A payroll tax essentially refers to the percentage of tax deducted from an employee’s wage or salary by an employer, who then pays it over to the South African Revenue Service (SARS)- it is a form of withholding tax. The employer has the obligation to pay the amount over to SARS. It is not the employer paying this tax, but the employee.
Income tax rate for all forms of remuneration is the same
Many employees believe that SARS treats salary, overtime, and commission differently. Though each type of remuneration may have a different code on the tax certificate, they are all taxed at the same rate on the payroll according to the standard PAYE tax tables. The tax table for the tax year 2022-23 (current year) is as shown below:
| 2022 / 2023 Tax Year: | |
| Taxable Income (R) | Rates of Tax |
| 0 – 226,000 | 18% of taxable income |
| 226,001 – 353,100 | 40,680 + 26% of taxable income above 226,000 |
| 353,101 – 488,700 | 73,726 + 31% of taxable income above 353,100 |
| 488,701 – 641,400 | 115,762 + 36% of taxable income above 488,700 |
| 641,401 – 817,600 | 170,734 + 39% of taxable income above 641,400 |
| 817,601 – 1,731,600 | 239,452 + 41% of taxable income above 817,600 |
| 1,731,601 and above | 614,192 + 45% of taxable income above 1,731,600 |
| Rebates | Value | Tax Threshold |
| Below age 65 | R16,425 | R91,250 |
| Age 65 to below 75 | R9,000 | R141,250 |
| Age 75 and over | R2,997 | R157,900 |
Source: SARS website
Exceptions when employees might be taxed differently:
- If the employee has an allowance, it will be taxed at the same rate. But only a portion of the allowance may be included in the tax calculation, depending on what it’s for.
- Payments such as a retrenchment package might not be taxed on the payroll because there is a once-off R500,000 lifetime exemption for lump-sum payments regarding retrenchment, retirement, or death. The employer must apply for a directive from SARS to determine whether the employee has benefited from the exemption before.
Year-end or performance bonuses will be taxed at the same rate as any other income.
If an employee receives an end-of-year or performance bonus, it will be taxed at the same rate as other remuneration. The bonus will be added to the employee’s annual salary to determine the rate at which they should be taxed. Sometimes the bonus can push an employee into a higher tax bracket, and that portion of the income will be taxed at a higher rate.
Leave
According to the Basic Conditions of Employment Act (BCEA), leave accrues at the rate of one hour for every 17 hours worked, or one day for every 17 days worked, or 1,25 days per month, the total permitted minimum being 15 working days per annum on full pay in each annual leave cycle or in each of period of 12 months calculated with from the date of employment. The employer is free to give more days depending on the agreement with the employee (individual employee contract).
Leave that has accrued to the employee under this entitlement, but was not taken, must be paid out to the employee on resignation or termination.
However, the BCEA does not regulate what should happen with annual leave that exceeds the minimum specified in the act. If an employee accrues more than 15 working days a year, the employer does not have to pay the excess leave days when the employee leaves the organisation.
The employer may, however, specify in the employment contract that the additional days will be paid out if the employee leaves without using them. It is common for employees to demand payment for leave days not used, but employees are not allowed to “sell” a portion of their 15-day leave entitlement to receive more money from their employer. Employees must be encouraged to proceed on leave from time to time.
Travel allowances for the company and private vehicles must be dealt with differently
Generally, an employer gives an employee a travel allowance provided the employee covers business travel expenses. This allowance is usually offered to an employee using their own vehicle, but the employee is not required to own it. The employee will be allowed a tax deduction against the travel allowance for business travel costs.
However, no deduction will be allowed on assessment if a travel allowance is provided for an employer-provided vehicle. It should be reflected on the payroll as a general taxable allowance rather than a travel allowance. A deduction for business travel will be allowed against the use of the motor vehicle fringe benefit.
If the employee uses a company-owned petrol or garage card for their private vehicle, then the tax treatment on the payroll is the same as when the employee receives a travel allowance. The only difference is that the allowance and the taxable amount may vary from month to month.
Tax Refunds
Taxpayers can avail a tax refund on their income tax if the tax they owe is less than the sum of the total amount of the withholding taxes and estimated taxes that they paid, plus the refundable tax credits that they claim (for instance where the employer deducted more tax than was due). Tax refunds are usually paid after the end of the tax year.
Gervase Mwango
(CA-ACCA, Tax Practitioner No. PR0093056)
