Leave Pay, Notice Pay and Severance Pay – common calculation mistakes

Pay for leave, notice and severance is an area many employers don’t always get it right.

The calculation of these payments is covered by s35(5) of the Basic Conditions of Employment (BCOE).

The following payments are included in an employee’s remuneration for the purposes of calculating pay for annual leave in terms of section 21, payment instead of notice in terms of section 38 and severance pay in terms of section 41 –

  1. Housing or accommodation allowance or subsidy or housing or accommodation received as a benefit in kind;
  2. Car allowance of provision of a car, except to the extent that the car is provided to enable the employee to work;
  3. Any cash payments made to an employee, except those listed as exclusions in terms of this schedule;
  4. Any other payment in kind received by an employee, except those listed as exclusions in terms of this schedule;
  5. Employer’s contributions to medical aid, pension, provident fund or similar schemes;
  6. Employer’s contributions to funeral or death benefit schemes.

The following items do not form part of remuneration for the purpose of these calculations –

  1. Any cash payment or payment in kind provided to enable the employee to work (for example, an equipment, tool or similar allowance or the provision of transport or the payment of a transport allowance to enable the employee to travel to and from work);
  2. A relocation allowance;
  3. Gratuities (for example, tips received from customers) and gifts from the employer;
  4. Share incentive schemes;
  5. Discretionary payments not related to an employee’s hours of work or performance (for example, a discretionary profit-sharing scheme);
  6. An entertainment allowance;
  7. An education or schooling allowance.

The value of payments in kind must be determined as follows –

  1. 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
  2. the cost to the employer of providing the payment in kind.

An employee is not entitled to a payment or the cash value of a payment in kind as part of remuneration if –

  1. the employee received the payment or enjoyed, or was entitled to enjoy, the payment in kind during the relevant period; or
  2. in the case of a contribution to a fund or scheme that forms part of remuneration, the employer paid the contribution in respect of the relevant period.

This schedule only applies to pay for annual leave accrued from the date of operation of this Schedule.

If a payment fluctuates, it must be calculated over a period of 13 weeks or, if the employee has been in employment for a shorter period, that period.

A payment received in a particular period in respect of a longer period (e.g. a thirteenth cheque) must be pro-rated.

This Schedule only applies to the minimum payments that an employer is required to make in terms of the Basic Conditions of Employment Act, 1997.”

When the legislation was initially introduced in 2004 we held seminars and sent many emails about the changes in the BCEA legislation and Section 35(5), but we have noticed that a number of organizations still have not worked through these changes and we believe that a number of companies do not calculate Notice pay, Severance Pay, Leave Pay paid out on termination or Leave Pay (while on Annual leave) correctly.

Many still pay Notice pay, Severance pay, Leave pay paid out on termination or Leave pay (while on Annual leave) using only the basic wage or salary, perhaps correctly, but without any consideration of the change in legislation. This could lead to their actions being found to be irregular by the Department of Labour.

HRTorQue Outsourcing has recently dealt with labour cases where disputes as to the value of leave pay has not only cost the client a significant amount of money in terms of legal and consulting costs but also led to the employer settling on a value that exceeds that legislatively prescribed.


What should you as an employer do?

By taking a few easy steps you can mitigate most risk in this regard.

  • Utilise the services of an external consultant – this shows the company has endeavoured to interpret and apply the legislation taking into account the specifics of its own organisation. This significantly reduces the risk of non-compliance.
  • Follow a process and document your decision making

This legislation is however quite complicated and can result in an increase in payroll bills if a proper documented process is not followed. The basis of this action will include a decision to include or exclude certain allowances and an explanation as to why that decision was made. We advise that you make an appointment with David Beattie of HRTorQue Outsourcing by contacting him via email at [email protected] Dave will send you a quotation covering the process that will be taken to get you through this process, with the output being a recommendation on whether or not to change your payroll calculations.


What process do we follow?

The process that will be followed during this consultative exercise is as follows:

  • Consultation to introduce Section 35(5) of the Basic Conditions of Employment Act
  • Identification of various cash payments, allowances, company contributions and fringe benefits
  • Separation of income categories into income payments for ‘work done’ and ‘to enable work to be done’. This is an important step in the process.
  • Identification of payments that are specifically excluded in terms of this legislation
  • A report consolidating the process, findings and decisions made.

The outcome of this consultative process (the decision table) will be implemented into the payroll if you are an HRTorQue Payroll client

Where the employer would like a remuneration policy detailing the company’s treatment of leave payments, one will be drafted by a representative of HRTorQue Outsourcing’s HR Department. The cost of this policy will be quoted on separately.

Draft code of good practice – violence and sexual harassment

A draft code of good practice on the prevention and elimination of violence and harassment in the workplace was published in the Government Gazette on the 20th of August and all interested and affected parties such as employers, employees, employee organisations and trade unions are invited to comment within 60 days.

The draft policy falls within the ambit of the Employment Equity Act and covers a wide range of undesirable behaviour falling within the scope of Violence and Harassment in the workplace.  This includes sexual harassment, bullying including cyber bullying and threats of on-line violence, intimidation, threats of violence and harassment in a number of areas focusing on racial, ethnic or social issues or threats to whistle blowers or gender or LGBT violence or harassment.

The code applies to all sectors, public and private, formal and informal and any place that could be defined as an area of work.  Any areas outside of a workplace that are governed by the process of work would be included, i.e. travel, rest areas, outside training, even commuting to and from work or accommodation provided by an employer.

The employer would also be responsible for a safe on-line and communications environment and would need to control harmful behaviour or practices conducted in these spaces.


From the Draft Act;

Sexual Violence and Harassment: defined as directly or indirectly engaging in conduct that the perpetrator knows or ought to know is not welcome, is offensive to the complainant and makes the complainant feel uncomfortable, interferes with work, causes harm or inspires the reasonable belief that harm may be caused to the complainant or a related person.

Racial Violence and Harassment: is defined as unwanted persistent conduct, or a single incident which is seriously degrading, humiliates or creates a hostile or intimidating environment, or is calculated to influence submission by actual or threatened disadvantageous consequences, and which is related to a person’s membership or presumed membership of a group identified by one or more of the prohibited grounds or a characteristic associated with such group.

All conduct either verbal or non-verbal of a racist nature whether through remarks, abusive language, name-calling, offensive behaviour, gestures or cartoons, memes or insinuations are considered undesirable.

Most of the practices listed and defined by the Draft Act fall within the generally accepted scope of “Good Practice” in a work place and are not new to most employers as the principles should be dealt with in their existing Code of Conduct policies.  The draft has sought to define and label definite practices which are abhorrent and unacceptable in a modern work setting if compared to what a reasonable person would accept as normal and appropriate behaviour.


How does this affect the employer?

Employment Equity Committee and Policies

The Draft Act is being proposed as an amendment to the Employment Equity Act and as such employers must look to their employment equity managers and committees to ensure that these items are addressed on their agenda at meetings and incorporated into their employment equity plans and policies.  Conclusions, minutes and resolutions relating to employment equity policies should be made available to all employees to view.

Every effort should be made by employers to ensure measures are put in place to actively prevent an environment developing where violence or harassment is tolerated.  Establishing a workplace culture of respect, dignity and inclusion for all individuals is required and expected.


Company Policies

The principles defined in the Act will reach across many Company Policies and Procedures that may already have been created and accepted in an Organisation.  We suggest that these are scrutinised and revised so that once the Act is accepted into law there is no scramble to become compliant.

Policies that may need revision would be the Company Code of Conduct, Dress and Ethics Policies, Language Policy, Racial Harassment Policy, Occupational Health Policies and On-line Systems User Policies.

Contracts of Employment should be reviewed to ensure there is no racial or gender bias in the documents.

Prevention and Awareness Programmes should be introduced:

The Draft Act encourages Organisations to develop a culture of dignity and respectful engagement between employees as well as between employer and staff.  This may take effort and it could be helpful to engage outside specialists to offer training and programmes that increase awareness of Violence and Harassment issues whether they are sexual or racial as well as establish guidelines of acceptable behaviour and practices in the workplace.

It is the employer’s duty to provide relevant information, instructions and training where necessary to ensure there is a safe working environment, free of risk to health whether physical or psychological, in a manner which is dignified, protected and respected.

Treatment, Care and Support of Victims:

The employer should establish a protocol or guideline for the treatment and care of a possible victim within an Organisation.  Should there be an incident of sexual, racist or violent harassment within the workplace it is important that everyone has guidelines that are clear on the interventions required in terms of their Workplace Occupational Health and Safety strategy.  Employers and employees are jointly responsible for creating a healthy workplace.  Appropriate referrals for counselling and other interventions must be communicated.

Privacy, Consent and Record-Keeping of Personal Information:

Employers and workers must ensure that complaints procedures and disciplinary issues are kept private and the rights of the affected parties are protected.  Records must be kept in a safe and secure place and consent must be acquired before sharing personal information.  A privacy policy should already be in place for the Organisation.

Procedures in Managing Violence and Harassment:

Employers must develop clear procedures to deal with Violence and Harassment.  These can form part of the Company’s normal disciplinary code.  Steps must be taken to clearly communicate to employees that they can report incidents to managers or human resource departments and these complaints will be dealt with swiftly and thoroughly and should the incident be of a serious nature there will be attention given to the well-being of the employee through counselling interventions, appropriate privacy provided and disciplinary procedures for the perpetrators.

A culture that encourages freedom to report or discuss sexual, racial or other types of bullying and harassment must be maintained and an employee should be aware that if an incident occurs it would not be trivialised or ignored.

Monitoring and Evaluating Practices:

Employers need to design and implement strategies, policies and programmes to eliminate Violence and Harassment, by identifying key elements to create a monitoring and evaluation system.  The system or mechanism created is intended to be a collaboration between employer and employees to track implementation and ensure there is an informed response.  These mechanisms and evaluation strategies must consider national efforts to eliminate Violence and Harassment in broader society.

Challenges for Employers:

The Draft Act speaks to cultural development within Organisations and this is in line with fresh impetus by Government to promote a more equal and dignified society where behaviour that could be labelled as demeaning or threatening is stamped out and recognised as having no place either in the work place or society in general.

Very often an employer may find themselves in a position of addressing particular behaviour patterns from employees that would fly in the face of what would be considered appropriate.  It is often difficult to identify this, but it is up to the employer to recognise and take heed of warning signs that there may be something amiss and act timeously to prevent an incident from developing.

A culture of decency develops where appropriate behaviour is encouraged and learnt by an employee who is observing it continuously from employers and management.  Ignoring Violence and Harassment can have major negative consequences for an Organisation that they may be ill-equipped to deal with both financially and from a marketing or PR perspective.

Employment Equity Draft Bill – some key points to note

Editor’s note: please be very wary of the new Employment Equity Bill. In our view it gives excessive powers to the Department of Labour which could make employers’ lives very difficult.

On the 20th July 2020, the latest draft of the Employment Equity Bill was published and will be on its way to Parliament.

This Bill gives the Minister far greater powers to intervene and has increased the requirements for the employer to comply. One of the amendments includes Section 53 which requires that an annual certificate of compliance is issued and failure to receive this certificate will affect your ability to do business with the State and its Organs.

One of the biggest changes taking place, which I believe will hugely impact employers’ ability to comply, is the introduction of sectoral targets. The Minister will now establish numerical targets for employers in specific economic sectors and employers must comply with these targets. It is not clear whether these targets will be further drilled down to include other factors such as business type; location; size business and turnover of business which could largely affect employer’s ability to meet the targets.

In August 2019 the Employment and Labour Minister reiterated that those that did not comply would be punished and that the need for Sectoral Targets was due to the continued non-compliance of Employers.

These amendments clearly indicate “unhappiness” at the slow rate of transformation of business in South Africa and seem to be trying to force employers to transform at a faster rate. Whether this is feasible remains to be seen but feasible or not it is still coming, and business needs to start preparing.

Our biggest concern is that while the intention is for this to impact employers who supply services to public entities, it will be rolled out through the BEE legislation and impact all employers wishing to get a valid BEE rating e.g. the DTI may require a certificate of employment equity compliance before a rating is given. This would be extremely problematic in our eyes particularly where the Minister is setting targets. Imagine a scenario where the Minister sets targets for an industry in JHB where an employer might have access to a wide labour pool yet the same targets might apply for an organization in the Western Cape where the labour demographics are different…and how long might all employers have to comply…there are just too many variables and unknowns here for a Ministry that has shown little pragmatism in the past.

What to do in the short term…?

It is clear from the proposed amendments and the many inspections that the expectations for employers to transform and to comply is high.

Many employers partially comply either because they don’t fully understand the requirements OR they don’t have time to get it all done.

The consequence for not complying are serious with hefty fines of R1,5 million and above. Even more worrying is that in the case of non-compliance for the Employment Equity Plan the Director-General can apply directly to Labour Court for the fine to be issued to the employer without having to first issue written undertakings or compliance orders.

For more information on the requirements of a designated employer please join our free webinar on 30th September 2020 at 09h00. To register please click on the link Employment Equity Webinar Registration

In the meantime please feel free to complete our EE Compliance Questionnaire. This questionnaire takes less than 5 minutes and will give you an immediate snapshot of possible areas of concern.

How to deal with the abuse of sick leave

We have recently discovered a significant increase in cases of leave abuse within companies, more specifically, sick leave. The employee may frequently be absent for short periods, for the same or a variety of reasons; or a pattern of absence develops, e.g. absences before and after weekends or public holidays, or after pay days. This proves to be problematic in terms of operations within the company and may result in loss of revenue. Employers sometimes find it difficult to address this abuse as it is seen to be a “difficult” conversation to have.

In order to combat abuse of sick leave, we suggest organizations implement a sick leave policy to set guidelines on how to manage sick leave. The process of dealing with cases of excessive sick leave should be stipulated in this document. Measures to deal with abuse of leave include:

  • Begin the formal counselling process with any employee who takes excessive intermittent sick leave.
  • Conduct an internal audit of the sick leave taken by individual employees in order to establish patterns and the costs.

We also urge employers to adhere to the below criteria when accepting proof of illness as cases of fraudulent medical certificates is on the rise.

Where a medical certificate is required, the certificate must contain the following information before it should be accepted:

  • name, address, qualifications of medical practitioner (the practitioner, who may be a clinic sister, must be registered with the Health Professions Council of SA)
  • practice number
  • name of the employee
  • date and time of examination
  • whether the certificate was issued after the medical practitioner has personally examined the patient, or is it based merely on what the patient told the practitioner
  • it must state that the employee was too sick or injured to work
  • the exact period of recommended sick leave
  • the date the certificate was issued

HRTorQue can assist with a number of elements of managing sick leave:

  • Policies and Procedures customized per your requirements;
  • An internal audit of sick leave using tools and software to analyze leave;
  • Hands on oversight; handling the conversations with the staff and helping managers deal with this issue;
  • BI tools to monitor and analyse patterns to identify underperforming employees

If you would like some more information on any of our solutions please feel free to call us or email us at [email protected]

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.

Claiming UIF – practical challenges

We are currently facing a difficult situation with regards to the submission of claims for any normal UIF benefits (such as unemployment, maternity, illness etc.). Although claims can be submitted online, the approval of these claims is largely dependent on whether the Department of Labour has correct and updated employment history of the individual claiming

How this process works is that Department of Labour receive the declarations (not EMP201s) from the employer every month (by the 6th of the month for the previous month). The Department of Labour then update their systems accordingly to reflect any new employees, changes in UIF payments, credit history and termination records. This information creates an employment history for the employee which is important for the allocation of credits and the ability to claim.

Where employers have not been submitting the declarations, the employment history is not updated, the employee may not show any credits and their claim is rejected. There are also instances where, despite declarations being submitted, employees’ history is not being reflected or rendering on the Department of Labour database.

In the past this was remedied by the submission of the UI-19 and the salary schedule by the employee to the Department of Labour. The Department of Labour would then manually capture the employment history and termination record which would then allow the claim to go through.

The Department of Labour have now advised that they will no longer be manually processing the UI-19s or salary schedules.

Way forward:

1)            Declarations have not been submitted

It is important that declarations are submitted to [email protected] (in the correct format) or via uFiling for the last four years or if employed for a lessor time then for that time.

2)            Declarations have been submitted and employee needs to claim for Unemployment Benefits

If employees wish to go submit a claim very soon after their last day of employment, they will either:

  • need to wait for the Department of Labour to process the normal declaration file; or
  • you as the employer will need to update the declaration manually on uFiling; or
  • the employee must wait for the Department of Labour to update their systems via the normal declarations process.

To ensure your employees who are terminated can claim unemployment and receive full benefits please proceed to update their declarations via the link: https://www.ufiling.co.za/uif/

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.



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.


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.

Government COVID-19 tax concessions

The impact of the COVID-19 pandemic has had far reaching implications on the South African economy and businesses, big or small. The true spirit of South Africans has come to the fore though and we have seen general society and Government quickly respond to deal with the hardships that have quickly become evident. Government has implemented various concessions to assist with the alleviation of the cash flow burden that tax compliant small to medium sized businesses may suffer arising as a result of the COVID-19 outbreak. The following concessions will be for a limited period of four months, beginning 1 April 2020 and ending on 31 July 2020:

  • Deferral of 35% of the payment of PAYE liability, without SARS imposing administrative penalties and interest thereon.
  • The deferred PAYE liability must be paid to SARS in equal instalments over a period of 6 months commencing on 01 August 2020, i.e. the first payment must be made on 07 September 2020.

Treasury has proposed the following changes to the qualifying criteria for the Employment Tax Incentive scheme during this concession period:

  • The Maximum ETI claimable per qualifying employee is increased to R1 750 in the first year of employment and to R1250 in the second year of employment.
  • Employers to be allowed to claim an ETI amount of R750 for employees who are between the ages of 18 and 29 years and are no longer eligible for ETI as the employer has claimed ETI in respect of those employees for 24 months (First new category).
  • Employers to be allowed an ETI amount of R750 for employees who are between the ages of 30 and 65 years who earn less than R6 500 (Second new category) and
  • The payment of ETI reimbursements to be made monthly instead of twice a year.

Provisional Tax has been addressed by the provision of the following concessions:

  • Deferral of the portion of the first and second provisional tax payments to SARS, without SARS imposing administrative penalties and interest for late payment of the deferred amount.
  • The first provisional tax payment (due from 01 April 2020 to 30 September 2020) to be based on 15% of the total estimated liability and the second provisional tax payment (due from 01 April 2020 to 31 March 2021) to be based on 65% of the total estimated liability.
  • The deferred amount must be paid when making third provisional tax payment (top-up) to avoid interest being charged.

The requirements to be met for the above proposed tax relief are as follows:

  • Annual turnover not exceeding R100m
  • The company must be fully tax compliant (No outstanding returns, no outstanding tax debt other than a debt of less than R100 suspended debt or debt subject to the instalment payment agreement.

A Skills Development Levy (SDL) holiday was introduced in the second wave of concessions. From 1 May 2020, there will be a four-month holiday for SDL contributions (1% of total salaries) to assist all businesses with cash flow. All employers who are registered for SDL will automatically qualify for the SDL payment holiday. The zero amount SDL liability will be defaulted on the relevant EMP 201 returns.

The tax deductible limit for donations (currently 10% of taxable income) will be increased by an additional 10% for donations to the Solidarity Fund during the 2020/21 tax year. Therefore, there will be a limit of 10% for any qualifying donations (including donations to the Solidarity Fund in excess of its specific limit) and an additional 10% for donations to the Solidarity Fund.

The 20% tax-deductible limit for donations will apply only to donations made during the 2020/2021 tax year. Any donations over the limit made during the 2020/2021 tax year will be carried forward and deemed to be a donation made in the succeeding year of assessment (2021/2022) and be subject to the 10% limitation in that year.

The donations thresholds have also been increased at payroll level. Employers can traditionally factor in donations of up to 5% of an employee’s monthly salary when calculating the monthly employees’ tax to be withheld. An additional percentage that can be factored in up to 33.3%, depending on the employee’s circumstances – will be provided for a limited period for donations to the Solidarity Fund.

This will ensure that the employee gets the deduction that is in excess of 5% much earlier than under normal circumstances and will therefore not have to wait until final assessment to claim a potential refund, provided the donation is made to the Solidarity Fund.

However, it is important to note that a final determination must still be made upon assessment as the employee may have other income, deductions, or losses that impact the final taxable income before the deduction of donations.

If these concessions are utilised effectively the cashflow injection into companies will go a long way to assisting such entities get through these trying times. The concessions must be managed correctly though as any slip ups could cost the company in terms of penalties and interest.

Second Revised Draft Disaster Management Bill

The Second Revised Draft Disaster Management Bill was issued by Treasury on 19 May 2020. Due to the time sensitive nature of the amendments for payroll it was imperative that National Treasury and SARS assist the Payroll Authors Group of SA by issuing the amended requirements that would impact on payroll.

In the latest Bill three of the Employment Tax Incentive (ETI) requirements are deemed to be retrospectively effective from 1 April 2020. The result is that the ETI values that have already been calculated for April in terms of the 1 April Bill must be recalculated by applying the 19 May formulas to the April employee data. The value of the ETI calculated in April for April in terms of the 1 April Bill, will differ from the ETI value calculated in May for April in terms of the 19 May Bill for the following reasons:

The 1 April Bill proposed:

  • An extra ETI amount of R 500
  • That the ETI value for the three extended age groups must not be grossed down if there are less than 160 employed and remunerated hours in April.

The 19 May Bill proposed:

  • An extra ETI amount of R 750
  • That the ETI value for the three extended age groups must be grossed down if there are less than 160 employed and remunerated hours in April.
  • That the ‘1 October 2013 employment start date’ qualifying test is deleted from 1 April until 31 July.

The ETI total for April that is recalculated in May according to the 19 May Bill can be either more or less than the ETI total originally calculated for April according to the 1 April Bill.

The challenge to the administrator dealing with the submission for the monthly EMP 201 returns is the fact that there has been a change in benefits and that an adjustment would need to be made in the May payroll. The difference between the two ETI totals must be applied to the EMP 201 as follows:

  • If the ETI total calculated in May for April is more than the ETI calculated in April for April, then the additional amount can be added to the normal ETI total for May in the May EMP 201
  • If the ETI total calculated in May for April is less than the ETI total calculated in April for April, then the April EMP 201 must be adjusted to reflect the lesser ETI total.

PAGSA is discussing with SARS the issue of the late payment penalty and interest that would be levied if the adjustment explained in scenario 2 was made (to the April EMP 201).

Any adjustment to the ETI totals would also have an impact on the tax certificates. The recalculated ETI values for April must be allocated correctly to the monthly ETI tax certificate fields. If this is not correctly done, the tax certificate amounts will not reconcile with the EMP 201 and EMP 501 totals when tax certificates are submitted to SARS for the 2020 mid-year tax certificate submissions and reconciliations.

Finally, one additional ETI matter that has an impact on the minimum wage qualifying criteria. Section 4(1)(b) of the ETI Act requires that the employee’s wage must not be less than R 2 000 per month, or the grossed-up value of the employee’s wage if employed and remunerated hours are less than 160 hours must not be less than R 2000 per month.

This section has been deleted by the changes in the May 19 Bill and this change will be in effect from 1 May 2020 to 31 July 2020. After this deletion though it was not clear whether or not the employees of that employer qualified in terms of section 4 if there is no wage regulating measure and the National Minimum Wage Act does not apply. SARS after consultation with PAGSA has confirmed that an employer that is not subject to a wage regulating measure and that is exempt from the National Minimum Wage Act is not eligible to benefit from the Employment Tax Incentive.

We are working in times of unprecedented change. Traditionally legislation takes at least a year to pass through the various consultative processes before it is ready for promulgation. In this case we are looking at a compressed consultative process and legislation amendment process. The pressure on payroll companies to make programming changes has been relentless. The timing of legislative changes could not have been worse though. At this point we expect that in a lot of cases changes in ETI claims for April and May, may only happen in June. Whilst we welcome any Government concessions, one has to question why these COVID-19 concessions have had to be so technical and difficult to implement.