ETI (also referred to as Employment tax incentive)

Backdated ETI
SARS has provided a period of time until 1/3/2017 for employers to implement ETI. Until this period, employers were allowed to claim backdated ETI calculated. Please refer to the following link for more information on bacdated ETI:
https://www.sars.gov.za/FAQs/Pages/2303.aspx

From 1 March 2017 the employer cannot claim backdated ETI claims for any period. The last month available to the employer to make backdated ETI claim was February 2017 EMP201 return. The ETI amounts which the employer did not claim despite it being available at that time will be forfeited.

In terms of Section 7 of the ETI Act, the employer must calculate the ETI for each month during which he employs a qualifying employee. This calculated amount (ETI available for employer) must then be completed on the EMP201. If the amount is not completed on the monthly EMP201, it simply means that the employer has a 0.00 calculated ETI amount for that specific month.

Should an employer after the submission of the monthly EMP201, then calculates ETI for any of these backdate months, it will not be allowed by SARS, unless it is in the same reconciliation period (either March to August or September to February).

In order to claim the ETI, the employer must complete the calculated ETI field with the amount of the ETI that he calculated up to that month in the same reconciliation period during the current month in which the EMP201 is completed.

For example:
For the October EMP201
Sep ETI: R500 (not claimed)
Oct ETI: R500
EMP201 for October will have to reflect R1000 (500 for Sep + 500 for Oct) as calculated.

Section 9(4) of the ETI Act: However, if the ETI falls within the same reconciliation period. E.g. 1 March to 31 August OR 1 September to 28 February, then the employer may claim the backdated calculation in that period in the current month.

Please note that if the employer only applies ETI from September, it will mean that he will not be allowed to claim ETI for the previous interim reconciliation period (e.g. 1 March to 31 August) in terms of the provisions of section 9(4), such amount will be forfeited.

Section 9 of the ETI Act deals with the Roll-over amounts in cases where the ETI was available but could not be claimed due to non tax compliance or limited PAYE available to off-set the available ETI.
The ETI claim field may not exceed the PAYE liability on the EMP201.

Connected person in terms of ETI

One of the criteria for a qualifying employee in terms of section 6(c) of the Employment Tax Incentive Act, is:
“In relation to the employer, is not a connected person as defined in section 1 of the Income Tax Act”. The first question which must be established is whether or not the employer is a company or a sole proprietor (individual). Where the employer is an individual, then section 1 of the Income Tax Act is clear that “any relative” is a connected person. Where the employer is a company, then section 1 of the Income Tax Act state the following:
“in relation to a company-
(i) Any other company that would be part …
(iv) Any person…, holds directly or indirectly, at least 20% of the equity shares in the company or the voting rights in the company
(v) Where such company is a close corporation-
(aa) any member
(bb) any relative of such member … Which is a connected person in relation to such member; and
(e) in relation to any person who is a connected person in relation to any other person in terms of the foregoing provisions of this definition …

Sub-paragraph e of the definition makes it clear that a son of the director (who manage the company) will be deemed to be connected person and therefore not qualify in terms of section 6 of the ETI Act.

Learners in terms of ETI
The purpose of the ETI Act is to encourage employers to hire young people between the ages of 18 and 29 by subsidising their wage cost. At the heart of the intention of the Employment Tax Incentive Act is that the incentive should lead to employment or ‘actual jobs’. The legislation is premised on the individual that ‘qualifies’ to generate the tax incentive for an ‘eligible’ employer being an employee of that employer.
The ETI is therefore an employment incentive, not a training incentive.
As an aside, Government subsidises the cost of training employees in two ways that I am aware of:
1. Learnership Incentive (Allowance)
If the studies are in the form of a SETA-provided learnership in terms of the Skills Development Act, the Learnership Incentive (as it is now called) has been available from 2001 to assist employers with these costs.
2. Bursaries and Scholarships
Bursary schemes reduce the taxable value of the fringe benefit that results from the payment by the employer on behalf of the employee to a recognised training institution for the training of either the employee, or the relatives of the employee.
The bursary training expenses paid by the employer on behalf of the employee are allowed as a deduction in the hands of the employer.
Background to “ETI schemes”:
Several years ago SARS became aware of what is now referred to as ‘ETI Schemes’, and after investigation, the action that Treasury and SARS decided to take first appeared in the public domain in the 2021 Budget Review, as follows:
“Some taxpayers have devised certain schemes using training institutions to claim the ETI for students. To counter this abuse, it is proposed that the definition of an “employee” be changed in the Employment Tax Incentive Act (2013) to specify that work must be performed in terms of an employment contract that adheres to record‐keeping provisions in accordance with the Basic Conditions of Employment Act (1997).
The problem with “ETI Schemes”:
According to the final Explanatory Memorandum issued by National Treasury and SARS on 25 January 2022, these schemes while varying in nature, are broadly along the following lines.
“Eligible participants are recruited by a recruitment agency and employed by a participating employer for a fixed term period of 12 to 24 months.
Participating employers engage with the recruitment agency to recruit eligible participants. Contracts signed by the eligible participants indicate the receipt of remuneration while ‘employed’ by the participating employer.
Once ‘employed’, participants are trained by a training institution (over the 12 to 24 month period) and, in some cases, enrolled in Sector Education and Training Authority (SETA) accredited courses.
The training institution is contracted by the participating employer at a cost equal to the remuneration stated in the eligible participant’s contract. The remuneration stipulated in the contract is paid to the training institution as opposed to being paid to the eligible participant.
In some cases, the eligible participants are exposed to work-based exercises and activities by an independent company.
The independent company is able to utilise the eligible participants for a fixed monthly fee, which similar to the remuneration, is not paid to the eligible participant.
Once the training programme is completed, the eligible participant may work for the participating employer for the remainder of the 12 to 24 month period.
In accordance with said scheme, the participating employer is then able to claim the ETI for the 12 to 24 month period that the eligible participant is supposedly ‘employed’ by the employer.”
Intention of the Amendments to the ETI Act effective from 1 March 2022
Quoting further from the Explanatory Memorandum of 25 January 2022.
In order to address the above-mentioned contraventions, it is proposed that changes be made in the ETI Act to clarify that substance over legal form will be considered when assessing an employer’s ability to claim the ETI.
As such, ‘work’ must actually be performed in terms of an employment contract and the employee must be documented in the employer’s records as envisaged in the record keeping provisions contained in section 31 of the Basic Conditions of Employment Act, 1997 (Act No. 75 of 1997).
Further to the above, the employee must, in lieu of services rendered, receive cash remuneration from the employer.
The last (underlined) sentence of the final Explanatory Memorandum of 25 January 2022 was not in the Explanatory Memorandum issued on 28 July 2021 for public comment.
It was added to the final Explanatory Memorandum to explain the new proviso to the definition of ETI monthly remuneration in the ETI Act (discussed below) that was added by the Standing Committee on Finance just before the final TLAB (Taxation Laws Amendment Bill) was tabled in the National Assembly for approval towards the end of 2021.
The solution: The definition of an Employee in the ETI Act
The TLAA (Taxation Laws Amendment Act) of 19 January 2022 has expanded the definition of an employee in the ETI Act by inserting the underlined wording, as follows:
‘employee’ means a natural person—
(a) who works for another person and in any other manner directly or indirectly assists in carrying on or conducting the business of that other person
(b) who receives, or is entitled to receive remuneration from that other person; and
(c) who is documented in the records of that other person as envisaged in the record keeping provisions in section 31 of the Basic Conditions of Employment Act, 1997 (Act No. 75 of 1997),
but does not include an independent contractor
The policy makers have looked to labour law principles to tighten up on the definition of an employee in the ETI Act.
In my opinion, the insertion of the underlined wording in subsection (a) of the definition does not contribute much towards curbing ETI abuse, but the addition of subsection (c) does go some way to ensure an employment relationship by specifying that an employee must be recorded by the employer as required by BCEA section 31.
The record keeping requirements of BCEA section 31 are not extensive and are satisfied by the employee information that is recorded in a payroll system.
In simple terms, the ETI Act defines an employee as a natural person who works for another person and receives remuneration from that other person (the employer) in return for services rendered. This is the work/reward labour principle that is at the heart of an employment relationship, and it stands strongly on its own.
Changes to section 6 (Qualifying employee criteria)
The wording of the final proviso in the TLAA of 19 January 2022 that has been inserted in section 6 is underlined:
Section 6. An employee is a qualifying employee if the employee—
[subsections (a), (b), (c), (d), (e), (f), and (g) i.e. the 7 x qualifying tests, are not listed here to keep it short]
Provided that the employee is not, in fulfilling the conditions of their employment contract during any month, mainly involved in the activity of studying, unless the employer and employee have entered into a learning programme as defined in section 1 of the Skills Development Act, 1998 (Act No. 97 of 1998), and, in determining the time spent studying in proportion to the total time for which the employee is employed, the time must be based on actual hours spent studying and employed.
Comments on the proviso
‘Mainly’ is interpreted to mean ‘more than 50%’.
The proviso specifies that “mainly involved in the activity of studying” (as opposed to ‘mainly’ providing services to the employer), must be measured “based on actual hours spent studying and employed”.
Keeping track of these hours will no doubt add a significant administration burden on the employer’s shoulders.
SARS have kindly interpreted the portion of the proviso that was added from “unless” to accommodate learnerships:
The way that we read the last part of the proviso to section 6, namely “in determining the time spent studying in proportion to the total time for which the employee is employed, the time must be based on actual hours spent studying and employed”, it does not apply to learning programmes as defined in section 1 of the Skills Development Act (legitimate learnership agreements).
This is also in accordance with the purpose of the amendments – to curb the training related ETI abuse. We do not want to discourage legitimate learnership agreements.
In other words, the words:
“unless the employer and employee have entered into a learning programme as defined in section 1 of the Skills Development Act, 1998 (Act No. 97 of 1998)”,
removes the employee from the “mainly” proviso, and the employer of the learner is not required to track the actual hours worked and studying.
However, the words:
“in determining the time spent studying in proportion to the total time for which the employee is employed, the time must be based on actual hours spent studying and employed”,
are applicable when the employer and employee have not entered a learning programme as defined in section 1 of the Skills Development Act.
In this case, the employer is required to track the actual hours worked and studying.
The amendments to the ETI Act to curb the abuse of ETI are complex, difficult to understand, and administratively burdensome, but they will help to close the loophole of ‘false’ employment that has been exploited by some ETI schemes.
Lastly, be aware that Sars have made it clear that they will apply the principle of ‘substance over form’ when checking the validity of employer ETI claims. In other words, is the relationship a genuine employment relationship, or does the employer simply say that it is employment?

Monthly remuneration
Included below is the result of the PAGSA’s discussions with SARS in the form of an extract from the NBPO (Non-Binding Private Opinion) that was issued by SARS dated 7 March 2022. The issuing of the NBPO was followed by an investigation by the PAGSA Exco into the practical application of the NBPO, resulting in an example of the calculation of ETI ‘monthly remuneration’ that is included, after approval by SARS, in a later section of this newsflash as guidance for the payroll supplier members of the PAGSA.
The correct calculation of ETI ‘monthly remuneration’ is of huge importance to all parties. If ‘monthly remuneration’ is incorrectly calculated, the ETI amount will be calculated incorrectly, resulting in an incorrect reduction of the employer’s PAYE liability on the EMP201.
The final changes to the ETI Act were made in October/November 2021 by the Standing Committee on Finance and were published in the TLAA (Taxation Laws Amendment Act) that was issued on 19 January 2022, accompanied by a final Explanatory Memorandum that was issued a week later on 25 January 2022. The limited amount of time available between the publication of the TLAA on 19 January 2022 and the effective date of 1 March 2022, coupled to the fact that ETI is calculated monthly, has put a lot of pressure on everybody.
Remuneration for the purpose of the definition of an employee in the ETI Act has been interpreted by SARS to be ‘monthly remuneration’ as discussed in a section that follows.
This is explained in the SARS NBPO section 3.3:
“Section 1(2) states that “for the purposes of the definition of “monthly remuneration” in subsection (1), “remuneration” has the meaning ascribed to it in paragraph (1) of the Fourth Schedule to the Income Tax Act”.
This means that “remuneration” as defined may only be used for purposes of the definition of “monthly remuneration” under section 1(1) and nowhere else in the ETI Act.” [My emphasis]
The solution: Definition of monthly remuneration in the ETI Act
The draft TLAB (Taxation Laws Amendment Bill) of 28 July 2021 that was open for comment did not propose any changes to the definition of ‘monthly remuneration’.
It was only towards the end of 2021 that the definition of ‘monthly remuneration’ was extended by inserting the underlined wording starting from “provided that” (referred to as ‘the proviso’ in this Newsflash), as follows:
‘monthly remuneration’—
(a) where an employer employs and pays remuneration to a qualifying employee for at least 160 hours in a month, means the amount paid or payable to the qualifying employee by the employer in respect of a month; or;
(b) where the employer employs a qualifying employee and pays remuneration to that employee for less than 160 hours in a month, means an amount calculated in terms of section 7(5):
Provided that in determining the remuneration paid or payable, an amount other than a cash payment that is due and payable to the employee after having accounted for deductions in terms of section 34(1)(b) of the Basic Conditions of Employment Act, 1997 (Act No. 75 of 1997), must be disregarded
It is this late change to the definition of ‘monthly remuneration’ that has caused the difficulties for payroll suppliers, coupled to wording that is not easily understood.
With the help of the SARS NBPO, the new definition of monthly remuneration is explained by breaking the definition into logical chunks and discussing these one by one.
Paragraphs (a) and (b) of the definition
Paragraphs (a) and (b) are unchanged and their wording reflects the labour law work/reward principle “where an employer employs and pays remuneration to a qualifying employee” to emphasise again that there must be a legitimate employment relationship.
The difference between the two paragraphs is that paragraph (b) provides that remuneration must be ‘grossed-up’ if less than 160 hours are worked for the month.
The definition of ‘monthly remuneration’ in subsection 1 of the ETI Act definitions is followed by subsection (2):
“For the purposes of the definition of “monthly remuneration” in subsection (1), “remuneration” has the meaning ascribed to it in paragraph (1) of the Fourth Schedule to the Income Tax Act.”
Therefore the ‘remuneration’ referred to in paragraphs (a) and (b) of the definition of ‘monthly remuneration’ is remuneration as defined by the Fourth Schedule, but its value can be changed:
• Firstly, by the proviso that potentially reduces the base value of Fourth Schedule remuneration,
• Secondly, by the ‘grossing-up’ requirement specified in paragraph (b) if less than 160 hours are worked.
Note that the requirements of the proviso must be applied first (potentially reducing the value of Fourth Schedule remuneration), before ‘grossing-up’ the reduced remuneration amount if necessary.
‘Monthly remuneration’ is therefore the value of:
• The reduced remuneration amount after applying the proviso, if 160 hours or more are worked, or
• The ‘grossed-up’ reduced remuneration amount after applying the proviso, if less than 160 hours are worked.
The proviso to the definition of monthly remuneration
The proviso is copied here for convenience for this section:
Provided that in determining the remuneration paid or payable, an amount other than a cash payment that is due and payable to the employee after having accounted for deductions in terms of section 34(1)(b) of the Basic Conditions of Employment Act, 1997 (Act No. 75 of 1997), must be disregarded
The wording of the proviso is discussed in logical chunks, starting with the preamble to the proviso.
“Provided that in determining the remuneration paid or payable …”
This means that the base amount of Fourth Schedule remuneration referred to in paragraphs (a) and (b) can potentially be reduced by the requirements of the proviso that follow this preamble to the proviso.
“an amount other than a cash payment … must be disregarded”
Fourth Schedule remuneration amounts that are not a cash payment are the taxable fringe benefits specified by the Seventh Schedule to the Income Tax Act. If there are any taxable fringe benefits, their value must be ‘disregarded’ when calculating the value of ETI monthly remuneration.
This much is clear but unfortunately shares and dividends are two other types of remuneration that may or may not have a non-cash value that must be disregarded.
Shares
NBPO Section 3.1.1 states that
“Non-cash amounts related to shares paid to employees should not form part of monthly remuneration” but does not go on to explain what the ‘cash’ and ‘non-cash’ amounts could be that are related to shares and that could be paid to an employee as income.
The question comes down to whether it is possible for tax certificate codes 3707, 3717, and 3718 to have either a cash or a non-cash value. After querying this with SARS, they have been investigating the complex matter of shares for quite some time, but at the time of writing had not yet reached a conclusion.
As soon as we get clarity, a Newsflash will be issued.
Dividends
NBPO Section 3.1.2 states that
“Dividends can be paid in cash or in kind (in specie [shares can be granted instead of a cash payment – Rob]). Dividends made in cash payments (which is normally the case) and not excluded from the definition of “remuneration” must be included in monthly remuneration.”
SARS will still provide clarity on dividends, but as stated by the NBPO, normally dividends are a cash amount paid to the employee. This means that dividends paid in cash, if remuneration, must be included in ETI monthly remuneration.
The tax certificate codes for dividends are: 3719, 3720, 3721, and 3723.
“a cash payment that is due and payable to the employee”
NBPO Section 3.2 states that
“Monthly remuneration is therefore limited to cash amounts paid to the employee plus any amount that the employer has legally deducted under section 34(1)(b) of the BCEA.” [BCEA section 34(1)(b) is explained on the next page]
The NBPO clarifies that the wording of the proviso: “a cash payment that is due and payable to the employee”, refers to the remuneration portion of cash net pay after deductions, and not to the total cash remuneration before deductions.
In other words, the proviso essentially states that “an amount other than (the net cash remuneration) after having accounted for deductions in terms of section 34(1)(b) of the Basic Conditions of Employment Act, 1997 (Act No. 75 of 1997), must be disregarded”
Note that if “an amount other than (the net cash remuneration)” were to be disregarded, all that would be left would be the net cash remuneration itself. Had that been the case, the proviso would have meant that “monthly remuneration” was equal to the employee’s “net cash remuneration”.
However the last part of the proviso must still be considered.
“after having accounted for deductions in terms of section 34(1)(b) of the Basic Conditions of Employment Act”
In this context, “after having accounted for” means that instead of simply deeming “monthly remuneration” to be equal to the “cash payment that is due and payable” (i.e. the net cash remuneration), the “cash payment that is due and payable” must be increased by the value of any deductions in terms of BCEA section 34(1)(b) that were made from the employee’s remuneration.
A simpler way of putting this would be to say that “monthly remuneration” means the value of the employee’s net cash remuneration increased by the value of any BCEA section 34(1)(b) deductions that were made.
BCEA section 34(1)(b) states that:
(1) An employer may not make any deduction from an employee’s remuneration unless—
(b) the deduction is required or permitted in terms of a law, collective agreement, court order or arbitration award.
Note that SARS cannot give an interpretation of section 34(1)(b), not because they don’t want to help but because the BCEA is not administered by SARS, so the explanations of section 34(1)(b) that follow are the opinion of the PAGSA.
“the deduction is required or permitted in terms of a law”
The words “a law” is very wide and if effect, means “any law”. This would without doubt include the Fourth Schedule to the Income Tax Act.
Therefore any deductions from remuneration that are allowed by the Fourth Schedule for the purpose of the PAYE calculations, are also deductions that are permitted by BCEA section 34(1)(b).
These deductions would be:
1. Allowable donations
2. Employee-paid contributions to retirement funds in terms of section 11F.
In addition, other deductions that are permitted by BCEA section 34(1)(b) are the payments to statutory bodies that reduce an employee’s net pay, including:
1. PAYE
2. Voluntary PAYE
3. Employee-paid UIF contribution (1%).
“the deduction is required or permitted in terms of a … collective agreement, court order or arbitration award”
Hopefully these remaining types of deductions that are “required or permitted” by section 34(1)(b) would be familiar to the employer and should be easily recognised if they are present in the payroll.
As examples, “collective agreements” would include Bargaining council agreements, “court orders” would include garnishee orders, and “arbitration awards” are just that.
SUMMARY of the proviso
To summarise the result of the proviso, “monthly remuneration” is equal to the cash remuneration paid to the employee, increased by the value of any deductions permitted in terms of section 34(1)(b).
This is aligned with the SARS NBPO section 3.2 that states:
“Monthly remuneration is therefore limited to cash amounts paid to the employee plus any amount that the employer has legally deducted under section 34(1)(b) of the BCEA.”
Application of the defined concepts of remuneration and monthly remuneration
It is important to know when to use ‘remuneration’ and when to use ‘monthly remuneration’.
Subsection (2) of the definitions section of the ETI Act states:
“For the purposes of the definition of “monthly remuneration” in subsection (1), “remuneration” has the meaning ascribed to it in paragraph (1) of the Fourth Schedule to the Income Tax Act.”
Section 3.3 of the SARS NBPO clarifies as follows:
Section 1(2) [of the ETI Act] states that “for the purposes of the definition of “monthly remuneration” in subsection (1), “remuneration” has the meaning ascribed to it in paragraph (1) of the Fourth Schedule to the Income Tax Act”. This means that “remuneration” as defined may only be used for purposes of the definition of “monthly remuneration” under section 1(1) and nowhere else in the ETI Act. [my emphasis]
Section 6(g) refers to “remuneration….in respect of a month” and thus monthly remuneration must be [used] when applying this requirement.”
Section 6(g) is the qualifying test that checks an employee’s “remuneration” against the R6 500 pm threshold.
Despite the use of the word “remuneration” in section 6(g), the SARS NBPO clarifies that ‘monthly remuneration’ as explained above (i.e. the potentially reduced remuneration amount) must be used for the R6 500 qualifying test in terms of subsection (2) of the definitions section of the ETI Act.
Lastly, ETI Act section 7 states specifically that “monthly remuneration” must be applied in the formulas to calculate the ETI amount, so there is no doubt about this.
Examples of the calculation
With reference to the proviso to “amounts other than a cash payment”, and to BCEA section 34(1)(b) deductions that are “required or permitted by a law” (being the Fourth Schedule), all cash income amounts, fringe benefits, and deductions allowed by the Fourth Schedule, as well as statutory payments, can be identified programmatically by using the tax certificate codes specified by the SARS PAYE BRS.
On the other hand, labour law does not have a coding system equivalent to the SARS PAYE BRS.
Presumably, these deductions are captured by the employer in the payroll in a ‘free format’ manner and could include deductions in terms of:
• BCEA section 34(1)(a) -not part of the exclusions,
• BCEA section 34(1)(b), and
• BCEA section 34(2) -not part of the exclusions.
Some payrolls might have difficulty in being able to programmatically identify the BCEA section 34(1)(b) deductions that are “required or permitted in terms of a … collective agreement, court order or arbitration award”.
In the absence of codes, this means that the employer will have to ‘flag’ section 34(1)(b) deductions (or alternatively ‘flag’ deductions that are not section 34(1)(b) deductions) in the payroll to identify them for use in the payroll’s calculation of ETI monthly remuneration.
If the employer gets this ‘flagging’ wrong, the payroll system can do nothing about it, and monthly remuneration and the ETI amount itself will be incorrectly calculated, resulting in potentially incorrect ETI claims in the EMP201.
Alternative Methods of Calculation of ETI Monthly remuneration
After receiving the SARS NBPO, a member of the PAGSA Exco created an example of how to calculate ETI monthly remuneration that shows two alternative methods of calculation of the ETI monthly remuneration amount.
The calculation shows that it is possible to arrive at the correct ETI monthly remuneration amount of R1 750,00 (see the example) by either:
1. Using a ‘top-down’ calculation (Starting from ‘Total remuneration’ and working downwards), or
2. Using a ‘bottom-up’ calculation (Starting from ‘Net pay’ and working upwards).
The ‘top-down’ and the ‘bottom-up’ calculation options are indicated by the red arrows in the frame at the bottom of the calculation example.
Both methods of calculation are aligned with the outcome envisioned in the SARS NBPO section 3.2 of which extracts have been copied in below for convenience:
The example shows that ETI monthly remuneration = R1 750,00 for both the ‘top-down’ and the ‘bottom-up’ method.
This result has been approved by SARS as being the correct value of ETI monthly remuneration in this scenario:
We agree with the basic framework of your calculations and that the result is in line with our purposive interpretation of the proviso to the definition of “monthly remuneration”. We are still not in a position to express an opinion on what constitutes deductions under section 34(1)(b) of the BCEA, but agree with the way that these deductions are treated in your calculation.
The compliance issues and suggestions mentioned in your email have been given through to the applicable staff members. We will keep them in mind as well when being asked to provide inputs for further legislative amendments.
Note that in the example, the value of ETI monthly remuneration that would have been R5 250 before the change to the new definition of monthly remuneration, is now R1 750 – a significant reduction in value.
Monthly remuneration (simple answer)
BCEA section 34(1)(b) states that:
(1) An employer may not make any deduction from an employee’s remuneration unless—
(b) the deduction is required or permitted in terms of a law, collective agreement, court order or arbitration award.
Note that SARS cannot give an interpretation of section 34(1)(b), not because they don’t want to help but because the BCEA is not administered by SARS, so the explanations of section 34(1)(b) that follow are the opinion of the PAGSA.
“the deduction is required or permitted in terms of a law”
The words “a law” is very wide and in effect, means “any law”. This would without doubt include the Fourth Schedule to the Income Tax Act.
Therefore, any deductions from remuneration that are allowed by the Fourth Schedule for the purpose of the PAYE calculations, are also deductions that are permitted by BCEA section 34(1)(b).
These deductions would be:
• Allowable donations
• Employee-paid contributions to retirement funds in terms of section 11F.
In addition, other deductions that are permitted by BCEA section 34(1)(b) are the payments to statutory bodies that reduce an employee’s net pay, including:
• PAYE
• Voluntary PAYE
• Employee-paid UIF contribution (1%).
“the deduction is required or permitted in terms of a … collective agreement, court order or arbitration award”
Hopefully these remaining types of deductions that are “required or permitted” by section 34(1)(b) would be familiar to the employer and should be easily recognised if they are present in the payroll.
As examples, “collective agreements” would include Bargaining council agreements, “court orders” would include garnishee orders, and “arbitration awards” are just that.
In terms of the Fourth Schedule of the Income Tax Act, neither employer-paid nor employee-paid contributions to a medical scheme are allowable deductions, therefore not allowed as deductions by BCEA section 34(1)(b).