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.

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.

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.

SARS PAYE Deferral – reminder to start paying back

The 35% PAYE deferral for employers under the disaster management relief legislation was extended by another month to cover the August month instead of ending as the end of July. Don’t forget the deferrals now need to be paid back in 6 equal instalments starting on the 7 October until the 7 March 2021, with the timetable as follows:

  • September 2020 – payment due by 7 October 2020;
  • October 2020 – payment is due by 6 November 2020 (last business day before the 7th);
  • November 2020 – payment is due by 7 December 2020;
  • December 2020 – payment is due by 7 January 2021;
  • January 2021 – payment is due by 5 February 2021;
  • February 2021 – payment is due by 5 March 2021.

Further information is available on the SARS website.

The ETI challenge – EMP501 reporting

In May we reported on the fact that most payroll systems had mis-calculated the Employment Tax Incentive (ETI) because the disaster management legislation retrospectively changed rules making it exceptionally difficult.

We have been surprised to see relatively little communication about this from payroll software providers. We suspect then that most employers would have miscalculated their ETI for the six months ended 31 August 2020.

So, why is this important:

  • We have no idea what validation checks SARS will use for this recon period (in the past few days the validation checks have not allowed the disaster management ETI changes, but we assume this will be rectified). Without understanding your ETI calculations you will struggle to submit your EMP501 for this recon period;
  • Assuming SARS applies the validations correctly, if you haven’t manually adjusted your calculations for April and May in particular, then they will be wrong and your entire ETI claim will be rejected – leading to penalties and interest;
  • If you assumed your system would calculate ETI correctly during the disaster management period, you may have left lots of money on the table as unclaimed;
  • SARS is short of cash. There is a high likelihood of subsequent audits in this space given the complexity. Don’t be caught out having to pay penalties and interest post an audit because you assumed your system would do things correctly

We encourage all employers to do a manual calculation of their ETI to get comfortable with their claims and to support their EMP501 filing. Don’t be caught out.

Empowering the retrenched

In the current economic climate, organisational change is almost certain for many companies. This has led to fluctuations in the labour market as companies have been forced in many instances to downsize and go through retrenchment processes.

Employers and businesses are encouraged to adopt best-practice retrenchment programmes that look to empower those being retrenched – both emotionally and practically. This best practice should help limit the damage to the remaining employees helping productivity recover faster, thereby mitigating the negative impact of the retrenchment process.

It is not only the retrenched employee(s) that experience a high degree of stress and anxiety during the process, but the remaining employees and stakeholders as well – be they the line manager, the human resources department, or the business owner.  All involved parties go through a substantial amount of psychological stress before, during, and long after the process has ended.

Irrespective of the reason for the retrenchment, a portion of the psychological stress can simply be lessened through programmes that aim to empower the retrenched employee/s. These programmes include inter alia:

  • Training to help the employees find alternative employment
  • Counselling
  • Financial advice

If the impact of retrenchment can be minimised, then all parties can move on with their lives quicker, leading to a healthier working environment, more constant efficiency levels, upkeep of employer brand, and lower rates of post-retrenchment resignations.

By investing in a programme that assists each individual being retrenched to move on and find new opportunities, some of the pessimism of retrenchment can be eradicated.

Life after TERS

Author: Douw van der Walt & Meagan Cesare

 

Editor’s note: there are some useful options for employers to consider in this article. However, they all assume the proper functioning of the Department of Labour UIF Department and the CCMA. The UIF Department particularly is under immense strain. It is not certain therefore if these solutions are all workable practically i.e. will the processes at UIF allow them and will there be enough money to make payment and by when? This has an impact on employee / employer relationships as the employee naturally assumes that where they are not being paid it is the employer’s fault. Please be careful, communicate well and do your homework first.

South African business owners are emerging at the end of the lockdown period with a lot more wisdom, having suffered through some of the most testing times in recent history.

HRTorQue has experienced a high volume of enquiries from clients on how best to proceed in order to safeguard their business and to preserve jobs.  The importance of having well-structured financial plans and high levels of accounting acumen became starkly apparent, as for many small business owners these issues have not always been a priority and became lost in the everyday need to keep their company working and afloat.  This is an opportune moment to instill good financial habits or partner with a financial advisor and check in frequently with accountants for up to date results, which could allow analysis of problem areas before they go past a point of no return.

The introduction of the TERS UIF benefit by Government in March 2020 provided some relief to companies. However, TERS as a benefit has only been gazetted for a three-month period (April, May and June) and unless that stipulation is revised and a new Government directive passed; employers must now look for alternative relief to help them through another few months of potentially slow business conditions.  There has been recent talk of extending the benefit for those businesses that are ostensibly still in lockdown, such as the tourism industry, but nothing has been clarified.

Our advice to business owners who are still not yet fully operational is to consider the following alternatives:

 

Remote Working: 

This is a key consideration before more drastic measures are considered and could be beneficial for both the employee and employer. Many companies cannot bring all their staff back due to COVID-19 regulations which prescribe social distancing measures between employees, as a result of limited space at their business premises.  We suggest a careful analysis of your business structure and to identify those employees who are responsible, with good work ethics, and the right infrastructure to enable them to work from home.

 

Temporary Lay-Offs:

Lay-offs are envisaged as a temporary solution to a problem that will hopefully resolve itself once business confidence strengthens.  The principle of lay-off is that an employee remains employed with the company, but with no work and no remuneration for a certain period.  This may be covered in the employee contract or in bargaining council agreements.  If not, the employer and employer should enter into a consensus seeking process to enable the arrangement as provided for in s189 of the LRA.  This gives the employer temporary relief for the stipulated period where salaries won’t be required to be paid, but the employee is entitled to receive benefits from the Unemployment Insurance Fund.

 

Short Time or Reduced Working Time:

This is another option in terms of s189 of the LRA, and for many employers this may be the only way forward for another month or two. Short time is a fairly new concept in the definitions under which the UIF provides assistance, having only been introduced in 2018. The concept is defined as: “A contributor employed in any sector who loses his or her income due to reduced working time, despite being employed, is entitled to benefits if the contributor’s total income falls below the benefit level that the contributor would have received if he or she had become wholly unemployed, subject to that contributor having enough credits.”

An employee can apply either online or in person at a labour office and the documents are the same as those for temporary layoffs. However please note our concerns that there is still no certainty on the calculation and practical payment of the short time benefit by UIF yet.

 

Illness Benefit UIF for fourteen-day quarantine period:

Where an employee is ill, but has exhausted their sick leave days they can apply for the illness benefit from UIF.

 

Training Lay-Off Scheme:

(Editor’s note: we have not seen this operating in practice yet, so caution is warranted)

This benefit is overseen by the CCMA.  It is another temporary relief scheme designed to assist employers in distress and was envisaged as a means of reducing retrenchments.

Employees are laid off work for a period whilst they undergo training; they are provided with a training allowance grant from the Department of Labour and calculated on similar principles to UIF unemployment benefits.  Workers remain employed during the training lay-off but are not paid their normal salaries.  The lay-off may be combined with the short-time work arrangement.  The time period is flexible but is usually based on three to six months of training.

Employers may apply to the Department of Employment and Labour for the benefit and these are granted based on the submission of financial statements and budgets as well as a proposed turn-around plan. The CCMA also has dedicated resources that can be contacted for advice on how to start the process.

 

Retrenchments:

Should employers be forced to restructure their Company and retrench staff they must be careful to follow the required labour legislation and established protocols.

Consultations must be initiated with all employment parties such as workplace forums, registered trade unions whose members are likely to be affected, as well as with individual employees as the situation dictates.

An attempt to reach consensus must be made on the following:

  • Avoiding possible dismissals; this can be done by introducing reduced working time, temporary layoffs, offering early retirement to some employees or stopping overtime pay or the discontinuation of temporary employee contracts.
  • Negotiating ways to minimise the retrenchment of employees as well as discuss the timing of the exits.
  • The method of selecting employees to be retrenched must be stated as well as the severance pay envisaged.

The employer should provide all information related to these issues in writing; particularly the reasons for the retrenchment process as well as how many employees are going to be affected.   Reduce to writing any alternatives that were proposed and why they have been rejected. The number of employees affected must be disclosed, the timing of the retrenchment process as well as the severance pay that has been proposed.  There should be a reassurance of re-employment should the company find itself to have increased capacity at a later stage.

Retrenchments cannot be used for the sole purpose of getting rid of unwanted employees.

The employees or other consulting party must be given an opportunity to present alternatives and these must be considered, and a response provided.

At the conclusion of the consultation process, should no agreement be reached on the criteria for selection, then often the LIFO (last in, first out) principal may be applied, but this is not the only means of selection, i.e. for instance a combination of methods such as early retirements or departmental restructuring, or retention of key skill personnel may be used. The CCMA has published guidelines on how restructurings should be conducted, and these are updated from time to time and serves as a useful reference for parties involved in restructuring.

Severance pay as well as notice pay (per labour law) must be paid out.  Employees are entitled to their outstanding leave pay as well as any other criteria stipulated in their employment agreement.

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There have been multiple press releases and changes announced over the past three months in relation to UIF benefits or DOL policies. These may change from day to day.  Details reflected in this article are correct at the time of going to press.  Kindly ensure that you check for updates from us on a regular basis.

Where to now with TERS and UIF Benefits?

Author: Douw van der Walt & Meagan Cesare

 

The Temporary Employer / Employee Relief Scheme (TERS) claiming process certainly did not start smoothly. The process changed regularly, and the systems often crashed due to the sheer volume of applications.

With the three-month legislated TERS period closing; employers have become increasingly concerned about the financial implications and long-term viability of retaining staffing at historical pre-Covid levels. The month of July looks to be a watershed month and without the TERS cushion, many employers may have to start looking at retrenchments or deeper short-time implementations. There is no simple answer as again mixed messages are being received from Government as to the likelihood of further Government support using UIF funding. The most recent message clearly states that TERS benefits will cease at the end of June as there has to be enough funds in the UIF coffers to pay out benefits based on the other UIF benefit pillars. That said, there have also been rumours that TERS will be extended for one more month as there is at least a system in place to get benefits to those employees in need. We hope that this uncertainly is cleared up by Government well before the next pay cycle comes around, but don’t hold your breath…

Assuming TERS benefits ends, there is still a potential alternative. An additional benefit pillar was introduced in 2018 to cater for ‘reduced working time’ (short time). The big differences between this benefit and TERS are:

  • The ‘reduced working time’ benefit is paid out based on the number of credits that the employee has.
  • This benefit is paid out directly to the employee based on a claim made by the employee.

In an ideal world this process is not that complicated. We are not in an ideal world though and having hundreds of thousands of employees trying to make applications at the Department of Employment and Labour under COVID-19 conditions would be a disaster. In addition, there is still no clarity on how the benefit would be practically calculated. Any application at the current moment would need to be made with reduced expectations of the timing and amount of payment. This makes the process difficult particularly as the claim needs to be made by the employee.

So, we are at a crossroads.

If TERS is extended for a month, HRTorQue will be able to assist you in submitting the claim for that month.

If TERS is not extended employers can still theoretically use the ‘reduced working time’ UIF benefit, with the hope that the UIF systems will allow for claims to be made with minimal human interaction. Bulk uploads by employers for such claims cannot currently be done on uFiling. HRTorQue, will however be able to assist your employees with the collection of the paperwork necessary to make a claim. We are in daily contact with the Payroll Authors Group of South Africa in this regard, and we are aware that they are having high level discussions with the Head Office of the Department of Employment and Labour. We will disseminate information as soon as it becomes available.

You are welcome to give our Team a call to discuss these options. We understand the pressures that business owners are facing and will do our best to provide practical and cost-effective advice in these challenging times. Due to the constantly changing landscape presently surrounding UIF benefits, both for TERS and possibly short-time scenarios, our information and advice is correct as of today, but may well change at a future time.  Ensure that you check in with us regularly for updated information.

Home Office Expenses – Tax deductions for Working from Home

Whilst the concept of a ‘home office’ is certainly not new the unprecedented challenges of the COVID-19 pandemic has brought the concept and its terms and conditions firmly into focus. With many companies not able to return to full or partial employment until at least Level 2, employers have quickly had to formulate plans to get employees set up in their homes so that they are in a position to get to a productive capacity as soon as possible.  The punitive cost of office space, traffic congestion and a changing work dynamic are all additional reasons why productivity conscious employers are looking at the ‘home office’ concept as a solution to such problems.

The onset of COVID-19 has pushed the need for employees to maintain a home office into a necessity. Overnight employees have been thrust into this new working culture. Employees have hurriedly had to set up a workspace to enable them to be productive and client-facing as soon as possible. In many of these cases the practicalities of such changes would have only been agreed after the fact, with the most important of these being the costs associated with the ‘home office’. Depending on the agreement reached with the employer in terms of who is required to pay such costs, the employee may need to familiarise themselves with the tax legislation in this regard.  SARS allows such employees to deduct their home office expenses within the “Other Deductions” section of their annual Income Tax return. It is important to note that this is only allowed under certain specific conditions. Before explaining the legislation though it is important to understand that the situation is different for sole proprietors or independent contractors who also work from home. They can automatically deduct their home office expenses and do not need to work through the same stringent set of conditions applied to employees to see whether they qualify for a deduction. The relevant portion of home office expenses can simply be reflected within the “Local Business, Trade and Professional Income” section of their annual Income Tax return.

 

So, what are the requirements to deduct home office expenditure for a salaried employee?

  • The employer must allow the employee to work from home. SARS requires that this fact be put in writing in the form of a letter or an addendum to the employment contract.
  • The employee must spend more than half of their total working hours working from their home office.
  • The employee must have an area of their home which is used exclusively for this purpose. For example, employees who meet clients in their dining room at home would not qualify. A separate office, which is used specifically for the employee’s work, must be maintained to qualify for the deduction. This is often a sticking point with SARS and could potentially be problematic, particularly with the flexible arrangements made to deal with the COVID-19 pandemic.
  • The office must be specifically equipped for the employee’s trade, i.e., it must be specially fitted with the furniture, tools and equipment required for the employee to perform their work. A room utilised for multiple activities would not qualify.

 

What expenses can be deducted?

Firstly, one must look at the employee’s remuneration structure to confirm whether they:

  • Earn more than 50% of total remuneration either from commission or some other variable income based on work performance; or
  • Is a normal salaried employee with variable payments or commission making up less than 50% of their total remuneration?

The first group (i.e., commission / variable income earners) can claim pro-rated deductions based on rent, interest on bond, repairs to the premises, rates, cleaning, wear and tear, and all other expenses relating to their home. In addition, they can also take other commission-related business expenses, such as telephone, cell phone, gifts, stationery and repairs to the printer into account.

The second group (i.e., salaried employees with variable payments or commission making up less than 50% of their total remuneration) can only claim pro-rated deductions based on rent, interest on bond, repairs to the premises, rates, cleaning, wear and tear, and all other expenses relating to their home.

 

How to calculate the home office deduction.

First calculate the total square meterage of the home office in relation to the total square meterage of the home and then convert this to a percentage. Then, apply this percentage to the home office expenditure to calculate the portion that is deductible.

This calculation is best explained with an example.

James is a design engineer who works for Smart Engineering. His remuneration only consists of a salary. His company is happy for him to work from home due to limited office space and flexibility in terms of working hours. He has a separate office at home which is fitted with a desk, cupboard, computer and printer which he uses exclusively for his job. The computer and printer were purchased one year ago for R21 000. His office is 10m2 and the floor space of his entire home, including the office, is 100m2.

During the 2020 tax year he incurs the following expenditure:

  • R100 000 interest on mortgage bond
  • R42 000 rates and electricity
  • R36 000 cleaning costs (including maids wages)
  • R8 000 security and monitoring costs
  • R23 000 cell phone expenses (business portion)

Based on the above information, James qualifies for a home office deduction. The square meterage of his home office (10m2) is 10% in relation to his entire home (100m2).

James’s home office deduction for the tax year can be calculated as follows:

10% x (R100 000 + R42 000 + R36 000 + R8 000) = R18 600

James would also be entitled to a R 7 000 wear and tear deduction on his laptop / printer (assuming a three-year SARS write-off).

As a ‘salaried employee’ James would reflect his home office expense / other claimable expenses claim within the ‘Other Deductions’ section of the annual Income Tax return (ITR12).

It is important to note that any deduction reflected in the ‘other deductions’ field will elicit a query from SARS. They will request details of the claim. The first thing to do is to clearly show the calculation of how the percentage of home office expenses were arrived at. It is advisable to have a detailed schedule reflecting the totals per expense item and then have the schedules of the expenses specific to the claim. It is not always practical to send every invoice to SARS so a schedule will allow them to choose specific expenses if necessary. With any home office submission to SARS you must include a copy of the letter / employment contract from your employer confirming the requirement to maintain a home office.

There is another tax issue that needs to be understood before going down the road of the home office. While people are eager to claim the home office tax deduction in order to reduce their taxable income (and ultimate tax liability), few people understand the negative tax impact a home office will have on the calculation of Capital Gains Tax when they sell their homes one day.

When taxpayers sell their primary residence, there is a primary residence exclusion of R2 million. This means the first R2 million of the capital gain (or loss) is excluded for the purposes of working out Capital Gains Tax. All individual taxpayers receive an additional R40 000 capital gains exclusion per year.

However, if the taxpayer worked from home and used part of the house as an office, the Income Tax Act requires the capital gain to be apportioned between primary residence use and business use. This apportionment must take into account the length of time that the home office was used as a portion of the entire period of ownership, as well as the size of the home office compared to the size of the entire property.

Before happily agreeing to the use of a home office there is some homework that the employee should do. The employee should compare the potential Capital Gains Tax implications with the annual tax saving from the home office deduction to decide which is more advantageous from a tax perspective. Whilst the Capital Gains Tax implications are unlikely to be material if only a small part of the home is used as a home office, it is still important to factor this consideration into the decision.

With the tax position now clear focus now needs to be put on the implementation process. Whilst we can all agree that we are working and living in unprecedented times, what we as humans often have problems with is communication.  Disagreements abound because people battle with communication. There is no better place to see communication challenges than in the workplace. Factor in a money issue and there is sure to be unhappiness. When discussing a change in working conditions with an employee ensure that there is adequate consultation on the matter and that the applicable terms and conditions are put in writing. The employee must understand what the expectations of them will be and what equipment and facilities will be required in this home office. After explaining the tax position and successfully negotiating the specifics of the new working conditions employer and employee should be in a good position to take advantage of this remote working relationship.