Johannesburg – If you're an employee, you are allowed to structure your salary package in a way that meets your personal needs, according to an expert.
According to Tanya Tosen, tax and benefit specialist at Remuneration Consultants South Africa, employees can ensure that unwanted benefits and allowances are not deducted from their salaries.
The Supreme Court of Appeal in 2015 ruled that it is legal to structure remuneration and allow a salary sacrifice, provided that there is documentation to prove the package structure agreement between an employer and an employee.
Jerry Botha, managing partner at Tax Consulting South Africa, explained that some companies have made this option available to their employees as they have been restricted in the increases they can award their staff members.
Companies are making better use of budgets allocated to employees, by giving them what they want. "With the recession and times becoming tough, companies are starting to say: ‘Why should we pay money to a benefit you don't want'," he said.
So many companies offer insurance policies their employees do not know about. Some employees may even be doubly insured because they are unaware that cover is provided by their companies, he explained.
Ultimately, restructuring a salary package to allow you as an employee access to freed-up cash does not guarantee you will save more. This depends very much on your own behaviour, explains Botha. “If an employee is inclined to make prudent decisions, they will make them nonetheless.”
If you use the cash to pay off a bond in a shorter time or direct it to retirement savings, restructuring your package could give you a boost. “Most staff will do the right and prudent thing, but of course there will be bad apples.”
Andrew Wellsted, head of tax at Norton Rose Fulbright South Africa, explains that a salary restructure gives an employee flexibility to allocate their salary in the way that suits their life situation best.
“An employee should structure their salary in such a way that their benefits - for example, retirement savings, medical aid and group life needs - meet their life situation demands.” It should not be about reducing the tax liability, he added.
“SARS (the South African Revenue Service) has over the last number of years tightened the legislation so that any form of income earned from working, be it in the form of a salary or a fringe benefit, will be included in an employee's remuneration which will in turn be included in taxable income.”
Wellsted explained as an example that tax breaks can't be claimed for something like a cellphone allowance. “This amount will be taxed as a portion of the salary.”
Wellsted said deductions from your salary are done only with your consent. In turn, you may not unilaterally decide that you no longer want the benefit.
However, several deductions are compulsory by law. This includes UIF, PAYE and Skills Development Levy. “These deductions cannot be varied by an employee or employer,” said Wellsted. If an employer does not make the deduction, he or she may face penalties or be liable for the amount themselves.
“Legislation stipulates that an employment contract must clearly outline any deduction to be made from the employee’s salary. All deductions are subject to the employee agreeing to the contents of the employment contract,” he said.
“Further, an employer must provide an employee with a list of particulars relating to the payment, in writing, on each day payment is made to the employee, including the amount and purpose of any deduction made from the remuneration.”
The South African Savings Institute points out that a practical way for a salary restructuring to work is for you to opt for lower salaries paid during the year, with the savings paid out as a 13th cheque at the end of the year.
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