With the budget speech behind us most employers are scrambling to ensure they apply the latest tax rates and medical aid credits to their payrolls before paying out March salaries. One of the changes included in the Taxation Laws Amendments promulgated on 01 February 2013 involves the timing of PAYE deductions on variable remuneration items. This change is also effective 01 March 2013 and could potentially have a huge impact on the way certain payroll administrators complete their functions each month.
Until tomorrow, employers are supposed to apply PAYE calculations in the month remuneration is earned, if earlier than the month that payment is made. This causes problems when paying out commissions, as an example. Employees might make their sales targets in June but the commissions they earned are only determined and paid in August. In this case, the employer should calculate PAYE on the amount paid but allocate the PAYE deduction to June, the month in which the commission was paid.
This requirement caused practical difficulties as employers make use of computerised systems which might not allow such amendments or adjustments became costly as penalties would be imposed during the annual reconciliation process.
To overcome these issues, the amendment that takes effect tomorrow, 01 March 2013, will allow employers to deduct PAYE in the same month these variable remuneration items are paid in. This means that whenever amounts are paid for leave pay, commissions or overtime, the PAYE deduction must be allocated to the same month in which the employee receives the payment.
I believe this is a welcome change that employers should be aware of as it would save a lot of unecessary time adjusting previous months’ figures, especially in the case of large employers.