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.