Are overtime or commission taxed differently from your pay – and other tax deductions you should be aware of

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Not everything you hear about taxation is true. There are many myths and misconceptions about payroll taxes in South Africa that simply won’t go away, notes Yolandi Esterhuizen, licensed tax specialist and compliance officer at Sage Africa & Middle East.

Esterhuizen details five payroll tax myths you need to know.


Myth 1: Salary is taxed differently from overtime or commission

It doesn’t matter if your employer calls what they pay you wages, overtime, or commission, it is taxed at the same rate on payroll according to the standard PAYE tax tables. There will be a different code on the tax certificate to tell SARS what the payment is for, but there certainly aren’t different tax rates for different types of compensation.

Allowances such as your travel allowance are also taxed at the same rate. However, only part of the allowance can be included in the tax calculation, depending on its destination. For example, 20% or 80% of a travel allowance is included in the payroll tax calculation, depending on the number of business trips you make.

Some payments, such as a downsizing program, may not be taxed on the payroll, as there is a one-time lifetime exemption of R500,000 for lump sum payments in the event of layoff, retirement or death. The employer must request a directive from SARS to determine if you have already used the exemption.

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Myth 2: Bonuses are not taxed

If you are one of the lucky few to benefit from an end-of-year bonus this year, it is taxed at the same rate as other remuneration. To determine the rate at which you should be taxed on payroll and calculate the tax for the year, the bonus will be added to your annual salary. This will determine the amount of tax payable for the entire tax year.

From there, he can subtract your usual annual PAYE deductions, based on compensation received on a monthly basis, from the total to determine how much tax you owe on your bonus and PAYE for the month.

The table below is an example taken from the SARS Guide for Employers with Respect to Employee Taxes. A monthly paid employee (under 65) received a salary of R 28,000 and a bonus of R 14,800 in October:

Sometimes the bonus can push you into a higher tax bracket, and that part of your income will be taxed at a higher rate. Keep in mind that these calculations are usually done automatically by your employer’s payroll software.

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Myth 3: The employer must pay all the leave due

According to Article 40 of the Basic Conditions of Employment Act (BCEA), each employee working eight hours a day and a five-day week is entitled to 21 consecutive days of paid annual leave. Leave which has been acquired by the employee under this right, but which has not been taken, must be paid to the employee at the time of termination.

However, the BCEA does not regulate what should happen with annual leave that exceeds the minimum specified in the law.

If you accumulate more than 15 working days per year, your employer does not have to pay the additional days off when you leave the organization. Your employer may however specify in your employment contract that the extra days will be paid if you leave without using them. You also cannot sell the days of your minimum leave to your employer.

In other words, work your days off to get paid more money. You can only sell holidays exceeding the 15 days minimum leave according to the BCEA.


Myth 4: A travel allowance (business or private vehicle) is treated the same way

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Travel allowance is paid to the employee to cover business travel expenses. In practice, the allowance is usually paid to an employee who uses his own private vehicle, but it does not have to be owned by the employee. The employee will be entitled to a tax deduction on the travel allowance for business travel expenses.

However, if a travel allowance is provided for a vehicle provided by the employer (company car), no deduction will be allowed during the assessment. It should be reflected on the payroll as a taxable allowance rather than a travel allowance. A deduction for business travel will be allowed against the use of motor vehicle benefits, on which the employee was taxed on a monthly basis.


Myth 5: An employee gas card is taxed differently from a travel allowance

If the employee uses a company-owned gasoline or garage card for a private vehicle, the payroll tax treatment is exactly the same as when the employee would receive travel allowance. The only difference is that the allowance and the taxable amount may vary from month to month.


Read: You only have one chance to challenge your SARS tax assessment

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