What is the tax payable on tips or other gratuities from clients to waitrons?

Restaurants are often confronted with the moral dilemma of whether their staff who serve clients are liable for paying tax on the tips or gratuities they receive from clients.

The tax treatment of tips paid by patrons to waitrons has been clarified by SARS in an Interpretation Note. The establishment/employer is merely holding the funds for the waitron/employee and performing a distribution role for the customer/patron.

Accordingly, under these conditions, the employer would not constitute an ‘employer’ as defined for the purposes of Employees Tax in relation to the tip or gratuity. PAYE would therefore not be deducted from the tip or gratuity by the establishment/employer.

It is important that waitrons understand that the income they received “directly” from a patron or from the establishment/employer where they are acting as a conduit for the distribution of the tips, that these tips must be included in the recipient’s (the waitron) ‘gross income’.

This means that the onus is on waitrons and other restaurant employees to declare the total amount of tips or gratuities received to SARS when completing their annual tax returns.

It is our recommendation that restaurants must have a policy and an acknowledgement by their waitrons that they understand this obligation and act responsibly when submitting their personal Income Tax returns.

Employer’s ability to recoup training costs

Employers will in the course of employment spend money and time on the development of their employees. This development can range from new employees being assigned work buddies or the employee being enrolled on specialised courses or further tertiary education. The actual cost to the employer can be expensive.

This often places employers in a difficult situation when the employee decides to leave their employ, as the employee has acquired skills at great expense to the current employer and then leaves to ply their trade elsewhere.

The question is now: what do we do? We have spent all this money, time, and considerable effort, and on the face of it, the employee simply walks away with the skills acquired at the current company with seemingly no recourse?

In the case of the National Health Laboratory Service v Janse van Vuuren, the employer employed the employee on the basis that the employee would work for them and study. One of the terms of the contract of employment was that if the employee did not remain in employment for a period of two years after the completion of the training and qualification as a specialist, she would reimburse the plaintiff for her training costs. When the employee resigned in 2010, the employer successfully sued her to recover such costs – the employer valued the amount to be paid at R2 million. The court had to decide on the damages the employer suffered.

The employer did not sue based on contractual breach, but based on penalty, and the court had to rule on the fairness of the amount claimed. The company used the provisions of the Conventional Penalties Act 15 of 1962.

The court found that it was fair, just, and equitable that the penalty stipulation be moderated and reduced, to correspond with the actual training costs incurred by the employer. The penalty was then calculated as being R1,630,445 (R1,63m). The employer was entitled to be paid that amount as well as accumulated interest.

The critical element for employers is the importance of having the training stipulated in a contract with the employee and preferably for the employer to include a fair repayment term.

It is also important to recognise that the actual training cost is not only the direct cost of the course itself and could include:

  • time-off
  • long study leave
  • sabbaticals
  • specialised mentoring and coaching and / or management support
  • travel
  • research projects

Should you require any assistance with the drafting of such clauses or training agreements, please contact us on [email protected].

COVID Regulations – Requirements to submit data to National Institute of Occupational Health (NIOH)

The Department of Health has published directives which requires companies who employ more than 50 employees to submit information on a weekly basis via a special portal.

The information that is required on a weekly basis is the following, and is quoted directly from the directive issued which can be accessed here Government_Gazette.

  1. Vulnerable Worker Data:

All employers are legally required to identify those employees who are vulnerable for the more severe outcomes of the COVID-19 infection. Since this is a key component of the screening of workers, this data must be submitted by employers.

The vulnerability status of each worker that is submitted is not dependent on the availability of detailed medical information being available to the employer. This once off submission is submitted when collected by the workplace, and any subsequent occasion when new appointments are made, or an employee’s status requires updating.

  1. Daily Symptom Screening Data:

All employers are legally required to screen all employees entering their work premises daily. This screening must be based on the prescribed set of symptoms as has been defined by the National Institute of Communicable Diseases to determine those persons likely to be presenting with a COVID-19 infection, and therefore should be referred for further assessment.

This daily collected data must be submitted by employers, for those employees that are symptomatic. The data must be submitted on a weekly basis should there be symptomatic workers recorded during the calendar week. The submissions should occur before Tuesday for the previous calendar week commencing on Sunday.

  1. COVID-19 Testing Data:

Based on their daily symptom screening, or on their employees’ presentation to their health provider, employees are referred to health providers / health laboratories for testing for the presence of the COVID-19 virus.

In terms of managing the pandemic in the workplace, the employer is expected to be notified of the results of the tests. The results of the laboratory tests of all employees who test positive must be submitted by employers, upon receiving the results of such tests.

This submission occurs only when an employee tests positive for COVID-19 and should be submitted on a weekly basis should there be positive workers identified during the calendar week.

  1. High exposure risk Workplace Contact – tracing:

When an employee tests positive within the workplace, all those in contact must, as per the Department of Employment and Labour Direction, be assessed for a high risk or low risk of exposure.

A high risk of exposure is defined as being in proximity (<1.5m) for a prolonged period of time (>15 minutes) without the use of personal protective equipment and/or a face mask. Those employees with such a high risk of exposure are expected to be placed in quarantine.

  1. The total numbers of employees placed in quarantine:

Details on high exposure workers should be submitted on a weekly basis should there be positive worker/s identified during the calendar week.

  1. Post infection outcome and Return to Work Data:

Recovery from the infection will vary based on vulnerability and other risk factors. Understanding the outcomes of the infection among employees provides critical information.

All employers who indicate employees have tested positive must submit information about the outcome of the infection, and the return-to-work decision. No confidential clinical information is required. This data must be submitted once only when the employee returns to work.

Submission process?

Employers must access this link: https://www.nioh.ac.za/home/national-resources-directives-guidelines

Important: In collecting this information from their employees, employers are obliged to inform employees about the submission of this data to the Department.

The National Institute of Occupational Health (NIOH), is the statutory entity designated by the Department of Health for the collection, analyses and reporting of the data from workplaces.

This clause does not remove the legal obligations by employers to report COVID 19 related information to specific government Departments (Department of Employment and Labour, Department of Public Service and Administration and Department of Mineral Resources and Energy, Department of Trade, Industry and Competition etc.).

It is recommended that all the data be submitted in electronic format. In instances where employers are already using electronic applications, they can submit data to the NIOH data either through CSV data files and/or secure API transfer.

Mauritius – Contribution Sociale Généralisée replacing National Pension Fund

(Source: crs.co.za)

The Contribution Sociale Généralisée (CSG) Regulations 2020:

Regulations made by the Minister under section 30F of the National Pensions Act were published in Government Notice No. 214 of 2020. As from 1 September 2020, the National Pension Fund is being abolished and replaced by a new system, the Contribution Sociale Généralisée (CSG), a progressive contribution system.

Under the CSG, employers are required to deduct, where applicable, the employee’s contribution from his/her wage or salary and pay that contribution, together with the employer’s contribution, to the Mauritius Revenue Authority (MRA). The rate of contribution applicable to the private sector is shown below.

Basic wage or salary means:

  • Where the terms and conditions of employment of the employee are governed by Remuneration Regulations or Wages Regulations, an arbitral award or an agreement, the basic wage or salary prescribed, or where the employer pays a higher wage or salary, the higher wage or salary paid, excluding any allowance by any name and whether paid in cash or in kind.
  • In any other case, all the emoluments received by the employee, excluding any bonus or overtime.

The monthly return and payment of CSG with respect to a month is required to be made electronically on or before the end of the following month.

An exception was made by the MRA for the month of September 2020.  The last date for submission of the return and payment of CSG to the MRA is 30 November 2020.

Facilities for the electronic submission of CSG returns are available on the MRA website. Employers must use the same employer registration number (ERN) and password applicable for the submission of NPF return.

Egypt – Temporary Solidarity Payment

(Source: crs.co.za)

New law approved to introduce a temporary solidarity contribution.

A new law, Law No. 170 of 2020, was approved and issued in the official gazette on 13 August 2020. It took effect on 14 August and will be applicable for a period of 12 months. This law provides for the deduction of a monetary amount from employees to support the country in dealing with the impact of pandemics and natural disasters.

The law applies to all employees in the private and the public sectors, as well as chairpersons and board members of all public and private entities, whether the relevant employee or person occupies a permanent or temporary position, or acts as an expert, consultant or in any other capacity.

The contribution rates are as follows:

  • 1% from the net income of active employees
  • 0.5% from the net pension of retired employees

The contribution will be based on both fixed and variable salary elements (including allowances, commissions, incentives, bonuses, overtime payments) after payment of payroll taxes and social insurance contributions.

Active employees with a monthly net income of EGP 2,000 or less and retired employees with a monthly net pension of EGP 2,000 or less are excluded from contributing.

The contributions must be paid into a bank account set up by the Ministry of Finance.

Malawi/Zambia/Mauritius – recent legislation changes

(Source: crs.co.za)

Malawi PAYE changes

With reference to the Provisional Budget Statement for Malawi 2020/2021 and an announcement made by the Finance Minister on 11 September 2020, the Malawi Government has proposed an increase in the PAYE tax-free bracket.

Conflicting information has been published regarding the increase. Upon enquiry, the Malawi Revenue Authority confirmed the increase of the tax-free bracket from MK45,000 to MK100,000 per month, effective 1 October 2020.

Kindly note that a government gazette confirming the changes is not yet available and the changes are subject to approval.

The Minister also announced that the middle tax bracket of 15% has been removed. He is quoted as stating: “Government is aware that this adjustment is huge and to minimise its impact on the base for Personal Income Tax, the 15% middle bracket under the Pay As You Earn regime has been removed.”

This was not mentioned in the Provisional Budget Statement or the Budget Statement, therefore it cannot be confirmed.

 

Mauritius Training Levy

The Finance (Miscellaneous Provisions) Act 2020 (Act 7 of 2020) was published in a Legal Supplement in August 2020. The Legal Supplement includes amendments to various Acts, such as the Income Tax Act and the National Pensions Act. Amendments to the Income Tax Act describes the changes to the Solidarity Levy, while the National Pensions Act was amended to include the new Contribution Sociale Genéralisée (CSG).

In addition, the Human Resource Development Act was amended to announce changes to the National Training Fund levies.

Previously, every employer was required to pay a training levy at the rate of 1.5% of the total basic wage or salary of its employees. For the period July 2019 to June 2020, an employer was required to pay the levy at the rate of 1% for employees whose total basic wage or salary did not exceed Rs 10,000.

As from 1 July 2020 to 30 June 2021, every employer must pay a training levy of 1% in respect of every employee.

 

Mauritius Portable Retirement Gratuity Fund (PRGF)

On 3 September 2020 the Ministry of Labour, Human Resource Development and Training circulated communication regarding the further postponement of the PRGF.

The obligation to submit monthly PRGF returns and make payment of contribution has been postponed to January 2022. Employers may opt to file the monthly PRGF return and make payment of PRGF.

However, as a result of the negative impact of COVID-19, employers may, during the period 1 January 2020 to 31 December 2021, in the event of justified dismissal or resignation of an employee, pay directly to the employee, with his consent, the PRGF amount due to the MRA.

Employers have a legal obligation to submit an exit statement to MRA in respect of that employee. The Ministry of Social Security will thereafter notify the employer of the amount of PRGF to be paid in respect of past services of that employee.

 

Mauritius CSG, NSF and Training Levy

The Mauritius Revenue Authority (MRA) has published a notice to inform employers that, following the introduction of the Contribution Sociale Généralisée (CSG), the deadline for the submission of the monthly contribution return and payment of contributions for the month of September 2020 is Monday, 30 November 2020.

The monthly contribution return includes contributions in respect of the following:

  • Contribution Sociale Généralisée (CSG);
  • National Savings Funds (NSF); and
  • Training Levy.

The deadline for the submission of the monthly contribution return for any subsequent month is the end of the following month.

The facility for the submission of the monthly contribution return and payment of the contributions is available on MRA’s website, www.mra.mu  and through the Mauritius Network Services (MNS).

Employers are informed that the facility to file the joint PAYE/Contribution Return for the month of September 2020 and onwards will continue to be available on MRA’s website.

No penalty and interest will be applicable for late payment of PAYE for the month of September 2020 where the return is submitted and payment is made on or before Monday, 30 November 2020.

 

Zambia 2020/2021 Budget Speech

On 25 September 2020 the Zambian Minister of Finance delivered the 2021 budget to the National Assembly with the theme “Stimulate Economic Recovery and Build Resilience to Safeguard Livelihoods and Protect the Vulnerable”.

Proposals made affecting employers/employees are:

  • An increase in the annual tax exemption threshold for PAYE was proposed from K36,000 to K48,000 and the adjustment of tax bands.

The proposed measure is aimed at increasing taxpayers’ disposable income.

  • Reference interest rate applicable on employee loan interest benefit.

The Minister proposes to adjust the reference interest rate to be used in the determination of tax applicable on employee loan interest benefits to be the Bank of Zambia policy rate plus a margin of 2.0%.

This will allow for uniformity of interest rates used for assessment of the loan benefit.

To read the full text of the Budget Speech, follow the link.

Constitutional Court Ruling – Domestic workers should get COID

The Constitutional Court have now ruled that it is unfair for domestic workers to be excluded from the Compensation Fund for occupational injuries and disease. This is not unexpected and will be welcomed by employees in this sector.

The biggest challenges will be working out how this will operate in practice given how dysfunctional the Compensation Fund is already (It struggles to cope with existing employers let alone another 5 million employers); and how the increased compliance risk and cost might impact employment in this space.

The case that sparked the ruling involved a domestic worker who was partially blind and while cleaning windows, fell off a ladder into a swimming pool and drowned. This unfortunate incident highlighted areas of potential risk for injury in a home and the consequences of an informal domestic arrangement which left the survivors of this domestic worker with no funds or recourse as a result of dangerous or undesirable workplace practice.

The next step will be for the legislation changes to be promulgated. A big concern will then be that without any guidance form the Compensation Fund (very unlikely this will be forthcoming), this will require all domestic employers to get registered which is time consuming and expensive and it is unclear what category they should be registered in. It will then require domestic employers to submit an annual return of earnings. Together these steps will cost a couple of thousand Rand so we expect many employers to be non-compliant in the short term which will raise civil claim risks for them.

HRTorQue offers a domestic payroll option to make sure employers are compliant in this space. Contact us for more information.

ETI – extra COVID claims lost if not made before the 31 August 2020 recon cycle

Editor’s note: We ran a number of articles in the past few months about the challenges with the Disaster Management Tax Relief Bill, the calculation of ETI and how payroll systems had struggled to keep up. We also warned about the perils of getting this wrong. In practice, it looks like many of our fears have been realised. For help with ETI, please feel free to contact us.

The various releases of the Disaster Management Tax Relief Bill (DMTR Bill) put the enhanced ETI relief measures into effect for April, May, June, and July 2020. The first DMTR Bill was published on 1 April 2020 and was deemed to be effective from the same date, followed by the DMTR Bills published on 1 May and 19 May.  As far as the ETI changes are concerned, the provisions were made effective in part retrospectively to 1 April, and the balance of the changes to 1 May.

This very short timeframe, the complexity of the changes, and particularly the changes made in May that were implemented retrospectively to 1 April, put huge pressure on the shoulders of payroll suppliers and employers.  This was drawn to the attention of the authorities by the PAGSA at the time.

Employers have asked whether concessions will be granted by SARS to prevent the loss of claims where either their systems or internal processes mean the employers haven’t claimed them in time for the August 2020 EMP501 filing season.

Unfortunately, as expected, there will be no ability to claim this ETI as the legislation doesn’t allow for SARS to make a concession in this regard.

 

Legislation:

Section 9 of the Employment Tax Incentive Act provides for the roll-over of ETI totals from month to month where this was either more than the PAYE liability for the month or that were not claimed in an earlier month when the ETI was available to be claimed.

Section  9(2) allows any  excess  or  unclaimed  ETI to be rolled  forward  in months  during  which an employer  is  not  tax-compliant (i.e. the employer has not submitted returns required by any tax Act administered by SARS, or has not paid the taxes due as required by any tax Act).

Section 9(4) states that ETI totals can only be rolled forward during the 6-month tax certificate submission cycle (March to August, and September to February). Any ETI that has not been claimed at the end of the last month of each 6-month cycle (31 August and 28/29 February) is forfeited (“deemed to be nil”).

No changes were made by the DMTR Bill to sections 9(2) and 9(4) of the ETI Act.

 

SARS Feedback

SARS have confirmed that the above summary of ETI Act sections 9(2) and (4) is correct – all excess ETI claims that were not made via the EMP201 process by 31 August, are forfeited.

Further,  the ETI  Act  does  not allow  the  SARS  Commissioner to consider requests  to  allow increased ETI  claims  to  be made  after the  6-month  tax  certificate  submission  cycle  has  ended (31  August  and  28/29  February),  even  under  the difficult circumstances of the ETI relief period of April, May, June, and July 2020.

The SARS eFiling and [email protected] systems are aligned with section 9 and will not allow the ETI totals on the EMP501 to be increased.

However, the ETI totals on the EMP501 can be reduced, thereby increasing the PAYE liability retrospectively from the amounts declared on the EMP201 in the previous 6 months.    Penalties and interest will then be calculated on the increased PAYE liability and shown on the employer’s statement of account.

If the employer so wishes, a ‘Request for Remission’ process can be made by the employer to motivate a concession on the penalties in terms of section 218 of the Tax Administration Act. If the employer follows this route, it is best to make use of the services of a competent tax practitioner who has experience of the SARS dispute processes.

UIF TERS Audit

(Source: PAGSA)

As you have all no doubt read in the media releases of 5 September, the Auditor General has recently conducted audits on the UIF TERS benefits that were approved and paid during April and May, a time when the Fund was under severe pressure to develop systems to control the rollout of the benefit.

Some of the senior personnel at the Fund, including the Commissioner, have been suspended to allow further investigations to take place unhindered. This has had a big impact on TERS benefit payments which have stopped while proper checks are put in place.

For many who have been involved in this process the news release was not a surprise as it has been an immensely frustrating journey. We have set out below the media feedback on what has happened and then raised a few points for employers to consider.

Interim Audit Results as Reported by the Media:

  • The UI Fund has had to process an unprecedented number of claims under the TERS benefit, aimed at assisting employees who were temporarily unemployed or partially unemployed during the Covid-19 lockdown.
  • Auditor-General Kimi Makwetu audited TERS claims made in April and May amounting to R28-billion. His findings point to a lack of verification and controls. The interim audit report highlights the following TERS benefit payments.
    • R140 556 822 was paid to 35 043 applicants who had already received benefits from other state institutions:
    • NSFAS students who received stipends, were paid TERS benefit claims of R10 335 344;
    • Beneficiaries of the SANDF received benefit claims of R327 638;
    • Employees paid through PERSAL were paid benefit claims of R41 009 737;
    • Disability grant recipients were paid TERS benefit claims of R69 419; and
    • Old age grant recipients were paid benefit claims of R88 814 684.
    • R10 215 765 in overpayments was calculated incorrectly by the early versions of the TERS system
    • R169 900 was paid to individuals who were indicated as being in prison
    • R685-millionwas paid to foreigners whose employers hadn’t paid contributions within the last 12 months
    • R441 144 was paid to deceased individuals
    • R30 071 248 was paid to 4161 employees with invalid identity numbers
    • R200 000 was paid to employees below the legal working age of 15.

“There is also evidence of overpayments (and underpayments) as well as inflated claims. I take these breaches very seriously,” (Minister Nxesi)

“The Unemployment Insurance Fund (UIF) is implementing actions to address what we have reported. We further selected payments to employers and bargaining councils to verify that the eligible beneficiaries were paid. The observations in this regard will be included in the next report,” (Auditor General Makwetu).

What might this mean to employers?

The first step is for the UIF TERS process to resume and payments to be started again and the subsequent TERS payment periods to be opened and processed.

Thereafter, as we have warned on a number of occasions it is highly likely there will be a ramp up of audits in the UIF space to recover funds where the UIF department considers incorrect claims for TERS may have been made. Please be warned. Audits will arise around the information submitted to the UIF department so make sure your house is in order.

Relaxation of the Validation Rules for Code 4587 – s10(1)(o) foreign income exemption

(Source: PAGSA; SARS)

 Background

The Minister of Finance announced in the Budget Review on 26 February 2020 that the foreign employment income exemption would be increased from R1,0 million to R1,25 million with effect from 1 March 2020, and this was given effect in the draft ‘Rates Bill’ that was issued on the same day.

To provide for the new foreign employment income requirements, the PAYE BRS was changed to include a new code 4587 described as “Section 10(1)(o)(ii) exemption taken into account by the employer for PAYE purposes”.

The notes in the PAYE BRS version 19.4 clarify that what must be reported in code 4587 is the remuneration as defined by section 10(1)(o)(ii) that the employer has determined is exempt in terms of the requirements of section10(1)(o)(ii).

The relevant portion of section 10(1)(o)(ii) reads as follows:

“There shall be exempt from normal tax any form of remuneration to the extent to which that remuneration does not exceed 1,25million Rand in respect of a year of assessment is received or accrues to any employee during any year of assessment by way of salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument or allowance including any amount referred to in paragraph (i) of the definition of gross income in section 1 or an amount referred to in section 8, 8B or 8C, in respect of services rendered outside the Republic by that employee for or on behalf of any employer if that employee was outside the Republic-“ …

In terms of section 10(1)(o)(ii), only the following foreign remuneration types can be exempt:

  1. Salary
  2. Leave pay
  3. Wage
  4. Overtime pay
  5. Bonus
  6. Gratuity
  7. Commission
  8. Fee
  9. Emolument
  10. (General) allowances
  11. Taxable fringe benefits (section 1: gross income paragraph(i))
  12. (Special) allowances (section 8: travel, subsistence, and public office allowances)
  13. Amounts derived from broad-based employee share plans (section 8B)
  14. Amounts received in respect of a share vesting (section 8C).

 

Code 4587 Validation Rules

Code 4587 (Section 10(1)(o)(ii) exemption taken into account by the employer for PAYE purposes) was added to the PAYE BRS earlier in 2020 and is included in the current version 19.4 with effect from the 2020/21 tax year onwards.

Employers must report the total remuneration as defined by section 10(1)(o)(ii) that the employer has taken into account in the current tax year for PAYE calculation and withholding purposes.

Due to uncertainty regarding the validation rules, the PAGSA requested that SARS relax the application of the validation rules for code 4587for the August 2020 mid-year tax certificate submissions.

 

Code 4587 Validation Relaxation

SARS have agreed to relax the code 4587 validation rules, confirmed in the following notice.

 

NOTICE TO STAKEHOLDER/EMPLOYERS

Information Code 4587 –Section 10(1)(o)(ii) exemption taken into account by the employer for PAYE purposes: Relaxation of validation rules for August 2020 (202008) Employer Interim Reconciliation

SARS acknowledges concerns raised by payrolls that the application of the current validation rules for code 4587 may result in certain employers not being able to submit their interim IRP5/IT3(a) certificate information.

These validation rules as specified in the SARS Business Requirements Specification: PAYE Employer Reconciliation (2020 Release) version 19.4 will be relaxed for the August 2020 Employer Interim Reconciliation submission.

The relaxation of the validation rules will be implemented during the weekend of 19 September 2020 and the affected employers are requested not to submit their Interim Reconciliation documents before Monday, 21 September 2020.

These validation rules will be reviewed and clearly defined to provide clarity.

An updated SARS Business Requirements Specification: PAYE Employer Reconciliation (2020 Release) will be issued shortly and the amended validation rules willbe implemented towards the end of 2020.

Note that any February 2021 (202102) submission that is submitted before the implementation of the revised validations will be processed in accordance with the relaxed validation rules for code 4587.