Bonuses, Leave, Overtime and Tax

5 Misconceptions and Myths – What You Should be Aware Of

By Raine St.Claire

As the year-end and holidays approach, many workers look forward not only to a well-deserved rest but also to the possibility of receiving a bonus. For those fortunate enough to receive some extra payment, you may be wondering about the tax implications and how much of it you can actually enjoy and spend. And what about those unlucky not to receive a bonus, are they entitled to any type of bonus?

South Africa’s payroll tax is plagued by persistent misconceptions and myths about variable remuneration—bonuses, overtime pay, commission, and leave pay. It is essential to exercise caution and be informed, as not everything you believe or have heard about tax deductions is true.

We look at some of the most common misconceptions and myths, providing clarification based on what the tax and labour laws actually state.

The Misunderstanding About Bonuses

A discretionary bonus is an additional payment given at the management’s discretion, typically as a gesture of appreciation for an employee’s efforts. It is usually not guaranteed and can vary widely. In contrast, a performance bonus is typically awarded to employees based on predetermined criteria or the overall performance of the company.

These bonuses, linked to factors like meeting production or sales targets and performance appraisal scores, are commonly known as performance bonuses or production bonuses.

The ‘13th cheque’ misconceptions It is important to understand that employers are not obligated to provide any type of bonus. Receiving any extra payment or ‘bonus’ is entirely at the discretion of the company and is not mandated by labour laws. Bonuses are determined by contracts or company policies, with various factors such as work hours, performance, and company achievements influencing whether a bonus is paid.

Myth 1: Bonuses Do Not Get Taxed - Whether you receive a 13th cheque or a performance bonus, it is taxed at the same rate as other forms of remuneration. To determine the tax rate on the payroll for the year, the bonus is added to your annual salary.

This calculation helps determine the total tax owed for the full tax year. Sometimes, a bonus can push you into a higher tax bracket, resulting in a higher tax rate for that portion of your income. Keep in mind that these calculations are typically automated by your employer’s payroll software.

Myth 2: The Employer Must Pay Out All Leave Due - According to the Basic Conditions of Employment Act employees are entitled to either 21 consecutive days or 15 working days of paid annual leave, however it does not specify how excess leave is treated. If you accrue more than 15 working days in a year, your employer is not obligated to pay the extra leave, unless your employment contract says otherwise.

Leave must be taken within six months after the annual leave cycle ends and you cannot sell days of your minimum leave to your employer. And outstanding leave is only paid when you leave the company.

Myth 3: Salary Is Taxed Differently From Overtime Or Commission - Regardless of whether your employer labels your payment as a salary, overtime, or commission, it is taxed at the same rate on the payroll, as per the standard PAYE tax tables. While there may be a different code on the tax certificate to specify the payment type, there are no distinct tax rates for different forms of remuneration.

Myth 4: A Travel Allowance (Company or Private Vehicle) is Treated the Same - A travel allowance, designed to cover business travel expenses, may be provided for an employee using their private vehicle. If the allowance is for an employer provided vehicle (company car), it is treated as a taxable allowance rather than a travel allowance on the payroll.

Myth 5: An Employee Petrol Card Is Taxed Differently From A Travel Allowance - If an employee uses a company owned petrol or garage card for a private vehicle, the tax treatment on the payroll is the same as for a travel allowance. The only difference lies in the varying allowance and taxable amount each month.

Source: Sage / LabourGuide / SAIT