This post considers the position of applying for a tax directive on receipt of a CCMA settlement agreement and the appropriate deduction of PAYE on this award. HRTorQue are experts in personal and employment tax. If you would like to chat to an advisor please contact us using “personal tax” in the subject line.
CCMA settlement awards – tax directives and deductions
When we are processing payrolls (on an outsourced basis) we regularly receive requests to pay employees in terms of an instruction from the Commission for Conciliation, Mediation and Arbitration (CCMA). Clients will forward a copy of a settlement agreement stipulating that the employee is paid a certain amount.
When explaining that a tax directive has to be applied for in cases such as these there is often a query from the labour representative who facilitated the agreement. The logic applied by labour practitioners is that the award agreement is clear that a certain amount has to be paid by a certain date, and that no deductions can be made from arbitration awards.
In our opinion, amounts received as a result of a CCMA or Labour Court award would be specifically included in ‘gross income’ in terms of Section 1 – definition of ‘gross income’, paragraph (d) or (f). With the payment, constituting ‘gross income’ there is an obligation to withhold employee’s tax.
The amount of employee’s tax that the employer is required to withhold must be ascertained by way of a tax directive application to SARS. SARS has published Interpretation Note 26 (March 2004) which provides clear guidelines as to the responsibility put on employers in this regard.