As a company that processes payrolls on an outsourced basis we regularly get requests to pay employees in terms of an instruction from the Commission for Conciliation, Mediation and Arbitration (CCMA). Clients forward a copy of a settlement agreement stipulating that the employee be paid a certain amount. When explaining that a tax directive has to be applied for in cases such as these, there is often a backlash from the labour attorney representing the employee. The logic applied by these 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.
Should you have any questions in this regard kindly contact Dave Beattie on 031 582 7410 or [email protected].