Compensation, the term used to define the cost of employment of employees, can be a major headache for decision makers in business, particularly if it is not managed properly and issues like compliance are not taken seriously.

 

One of the main reasons why this responsibility can turn the world of an employer upside down is because it encompasses far more than just salary. Although employees tend to associate compensation exclusively with salary, it is actually far broader than that – in fact, it includes benefits, rewards, incentives and other costs.

 

So, in practice, compensation covers everything that an employee earns for bringing value to the employer.

 

In the South African context, the issue is of extreme importance because of the country’s strong trade union background and the ongoing problem of skills shortages.

The Minister of Finance will present this year’s budget on 26 February, and as we move closer to this date the burning question that every employee would like to know the answer to is whether personal tax rates will go up or down.  Of course, the people who know what’s in the budget aren’t talking, so we have to make an educated guess at what we can expect. 

 

The only way to do that is to pick up trends by looking back at last year’s budget.  The 2013 budget proposed a number of changes to some important areas of employment, of which the following are the bigger projects.

 

Retirement Reforms

South Africa does not have a statutory requirement for pension provision, or death and disability insurance. Government is examining ways in which every working South African can be guaranteed access to these components of social security. As in many other countries, a key element of this reform would be the provision of subsidised contributions for low-income workers.

 

In the absence of a statutory requirement for retirement provision, a large number of employers provide retirement and insurance funds as a condition of employment.

 

Pension, Provident and Retirement Annuity funds (Retirement funds) have their own unique tax and administration rules.  This causes unnecessary complications, mistakes and inefficiencies for everybody concerned. 

 

Proposals were made in the 2013 budget to ‘harmonise’ the tax rules into one standard set of administration and taxing rules for all retirement funds.  These proposals were promulgated late in 2013 and are included in the Income Tax Act but with an effective date of March 2015.

 

This is both a complex and a sensitive area of employment, and I have no doubt that changes will be made as we move forward to correct any unintended consequences that might arise, and to refine the provisions even further.

 

National Health Insurance

Late in 2012, Minister of Finance Pravin Gordhan stated at a press briefing that a discussion document on financing options for the NHI was at an advanced stage, but declined to give details or a date when National Treasury would make the document available.

 

This discussion document, which has still not yet been issued, will presumably address what we want to know –

1. How is the NHI going to be funded?
2. Will employees have to contribute?
3. Will it be administered through the payroll?

 

There was also no mention of the funding mechanism for NHI in the 2013 budget proposals, so all we have is what was proposed in previous budgets -

1. A special tax on high income earners, or
2. A mandatory contribution by all employees (administered through the payroll), or
3. An increase to VAT.

 

While the NHI has moved out of the spotlight in recent times, one expects this year’s budget to take matters forward, otherwise the proposed 14 year project might just become a 20 year project.

 

Youth Wage Subsidy (Employment Tax Incentive Act)

After the State of Nation address in 2013, when questioned in Parliament on the Youth Wage Subsidy, the President said that:

 

“The matter would be left to the National Economic Development and Labour Council to bridge consensus on youth employment interventions”.

 

This was followed in the budget with a reference to an administratively simple incentive that will create a graduated (sliding scale) tax incentive at the entry-level wage, falling to zero when reaching the personal income tax threshold.

 

After years of wrangling, the Youth Wage Subsidy was suddenly back in favour.

 

It was specifically mentioned (as a response to the objections to this scheme over the years), that protection will be provided by existing labour legislation combined with oversight by SARS and the Department of Labour to prevent displacement of older workers by younger subsidised workers.

 

All of this has of course come to pass. 

 

On the 20September 2013, the draft Employment Tax Incentive Bill was issued for a very short period of public comment, and was then moved at an incredible pace through the Parliamentary process, culminating in the State President signing it into law only three months later on 20 December 2013.

 

The Employment Tax Incentive Act is effective from January 2014, and encourages employers to employ youngsters between the ages of 18 and 29 by reducing the PAYE that the employer has withheld and which is payable to SARS, thereby reducing the cost of employment.  The young person will benefit from having a job, and the country will benefit by slowly reversing the negative cycle of social instability resulting from large numbers of unemployed young people.

 

The legislation envisages a three period which could be extended if necessary.  There will no doubt be changes proposed in the budget to improve the effectiveness of the provisions, which considering the very short space of time, was a commendable effort made by the legislators.

 

For the benefit of the country as a whole, it is hoped that employers will embrace the incentive, and where possible, hire beyond what they might otherwise have done.  Under certain circumstances, two youngsters can be hired for the same cost of hiring one.

 

Personal Tax

As far as increasing tax rates is concerned, the general expectation is that tax rates will be lowered, but only enough to cater for inflation increases to remuneration, or ‘bracket creep’ as it is called. 

 

In 2013, the personal income tax relief for individuals amounted to R7 billion.  In our current times of financial stress, one wonders whether this can be repeated in 2014.

 

South Africa is well known for its high unemployment rates especially amongst the youth. In an attempt to reduce this, Government has proposed the implementation of the Employment Tax Incentive (ETI) scheme to encourage businesses to employ young people. The Bill was adopted and the proposed implementation date is set as from 1 January 2014. In practical terms it means that the employer will receive an incentive for employing youths, subject to certain conditions, which will be in the form of a reduced PAYE monthly liability.

 

“The incentive will have financial benefits as it will contribute to an improved cash flow, especially for smaller businesses and entrepreneurs. Companies will be in a better financial position to employ more people and will have more money available for training programmes,” says Ina du Plessis, Director of Research and Development at Sage VIP.

 

However, it has many technical specifications and requirements which will significantly impact on companies’ payroll systems and processes. Du Plessis encourages all HR and payroll administrators to ensure they are aware of and understand the detail of the incentive. They should also ensure that their software provider makes provision for the administration of ETI within their payroll and HR software.

 

According to du Plessis, Sage VIP has, since the Bill was published, made a concerted effort to ensure their payroll and HR systems are up to date with all the requirements. She gives customers the assurance that they have nothing to be concerned about and that Sage VIP will be ETI compliant when it becomes effective.

 

Yolandi Esterhuizen, Legislation Manager at Sage VIP, continues by highlighting some of the basic principles to understand the concept of ETI.

 

1. Determine if you are eligible for the incentive as an employer

An eligible employer is s a private sector employer registered for PAYE.

 

2. Determine which of your employees will allow you to qualify for an incentive (also referred to as qualifying employees).

The following are some basic steps to follow:

 

Step 1	Is the employee 18 – 29 years?	No – Continue with Step 2 Yes – Continue with Step 3
Step 2	Is the employee employed in a Special Economic Zone?	No – Do not apply incentive Yes – Continue with Step 3
Step 3	Is the employee in possession of a SA ID or an Asylum Seeker Permit in terms of the Refugees Act? The Asylum Seeker Permit is a temporary permit which you are given pending a decision on your application for refugee status or for asylum.	No – Do not apply incentive Yes – Continue with Step 4
Step 4	Does the employee earn equal or more than the minimum wage? The minimum wage is stipulated in the bargaining council rules or the sectoral determination. If the employee is not affiliated to a bargaining council or sectoral determination, the minimum wage will be seen as R2 000 per month.	No – Do not apply incentive Yes – Continue with Step 5
Step 5	Is the monthly remuneration of the employee more than R6000?	No – Continue with Step 6 Yes – Do not apply incentive
Step 6	Was the employee employed on or after 1 October 2013?	No – Do not apply incentive Yes – Continue with Step 7
Step 7	Is the employee a connected person to the employer or a domestic employee?	Yes – Do not apply incentive No – Calculate the incentive amount

 

3. Determine the incentive amount

 

The incentive will be available for a maximum 24-month period per qualifying employee, broken up into a ‘first 12 months’ period and a ‘next 12 months’ period’.

 

Monthly Remuneration	First 12 months of employment of the qualifying employee	Next 12 months of employment of the qualifying employee
R 0 - R2 000	50% of Monthly Remuneration	25% of Monthly Remuneration
R 2 001 - R4 000	R 1 000	R 500
R 4 001 – R6 000	Formula: R1 000 – (0.5 x (Monthly Remuneration – R4 000)	Formula: R500 – (0.25 x (Monthly Remuneration – R4 000)

 

The incentive must be determined every month by identifying who the qualifying employees are and by doing the above calculation.

 

Example

Mr. A (qualifying employee) is employed in April 2014. His monthly remuneration is R1 500. Mr. A was employed after 1^st October 2013 and April is his first month of employment at this employer.

 

Because Mr. A earns below R 2 000 a month during the first 12-month period, the incentive amount available to the eligible employer is 50% of R1 500 = R750 for the month of April. This amount will then be deducted from the total PAYE liability of the employer.

 

For more information, please visit www.treasury.gov.za. 

Last year’s violent mine workers’ strikes in South Africa that led to at least 46 deaths and the shuttering of some mines, made headlines around the world. On the surface, it was about a wage dispute, but the major catalyst that drove the miners to such violence and desperation was the fact that many of them are buried in staggering amounts of debt after taking out unsecured loans.

Qualification and employment equity have been identified as critical issues affecting the payroll administration industry across Africa.

This message was communicated to delegates attending the 2012 South African Payroll Association (SAPA) national Conference.

The annual event, held recently in Cape Town, Durban and Johannesburg, attracted C-level executives, payroll practitioners and HR managers from a variety of key industries and sectors.

Keynote presenters included Dr Wynand Goosen and Thembi Chagonda.

Dr Goosen emphasised the role of RPL or Recognition of Prior Learning, towards qualifications.

 On why people should qualify, Dr Goosen said qualifications imply the existence of standards, based on unit standards or – in the case of CHE qualifications – on the curricula developed by experts.

“The introduction of occupational profiles will change all of this – as an occupation is profiled, the profile itself also becomes the qualification,” he said.

“The challenge with RPL is to accumulate the required documents for the RPL activity. Most people do not keep past records of performance, so the challenge is often not the proof of workplace competency, but proof of academic competency,” he continued.

According to Dr Goosen RPL against the occupational profile could lead to the attainment of qualifications.

Thembi Chagonda spoke about the purpose of the Employment Equity Act and its impact on payroll.

The purpose of the Act is to achieve equity in the workplace by promoting equal opportunity and fair treatment in employment through the elimination of unfair discrimination (including pay equity).

In terms of the impact of this legislation on the payroll industry – and particularly the proposed Bill of Equal or Similar Work, companies will have to invest in programmes that incorporate a grading system to ensure fairness.

The proposed legislation will compel businesses to review their reporting capabilities in line with new requirements, including EEA reports.

Five years since its inception, the cloud is making life easier for start-up businesses and SMEs according to Sandra Swanepoel, director,Softline VIP, a leading HR and payroll software and services provider in South Africa and across the Africa continent.

Payroll legislation is often a challenge for small businesses especially during tax season. Swanepoel says payroll software’s move into the cloud, and the affordable pricing of cloud applications, has enabled companies to access a payroll system even if they employ two people.

“In the past, most startup businesses would utilise manual processing until they reached at least 10 or 15 employees. A downside of this approach was the added stress of managing E submissions and issuing of tax certificates. As a result, the average size of a company now using a cloud –based payroll solution has come down to as little as 5 people,” says Swanepoel.

She says that ease of use is definitely one of the drivers for a small business when considering a payroll application. “We offer SMEs a “try before they buy” option for the first month. This gives them the opportunity to experience the ease of use and tremendous time they save when using an online payroll application compared to manual calculations.”

In addition, tax calculations and printing of professional payslips will reduce a significant burden for the small business owner and assist them to focus on managing costs and running their operations. According to Swanepoel, the biggest value for small companies lies in the time they save and peace of mind they are guaranteed when using software that is compliant with all legislation. She cites an example where VIP added leave functionality to its payroll application, allowing users to be instantly compliant with the basic conditions of employment where it pertains to annual, sick, maternity and family leave. “Companies can now also load leave transactions and link sick leave notes and applications to employee records. This will save them money and time as well as reduce the immense stress caused by managing manual leave systems,” concludes Swanepoel.

In one of the most significant changes to employees' tax requirements in decades, the accrual principle is proposed to be relaxed for variable remuneration items such as commissions, travel payments, overtime and bonuses. This comes as one of the proposed changes to the Income Tax Act issued for public comment in July this year. "While at this early stage much thought still has to be put into the practical implications of this change, there is no doubt that it will significantly simplify payroll administration over the tax year end for employers and for the South African Revenue Service (SARS), and is to be welcomed," says Rob Cooper, a Payroll tax expert at Softline VIP, part of the Sage Group plc.

"One of the pillars that our tax law stands upon is the concept of 'accrual'. Amounts are generally interpreted to have accrued when there is an unconditional entitlement to that amount. This causes problems for payroll systems that have to withhold employees' tax on amounts that accrued in one tax year, but were only quantified and processed in the next tax year. Adjustments to monthly payments to SARS, tax certificates and reconciliations are the inevitable result of adjusting amounts back into a tax year that has already closed," explains Cooper.

Other proposed changes to the Income Tax Act include the extension of the medical tax credit principle. "From March 2012, we saw the introduction of medical tax credits (tax rebates) for employees under 65 years of age who contribute to a medical scheme. Changes were also made to the income tax relief granted on assessment to individuals for their out-of-pocket medical expenses subject to certain conditions. The draft changes now extend to the medical tax credit principle for contributions to include those employees who are 65 years of age or older. The values proposed for their tax credits are the same as those currently used for employees under 65 years of age, and are based on the number of dependents," says Cooper.

The deduction system of income tax relief for out-of-pocket medical expenses has been replaced by a medical tax credit system, with varying degrees of relief for over and under 65 year old employees, and for those who are disabled or with a disabled spouse or child dependent. "What is of concern is that the tax relief granted for medical contributions and out-of-pocket medical expenses has been whittled away by the changes made last year and the proposed changes in the draft legislation, particularly for those taxpayers who earn above the 30% marginal tax rate. Individuals over the age of 65 and those who are pensioners, in particular, have been hit hard in recent years by dividend tax changes and interest tax relief amongst other measures. A further reduction in the assistance from the state for medical contributions and medical expenses is going to hurt these individuals. The same can be said for families with a disabled person," says Cooper.

The proposed changes to the tax law also include some fine tuning made to the provisions which allow employers a deduction from income of R30 000 at the start and the end of a learnership. These changes address the delays in registration of the learnership with a SETA which can reduce the value of the incentive, as well as the disallowance of the incentive will be limited to learnerships that the employee failed while working for the current employer.

There have also been some proposed changes to the taxation of employer-owned insurance policies that will impact on employees.

The business case for computerised time & attendance systems is based on the fact that these systems allow businesses to use resources more effectively, increase levels of productivity and save money.
Experts in the field of business management solutions and application believe it is important for companies to use advanced systems in order to free up the time of decision makers and allow them to focus on client service.
The rationale is that automated T&A keeps the chain of command machine in business well lubricated.
Instead of having to worry about the technical intricacies of traditional systems and related maintenance, a computerised system will allow line managers to oversee staff and equip them to produce more and improve service.
Businesses want proficiency and efficiency in a time and attendance system and they also require the system to help them save on overheads.
Accsys is behind the rollout of new generation time & attendance technology that adds practical value to the workplace.
These systems provide the line manager with up-to-date real-time information about employees which impact on the daily operation of a business. This includes details about who is on duty, where employees are located (on-site or off-site) and who has not reported for duty.
From an overhead cost point of view, advanced T&A systems introduce an element of objectivity into payroll. In practice, this means employees are paid for the exact amount of hours worked, there is no unauthorised overtime and because there is no requirement for lengthy manual calculations, HR can be more effectively utilised.
Feedback from HR and Payroll Administrators and Management clearly indicates that extensive time is spent on checking and confirming attendance, leave and productivity levels. This time could be spent more strategically by offering analytics, business intelligence, trending and retention plans all of which empower management to be more effective.
HR specialists at Accsys believe that T&A systems being introduced into the market are designed to serve as an extension of a manager's portfolio, enabling them to concentrate on their core responsibilities.