PSIRA Wage Increases September 2016

PSIRA published the new increases effective 1 September 2016.

 

The new wage structure is available at http://www.psira.co.za/psira/dmdocuments/PRICING%20STRUCTURE%202016%20-%202017%20(%20NEW%20).xls

 

Please note that all queries MUST be directed to PSIRA. I cannot address any queries or concerns related to wage structures.

 

Their website is http://www.psira.co.za/

Email PSIRA at info@psira.co.za

Phone the PSIRA call centre on 086 133 3850

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PAYE Interim Recinciliations opened 1 September 2016

All employers must get ready to start submitting their 6 months’ interim reconciliations for PAYE, UIF and SDL before the 31 October 2016 deadline. You need to prepare and reconcile the employee tax certificates for the period 1 March 2016 to 31 August 2016.

Make sure that you have an automated solution in place that can generate the reconciliation on the latest format required by SARS e@syFile since a new version, 6.7.0 was launched recently. This new e@syFile release includes new formats and validations for the tax certificates and if your payroll software has not been updated with the latest requirements your reconciliation imports will fail.

If you need more info about this year’s interim reconciliation season, please visit www.sars.gov.za

To download the latest release of SARS e@syFile, go to http://www.sarsefiling.co.za

 

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Employer Filing Season 2016

Two week postponement

SARS announced that the filing season for Employee Tax Reconciliations for the 2015/2016 tax year will not start on 01 April 2016 as expected. The filing season has been postponed to commence only on 18 April this year. The deadline is still 31 May 2016 which means employers will have less time to get their EMP501 reconciliations submitted successfully.

This does not mean that employers can sit back and wait until the 18th before starting to get their PAYE affairs in order. The clever approach is to start preparing all your employee data and using the validations in e@syFile 6.6.3 – the same version that will be used during this year’s filing season – to ensure that the data is complete and accurate before you hit the submit button when the filing season officially starts.

E@syFile Employer is available to download from http://www.sarsefiling.co.za.

 

Strict rules for pre-populated individual tax returns (ITR12)

It is important to take note of the new approach SARS is taking this year with regards to personal information submitted for each individual employee. SARS will no longer allow individuals to update their personal info – address, telephone number, email address – during the individual filing season that will start mid 2016. Instead, they are pressuring employers to make sure the personal data they submit is accurate since the tax certificate info is used to pre-populate each individual’s tax return.

If the information on the tax return is not accurate, the employee needs to approach his/her employer to amend the tax certificate that was submitted during the reconciliation process. The personal data can only be corrected by an amended tax certificate that will in turn update the tax return.This process can take some time to complete and can prevent an individual from filing a tax retun before the deadline.

 

Ensure that refunds can be paid out quickly

Another important point is to ensure that the banking details that are submitted with the tax certificate should be current and correct. If the individual qualifies for a refund on assessment and the banking details on file are incorrect, the taxpayer is going to go through a tough time trying to get the banking details amended before the refund is paid out.

 

Don’t delay, start today!

To ensure that employees are able to submit their personal income tax returns without any hassles, employers must take a proactive approach by ensuring that they get the correct personal and banking details from each individual prior to preparing the 2015/2016 tax certificates.

Use the 2 week postponement to prepare, verify and validate your tax certificate data. Don’t get slammed with unnecessary penalties and fines by missing the 31 May 2016 deadline.

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Compensation Fund submissions for 2015/2016

The Department of Labour announced that the Compensation Fund Return of Earnings (ROE) submission for 2015/2016 has been extended to 31 May 2016.

 

Employers are able to access the online submissions portal from 01 April 2016. The portal is available at https://roe.labour.gov.za

You will only be able to obtain a letter of good standing from the Compensation fund once the ROE detaling the number of employees and their earnings for the period 01 March 2015 to 29 February 2016 have been submitted before the end of May 2016. All outstanding assessments should be paid or a payment arrangement must be in place.

You will be able to generate your letter of good standing online at https://cfonline.labour.gov.za/OnlineSubmissions

 

For more information on the Compensation Fund ROE submission, please visit http://www.labour.gov.za/DOL/documents/useful-documents/compensation-for-occupational-injuries-and-diseases/2015-return-of-earnings

 

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The new definition of Retirement Funding Income

Payroll administrators who have been preparing employee tax certificates for a few years already will understand the struggle with understanding the term Retirement Funding Income or RFI.

I still remember the RFI Yes/No indicators where each income source had to be marked as either RFI or Non RFI. SARS simplified things a bit when they removed the requirement for individual indicators but still asked for a total RFI and Non RFI value allocated to source codes 3697 and 3698 respectively.

Now, from 01 March 2016, we won’t have to worry about the RFI and Non RFI totals when the tax certificate rules are changed for the 2016/2017 tax certificates (due for submission April/May 2017).

Although the RFI that we have known for years and have come to hate during PAYE reconciliation time is gone, the term RFI is still alive and well but is now used for a different purpose.

Before 01 March 2016, Retirement Funding Income allocated to code 3697 was defined as the taxable income sources used in the calculation of a pension or provident fund contribution.

Example: Employee A earns a salary of R350 000 per annum and receives an annual bonus of R30 000. He contributes 5% of his salary towards a pension. The salary of R350 000 was defined as RFI and allocated to code 3697 on the tax certificate. The bonus of R30 000 was defined as Non RFI and allocated to code 3698.

From 01 March 2016, RFI code 3697 and Non RFI code 3698 have no relevance to the tax certificate.

RFI is still used but is now relevant to the new retirement reform legislation only. Although the RFI value is no longer recorded on a tax certificate it must still be used to calculate the fringe benefit value of a defined benefit retirement fund contribution.

The calculation of the fringe benefit for a defined benefit or hybrid fund contribution is

Category Factor supplied by the fund * RFI less any contribution made by the employe

The RFI amount used in the calculation is still the portion of the employee’s remuneration used to determine the fund contribution BUT includes only the taxable portion of a travel allowance or use of motor vehicle fringe benefit and 50% of public office allowance. This happens because the new definition of RFI is

The income taken into account in determining the contributions made to a retirement fund excluding components not included in the Fourth Schedule of the Income Tax Act.

The Fourth Schedule defines the term Gross Remuneration which is used to calculate PAYE and specifically includes only a percentage of travel allowance and use of company car fringe benefits and only 50% of a public office allowance.

Example: Employee A earns an annual package of R350 000, which includes a monthly travel allowance of R5000. His employer contributes towards a hybrid retirement fund and the contribution is 5% of his monthly package.

His monthly package of R29 167 is used to calculate the contribution of R1458 made by the employer to the hybrid fund.

Because the monthly package includes a travel allowance, the RFI will only include the 80% taxable portion of the allowance.

The RFI in this case is R28 167 (R29 1679 less 20% of R5000).

 

 

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Budget 2016 – Stability first

Today our finance minister, Pravin Gordhan, announced the budget for 2016/2017. Before this afternoon’s speech, most of us saw minister Gordhan as a superhero that is going to swoop in and erase government debt, strengthen the Rand and save our economy from reaching junk status. I am sure some thought that he possessed some kind of a magic wand that could be waved and diminish the looming effects of the drought that hit our agricultural industry, provide free tertiary education to all and then get rid of Eskom, SAA and half of our government staff compliment.

 

Instead, with amazing poise and confidence amidst extremely turbulent circumstances, he stood up and delivered a shockingly safe budget that brings some income tax relief for  low to middle income earners instead of increasing personal income tax rates like we all expected. While we braced ourselves and our wallets for the effects of a possible VAT increase, he instead raised the usual suspects – fuel levy and sin taxes –  and introduced a sugar tax that means not only will you pay more for your brandy but also the cola that you mix with it and the Cream Sodas you will need to fight off the effects the next day.

The good news is that minister Gordhan kept his cool and tried his best to instill some confidence in his team’s abilities to help stabilise the South African economy. He made it clear that wasteful spending will no longer be tolerated when he told Eskom that tariff increases must be done only to cover necessary spending and not just to make things more comfortable. The idea to merge SAA and SA Express and to bring in a minority private shareholder is brilliant – collaborating in such a manner will help to cut costs by sharing resources, combining revenue and learning from the private sector how to spend money wisely when it comes from your own pockets instead of state coffers. The proposal to reduce government spending on public servant salaries will make a huge difference. Let’s hope that this time minister Gordhan is left in his position long enough to gain momentum and actually execute some of these belt-tightening exercises.

Of course government has a huge social responsibility when it comes to taking care of people who are trying to survive in an economy with such a high rate of unemployment. Social grants were increased to help reduce the effect of inflation but despite these efforts, South Africans are getting poorer and finding it difficult to afford even the basics when it comes to healthcare, education and even just food and transport. In the short-term, it is difficult to address these issues and solve them overnight. The introduction of tax -free saving instruments and the retirement reform drive is geared towards teaching those of us who are fortunate enough to earn a regular wage, that it is important to put some money away for a rainy day or eventually your golden years. Saving for retirement and taking care of yourself when you are no longer able to work for a living will remove a huge burden off government’s shoulders and some of the money that must now be spent on old age grants could be used towards educating our children how to be more independent and financially successful citizens.

 

Creating a culture of saving something for the future, living frugally and caring for our community, infrastructure and our neighbours will in the long-term help our economy grow again but until then, we will have to survive another year and hope that the rating agencies see the potential that minister Gordhan is trying to help us see.

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New Retirement Fund Taxation Legislation

After many deliberations, postponements, amendments and a lot of confusion, the new taxation rules for retirement funds are set to come into effect on 01 March 2016.

Last week was touch and go when yet another postponement of the legislation was being discussed but the minister of Finance understood the need to continue with the implementation of the planned changes. The only contentious issue was the annuatisation of provident fund payouts upon retirement. When you retire, only a third may be paid out as a lump sum while two thirds of the fund must be paid out as a monthly pension.

This section of the legislation is set to be postponed until March 2018 to allow further consultation with the parties who are opposed to this change.

In the meantime, employers must still prepare their payslip calculations to agree with the new method of taxing these contributions from March 2016.

The new rules that must be applied to your payroll calculations can be explained as follows:

 

  1. Any contribution paid by the employer towards an employee’s retirement fund – whether a pension, provident or retirement annuity – will now be taxed as a fringe benefit in the hands of the employee.
  2. The calculation of the fringe benefit value will depend on whether the retirement fund is classified as a Defined Contribution (DC), Defined Benefit (DB) or Hybrid fund.
  3.  For a DC fund, the fringe benefit value is equal to the amount paid by the employer.
  4. For a DB or Hybrid fund, the fringe benefit value is calculated as (X*Y)-Z
    1. X is a contribution factor that will be provided to the employer in the form of a fund contribution certificate
    2. Y is the taxable remuneration portion of the employee’s income used to determine the fund contribution or RFI
    3. Z is the retirement fund contribution amount paid by the employee
  5. The contributions made towards a retirement fund will also result in a tax deductible portion, which is calculated as the employee contribution plus the fringe benefit portion, limited to the lesser of R350 000 per year or 27.5% of remuneration.

 

I am sure that the implementation of the new rules are not as easy as following these 5 steps since there are a lot of questions about the different fund types, the contribution factor, the meaning of RFI and the application of the deduction limits.

I will continue posting a series of articles discussing these new concepts and how they will affect your payroll calculations. You may post any additional questions here which I will be happy to answer, if I am able to.

Remember to install our latest upgrade, Pastel Payroll & HR 2016 Update 3, which caters for the retirement reform rules and changes in the way contributions are taxed. You will also receive some handy user guides and documentation on these changes when you download the upgrade.

Keep a lookout for another post on this topic tomorrow when I will explain the new definition of RFI and how to implement it in your payroll calculation.

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