wages in sectors, regulate payment in kind, regulate pension and medical aid schemes, prohibit or regulate piece work, set minimum standards for housing for employees who live on the employer’s premises, and so on. Sectoral determinations will be set in sectors where there is no centralised collective bargaining, and which require detailed and specific regulations (e.g. the agricultural sector).

Sectoral determinations may have different conditions to those in the Basic Conditions of Employment Act (BCEA). The conditions in the sectoral determinations will override the conditions in the BCEA.

How are sectoral determinations made?

The Basic Conditions of Employment Act (BCEA) provides for the establishment of an Employment Conditions Commission which investigates conditions in a particular industry or sector. Meetings are held to discuss the establishment of a sectoral determination. Anyone who is interested in having a say in a particular industry can attend these meetings which are advertised in the government gazette.

When the Employment Conditions Commission has heard all the information, it makes recommendations to the Minister of Labour. Once the Minister approves the recommendations, they are published in the Government Gazette as a Wage Determination or sectoral determination.

Enforcement of a sectoral determination

It is the Department of Labour’s job to make sure that all employers and employees obey the conditions of employment laid out in sectoral determinations and Wage Determinations. If an employee is covered by a sectoral determination or Wage Determination, the problem can be referred to the Department of Labour if it cannot be solved with the employer on its own.

What leave is an employee on commission entitled to?

The employee would be entitled to the same amount of leave as any other employee.

  • Annual Leave is 21 consecutive days / 15 working days for a five day worker
  • Sick Leave is 30 days in a three year cycle
  • Family Responsibility is 3 days per annum

In terms of payment for these days you would need to take the preceding 13 weeks of earnings or a representative 13 weeks and average it to calculate the daily rate.

How should Mutual Termination awards be treated?

We have recently had to deal with large volumes of voluntary separation packages / mutual termination awards that are not related to retrenchment. Many tax practitioners and payroll administrators have struggled to identify how to deal with the taxation or reporting of a voluntary separation package. The SARS guides have also not been very clear on this matter, resulting in the reporting and taxation of such payments not being accurate.

When dealing with this matter it is important to understand the distinction between voluntary retrenchment and voluntary termination of services as their tax treatment and reporting differ.

Standard retrenchment procedures and reporting should be followed in the case of a voluntary retrenchment, where voluntary retrenchment was agreed upon as an alternative to forced retrenchment (agreed to in the context of a proper retrenchment exercise under section 189 of the Labour Relations Act). In the case of a retrenchment as discussed above, a tax directive must be applied for and the income reflected against code 3901 on the IRP 5 tax certificate.

When an employee is paid a voluntary separation package that is not related to a retrenchment, this income must be reflected under code 3907 (“Other Lump Sums”) on the tax certificate. The employer is still required to apply for a tax directive using the normal application process but with the reason for the application listed as ‘voluntary separation package’.

SARS has released a document on their website “Clarification of Source codes” which explains the use of both of these codes.

How should CCMA Settlement Awards be treated?

As a company that processes payrolls on an outsourced basis, we regularly get requests to pay employees in terms of an instruction from the Commission for Conciliation, Mediation and Arbitration (CCMA).

Amounts received as a result of a CCMA or Labour Court award would be specifically included in ‘gross income’ in terms of Section 1 – definition of ‘gross income’, paragraph (d) or (f). With the payment, constituting ‘gross income’ there is an obligation to withhold employee’s tax.

The amount of employee’s tax that the employer is required to withhold must be ascertained by way of a tax directive application to SARS. SARS has published Interpretation Note 26 (March 2004) which provides clear guidelines as to the responsibility put on employers in this regard.

Can I claim B-BEE points for providing bursaries?

The Amended BEE Codes of Good Practice have companies gasping!! There are elements which are problematic and where compliance is difficult. People have questioned the rationale and many are floundering as they attempt to achieve compliance.

The introduction of Skills Development as a PRIORITY ELEMENT – where you have to achieve 40% of the target so as to avoid being discounted by one compliance level – and the increased spend requirement for this element, is also seen by many as problematic.

However, what is important to note is the fact that the required spend can be utilized for the upskilling of employees or non-employees whereas previously it was only spend on employees that would be considered.

While the required spend is high – 6% of Skills Development Leviable Amount for generic organisations, and 3% for Qualifying Small Enterprises, the good news is that this money can be spent on non-employees.

Bursaries to black South Africans have previously been counted under the Socio-Economic Development element of the B-BBEE scorecard however, this spend can now be included in Skills Development.

So how do you maximize the benefit of this spend?

We all know that employees are the lifeblood of organisations and fostering loyalty and retention should be a focus for all organisations. Bursaries for the black children of staff members can now be included as skills spend – giving the company points and staff a feeling of being appreciated!

In many organisations, there are scarce skills that are required – either for immediate inclusion in the workforce or as part of a succession plan. Bursaries could be offered to deserving applicants who would then form a pool of suitable recruits in the future. Allowing these individuals to work within the organization during their holidays will mean that they become familiar with processes and the culture and will make for an easy transition post their studies.

For any of these bursaries to be considered as Skills Development, they would need to be awarded to Black South Africans, and the claimable amount is the ex VAT amount. Further, the training that is undertaken will qualify only if it meets the following criteria:

  • Is offered by an accredited provider
  • Is independently assessed
  • Leads towards a degree, diploma or certificate

This means that secondary schools fees could be included.

How should public holidays be treated if they fall on Sundays & Mondays?

With regards to the public holidays on a Sunday and the subsequent Monday public holiday, please see the legal opinion below.

Randfontein Estates Ltd v National Union of Mineworkers (2006) 27 ILJ 1200 (LC)

  • In this matter, Randfontein Estates sought an order declaring that where a public holiday falls on a Sunday, then the following Monday shall be a public holiday in substitution for, or instead of, the public holiday on the Monday.
  • Firstly, the question of – is it one public holiday or two public holidays ? – was addressed.
  • The court held that the provisions of the Public Holidays Act are quite clear.
  • The act states that ” the days mentioned in schedule 1 shall be public holidays, and whenever any public holiday falls on a Sunday, the following Monday shall be a public holiday.”
  • The judgement stated that a date determined to be a public holiday does not change its character merely because it falls on a Sunday. It remains a public holiday.
  • With regard to the question of payment – is an employee entitled to have both days off on full pay, thus getting a double benefit by being paid for two days off?
  • The judgement stated that the rationale behind section 2(1) of the Public Holidays Act (that both the Sunday and the Monday are public holidays) is to ensure that employees, who do not normally work on a Sunday, such as office staff, bank employees, or employees in any other organisation that is not open for trading on a Sunday, do not lose out on the benefit of having a day or for work on full pay – those employees have the Monday off on full pay as a public holiday.
  • Thus, those employees get paid only for one public holiday and not for two public holidays.
  • The reason is that these employees, who ordinarily work on Sundays, will get a double pay for working on the Sunday public holiday. Therefore, they have received the benefit. Similarly, such employees are entitled to the Sunday off on full pay, because it is a public holiday – they can therefore exercise that option, thus still receiving the benefit.
  • The judgement therefore ruled that employees are entitled to payment for only one public holiday.

This therefore means that employees who work both Sunday and Monday are only entitled to the benefit of one public holiday.

How do we manage load shedding and the effects on our businesses?

We encourage employees to give thought to practical management of their resources during these periods of interrupted power supply and at the same time complying with labour law requirements.

During load shedding period, some employers believe that they are not required to pay their employees. However if an employee is contracted to be at work during specific days and times, the employer is obliged to remunerate for that time irrespective of whether the employee/s were able to carry out their duties or not.

To enable employers to minimise the effects of load shedding, employers can give thought to the following;

  • Treating these stoppages as meal intervals although the period may exceed the break and in terms of section 14 of the Basic Conditions of Employment Act 75 of 1997 (“BCEA”), an employer must pay employees for any lunch break in excess of 75 minutes, unless the employee lives on the premises.
  • Implement changes to the hours of work after consultation with employees.
  • Flexitime arrangements (including shifts) to ensure that overtime costs are contained.
  • Agree on procedures that apply to interruptions of production. For example, The Metal and Engineering Industries Bargaining Council Main Agreement (“the Agreement”) differentiates between planned and unplanned load shedding. In terms of section 7 of the Agreement, an employer may implement “short time” (i.e. reduced working time) “owing to a shortage of work and/or materials and any other justifiable contingencies, including planned load shedding and/or unforeseen contingencies and/or circumstances beyond the control of the employer.”

Where the circumstances are unforeseen or unplanned (such as unplanned load shedding) the employer may:

  • Decide to send the employees home, provided they shall receive not less than four hours’ work or pay in lieu thereof; or
  • Expressly instruct employees sent home to return, where the employer believes work can be resumed, provided the employees shall receive not less than four hours’ work or pay in lieu thereof.

In the event that employees refuse to proposed changes in hours of work, shifts etcetera during load shedding, the employer may be forced to implement retrenchment procedures in terms of sections 189 or 189A of the Labour Relations Act 66 of 1995 (as amended) (“LRA”).

How do I claim back the Skills Development Levy I pay every month where I have sent my staff on training?

You are required to submit an Annual Training Report and Workplace Skills Plan to your designated SETA by no later than the 30th April each year in order to claim back any amounts for training.

Can I request that a doctor specifies the medical illness on a medical certificate for an employee?

The Health Profession Council of South Africa ruled in May 2001 that no diagnosis may be stated on a medical certificate without the patient/employee’s medical consent. The Occupational Health and Safety Act specifies that any medical practitioner who examines or treats a person for a disease that is described in the relevant schedules (notifiable and contagious diseases) or which he believes arose out of that person’s employment shall report the case to the person’s employer.

Are lunch and tea breaks included or excluded when calculating hours of work?

Any break that is less than 30 minutes long must be included in the hours of work. A break of 30 minutes or more can be excluded provided the employee is not required to be available for work purposes during the break.

Can an employer pay an employee instead of granting paid annual leave?

Section 21, subsection 2 of the Basic Conditions of Employment states that an employer may not pay an employee instead of granting paid leave except on termination of employment.

How long can I make my probationary periods?

According to the Code of Good Practice: Dismissal in the Labour Relations Act “The period of probation should be determined in advance and be of reasonable duration. The length of the probationary period should be determined with reference to the nature of the job and the time it takes to determine the employee’s suitability for continued employment”.

Are any employees exempt from being paid for overtime worked?

The following employees are exempt from being paid for overtime

  1. Senior managerial employees – defined as an employee who has the authority to hire, discipline and dismiss employees and to represent the employer internally and externally
  2. Employees engaged as sales staff who travel to the premises of customers and who regulate their own hours of work;
  3. Employees who work less than 24 hours a month;
  4. Employees earning in excess of R115 572.00 per annum
Does maternity leave cover adoptions and can employees claim for UIF?

Yes, employees adopting a child are entitled to 4 months unpaid leave. There are certain limitations on the UIF that can be claimed, one of which is that the child must be two years or younger to claim.

Can BEE be used to dismiss non-BEE employees?

No, BEE cannot be used to dismiss a non-BEE employee. Dismissal is automatically unfair if the employer has used race and/or gender (among others) as reasons for dismissal unless the dismissal is based on the employee’s inability to perform an inherent requirement of the job.

How many days sick leave are employees entitled to in each sick leave cycle?

According to the basic conditions of employment Chapter 3(22):

  1. “Sick Leave Cycle”, means the period of 36 months’ employment with the same employer immediately following –
    1. an employee’s commencement of employment; or
    2. the completion of that employee’s prior sick leave cycle
  2. During every sick leave cycle, an employee is entitled to an amount of paid sick leave equal to the number of days the employee would normally work during a period of six weeks. (30 days for a 5 day worker and 36 days for a 6 day worker)
  3. Despite subsection (2), during the first 6 months of employment, an employee is entitled to one day’s paid sick leave for every 26 days worked.
Am I required to give temporary or part time workers contracts of employment?

A person who works for you for more than 24 hours a month and on a regular basis must be given a Contract of Employment.

How many days Family Responsibility Leave am I required to give each employee?

Family Responsibility Leave only applies to employees who have been in employment with an employer for longer than four months; and who work for at least four days a week for that employer.

An employer must grant an employee, during each annual leave cycle, at the request of the employee, three days’ paid leave, which the employee is entitled to take:

  1. when the employee’s child is born;
  2. when the employee’s child is sick; or
  3. in the event of death of –
    1. the employee’s spouse or life partner; or
    2. the employee’s parent, adoptive parent, grandparent, child, adopted child, grandchild or sibling
When does an employer not have to pay an absent employee?

In terms of the Basic Conditions of Employment “An employer is not required to pay an employee if the employee has been absent from work for more than two consecutive days or on more than two occasions in an eight week period unless a medical certificate is produced”.

What is the rate of payment for Saturday, Sunday and Public Holiday overtime?

Saturday’s are classified as normal working days and you will not be required to pay overtime unless the employee has worked over his/her normal time hours.

An employer must pay an employee who works on a Sunday at double the employee’s wage for each hour worked, unless the employee ordinarily works on a Sunday, in which case the employer must pay the employee at one and one-half times the employee’s wage for each hour worked.

Public Holidays must always be paid at double time.

How do I establish whether or not an employee has deserted employment?

An employee is only regarded as having deserted when such employee has left the workplace and ‘intends’ not to return to duty.

Caution is recommended when dealing with these cases and the assumption that if an employee is absent from the workplace without permission and has failed to notify his/her employer, that the employee has ‘deserted’

These are the steps you should follow when establishing whether the employee has deserted:

  1. If desertion has not been established, the employer should endeavour to contact the employee;
  2. If the contact is successful, notify the employee of a hearing to establish the reason/s for the absence from work;
  3. If the attempts to contact the employee fails, the employee’s services may be terminated;
  4. The Labour Court has found that stopping the employee’s pay could amount to dismissal.
What representation must a union have in order to have organisational and/or bargaining rights?

Rule of thumb is as follows:

  • 0-25% no organisational rights or bargaining rights
  • 25-49% most organisational rights except bargaining rights (unless agreed to)
  • >50% all organisational rights and usually bargaining rights

Note: It is best practice to have a recognition agreement specifying the rights if a union has more than 25%.

Am I allowed to deduct an admin fee for deducting and paying across union fee subscriptions?

You are not allowed to do so any longer.

Am I obliged to give temporary workers maternity leave?

Any person who works for you for more than 24 hours per month is an employee and in terms of Basic Conditions of Employment Act is entitled to a maximum of 4 months unpaid Maternity Leave.

Should an employee be paid at double if he/she worked only partly on a public holiday?

Where the majority of the shift fell on a public holiday then the hours must be paid at double.

For example, an employee worked on the 23rd September from 22:00 to 6:00 on the 24th September, with the 24th being a public holiday. In this case 6 hours of the 8 hour shift were on the public holiday. All 8 hours should be paid at double.

What are the tax consequences for employees who win a lucky draw at work?

Where an employee wins a prize as a result of the employer / employee relationship, and particularly related to the performance of their duties, these payments would constitute ‘remuneration’ as defined in the Income Tax Act. ‘Remuneration’ is taxable in the employees’ hands.

SARS would look through the cashbook for any payments to employees and query why these payments had not been taxed. The company will be penalised for not taxing such payments (in addition to the 10% late payment penalty and interest levied).

What is "remuneration"?

‘Remuneration’ is defined as the payment in money or kind, or both in money and in kind, made or owing to any person in return for that person working for another person.