The following is news flash 2024/14 published by the PAGSA on March 08, 2024 regarding BCEA Earnings Threshold increase

BASIC CONDITIONS OF EMPLOYMENT ACT: EARNINGS THRESHOLD INCREASE

The Minister of Employment and Labour issued Government Gazette Number 50254 on 5 March 2024 to increase the BCEA Earnings threshold from R241 110.59 pa to R254 371.67 pa with effect from 1 April 2024.

Note that the definition of ‘BCEA earnings’ is included in the notice and is only used for the application of this threshold.

The following link can be use to access the Gazette announcing this Earnings Threshold Increase: https://gazettes.africa/akn/za/officialGazette/government-gazette/2024-03-05/50254/eng@2024-03-05

Regards,
Rhona van Taak

DEPARTMENT OF EMPLOYMENT AND LABOUR

NO. 4468 5 March 2024

BASIC CONDITIONS OF EMPLOYMENT ACT NO. 75 OF 1997

DETERMINATION: EARNINGS THRESHOLD

I, Thembelani Waltermade Nxesi, Minister of Employment and Labour, hereby in terms of Section 6 (3) of the Basic Conditions of Employment Act, No. 75 of 1997, (the Act), determine that all employees earning in excess of R254 371.67 (two hundred and fifty-four thousand, and three hundred and seventy-one rand, sixty-seven cents) per annum be excluded from sections 9, 10, 11, 12, 14, 15, 16, 17(2) and 18(3) of this Act with effect from 1 April 2024.

For the purposes of this notice:

“Earnings” means the regular annual remuneration before deductions i.e income tax, pension, medical and similar payments but excluding similar payments(contributions) made by the employer in respect of the employee: provided that subsistence and transport allowances received, achievement awards and payments for overtime worked shall not be regarded as remuneration for the purpose of this notice.

MR TW NXESI, MP
MINISTER OF EMPLOYMENT AND LABOUR
DATE: 27/02/2024

The following is news flash 2024/15 published by the PAGSA on March 12, 2024 regarding SARS PAYE BRS effective from 1 March 2024 (v 23.0.0)

SARS PAYE BRS VERSION 23.0.0 RELEASE FOR 2024/2025

After lengthy discussions, SARS released version 23.0.0 of the PAYE BRS that provides the tax certificate reporting rules for the 2024/25 year of assessment.

This version must be used for the Interim tax certificate submissions and reconciliations as of 31 August 2024 (effective from 1 March 2024), and if not changed before then, for 28 February 2025.

SARS has indicated that the employer’s filing season for the Interim submissions will open on 16 September 2024 and close on 31 October 2024.

Note that the reporting rules of the tax certificate codes that must be used to report retirement fund transactions are unchanged, despite the amendment to section 11F(4)(b) that effective from 1 March 2024, now states as follows:

Section 11F(4)- Any amount paid or contributed by an employer of the person on behalf of or for the benefit of that person must be deemed—
(a)
(i) to be equal to the amount of the cash equivalent of the value of the taxable benefit contemplated in paragraph 2 (l) of the Seventh Schedule determined in accordance with paragraph 12D of that Schedule; or
(ii) if that amount is paid by an employer to a retirement annuity fund, to be equal to the amount of the cash equivalent of the value of the taxable benefit contemplated in paragraph 2 (h) of the Seventh Schedule determined in accordance with paragraph 13 of that Schedule; and
(b) to the extent that the amount has been included in the income of that person, to have been contributed by that person.

Tax policy dictates that deductions are only allowed from taxable income, and not from exempt income.

The underlined words in Section 11F(4)(b) were added with effect from 1 March 2024 to prevent deductions resulting from contributions to retirement funds being allowed against Foreign Employment Income that is exempt in terms of section 10(1)(o)(ii).

The wording and application of section 11F(4)(b) is confusing and they remain under discussion.

To acknowledge the difficulties, and to give support to payroll suppliers who must not apply the deduction provided for by sections 11F(1) and (2) against the portion of the remuneration that is fully or partially exempt in terms of section 10(1)(o()(ii), the following instruction has been added at the request of the PAGSA to the header of each of the relevant pages in the latest SARS PAYE BRS Version 23.0.0:

“Employee Remuneration Information:
Note: Where the phrase “foreign service income” is used in the description for the various codes, it means any amount received or accrued in respect of employment services rendered outside of the Republic. This applies to the codes for any amount received, including any allowances and taxable benefits. The full amount must be disclosed under the relevant foreign service income code, irrespective of whether a portion of that amount may qualify for exemption.“

SARS Notes on the changes in the BRS:
The changes include:
• New source code (3926) for the Withdrawal from a Retirement Fund from the Savings Component/Pot
• Amendment of descriptions and/or validation rules for –
o Unclaimed benefits (code 3909)
o Certificate number (code 3010)
o Directive number (code 3230)
o Directive income source code (code 3232)
o Transfer of Unclaimed benefits (code 3923)
o NED Directors / Audit Committee member fees (code 3620/3670)

The following link can be used to access the update PAYE BRS version 23.0.0:
https://www.sars.gov.za/wp-content/uploads/Docs/PAYE/BRS/SARS_PAYE_BRS-PAYE-Employer-Reconciliation_V23-0-0.pdf

Regards,
Rob Cooper

The following is news flash 2024/16 published by the PAGSA on March 15, 2024 regarding COID ROE System Temporary Shutdown

TEMPORARY SHUTDOWN: COID ONLINE SYSTEM FOR THE RETURN OF EARNINGS

The Employers Filing Season for the submission of the annual ROE (Return of Earnings) will open on 1 April 2024 and close on 30 June 2024.

To prepare for the submission of these returns by employers, the Compensation Fund will temporarily close some modules of their online systems from 17 March 2024 until 31 March 2024, as detailed in the following notice.

ROE ONLINE SYSTEM TEMPORARY SHUT-DOWN ALERT

This serves to inform all Employers that the Compensation Fund will temporarily shut-down the ROE Online System and the internal SAP ECC for the Employer Registration and Employer Assessment module only for the period from 17 March 2024 (00:00) until midnight on 31 March 2024.

The reason for the temporary shut-down is to complete preparatory actions for the 2023 ROE Season that will open for the period 1 April 2024 to 30 June 2024.

The following services will be affected during the ROE Online system shut-down period:
o Employer registrations will not be processed; this includes registrations through the CIPC Bizportal plant form as well as through the CF’s back- office processes.
o Employers will not be able to declare any Return of Earnings, online or manually.
o CF will not able to clear employers who are flagged for audit and process applications for a revision of assessment.
o No instalment applications will be considered during this period.

The following services will NOT be affected during the ROE Online systems shut-down period:
o The CompEasy system, for the processing of claims will NOT be affected.
o Employer will be able to generate a letter of Good Standing during this time.
o Employers can still make payments using their correct CF Registration number.

Employers are encouraged to declare their earnings earlier when the ROE Online system opens from 1 April 2024 as higher volumes are generally experienced towards the submission deadline that affects availability of systems.

NOTICE ENDS

Regards,
Rob Cooper

If an employer failed to apply for a tax directive on severance benefits, they should rectify the situation as soon as possible. The employer can still apply for a tax directive retrospectively by submitting the necessary documentation to the South African Revenue Service (SARS). They should include a letter explaining the reason for the delay and provide any supporting documents required by SARS. It is important to note that there may be penalties or interest imposed for the late application, so it’s best to rectify the situation promptly.

The amount indicated on the directive as PAYE deductible from the severance amount, should then be recovered from the employee, before an IRP5 may be issued to the employee which reflect this amount of PAYE. Should the amount not be recoverable from the employee, it will be deemed to be a penalty in terms of paragraph 5(5) of the Fourth Schedule and should not be included on the IRP5, but should be included in the EMP501 under the field “deemed penalty”.

The legislation in South Africa does not specifically address whether net pay can be rounded off. However, if an employer chooses to use a rounding method for paying salaries or wages, it is generally recommended to round up rather than rounding down. This helps to prevent any potential disputes regarding short payment.

According to the Basic Conditions of Employment Act (BCEA) in South Africa, employment-related documents must be kept. The BCEA does not specify whether these documents should be kept in hard copy or digitally, as long as they are stored securely in compliance with the Protection of Personal Information (POPI) Act.

It is recommended to keep these documents for a period of at least five years. as the income tax act prescribed a period of 5 years from the last date of entry therein, it is recommended that all employment related documents be kept for a period of 5 years from the last entry.

The records must be kept for a period of five (5) years from the date of the submission of the return and from the end of the relevant tax period if the person is not required to submit a tax return but has earned some form of taxable income. The employer must retain such records and make them available for scrutiny by the Commissioner.
• Employers who supply the tax certificate information on an electronic medium or electronically, must also keep such records for the prescribed period.

The following requirements must be met before income will be subjected to normal tax for a DTA (Double taxation agreement) for a non-resident:

Before income will be subjected to normal tax for a non-resident under a Double Taxation Agreement (DTA), the following requirements must generally be met:
1. Tax residency: The non-resident must be a tax resident of a country that has a DTA in place with South Africa. The DTA determines the taxing rights between the two countries.
2. Permanent establishment: If the non-resident carries on business in South Africa through a permanent establishment, the income derived from that permanent establishment may be subject to normal tax in South Africa. The DTA will provide specific criteria for determining the existence of a permanent establishment.
3. Specific income types: The DTA may specify certain types of income that are subject to taxation in the country where the income is sourced. For example, income from immovable property, dividends, interest, royalties, and capital gains may be subject to taxation in the source country.
4. Limitation of benefits: Some DTAs include provisions to prevent abuse of the agreement. These provisions may require the non-resident to meet certain conditions, such as having substantial business activities in their country of residence or demonstrating that the main purpose of their activities is not to obtain the benefits of the DTA.
It’s important to note that the specific requirements may vary depending on the DTA in question. It is recommended to consult the relevant DTA and seek professional advice to determine the specific requirements and implications for a non-resident’s income.
If a DTA is in existence and all three of the following requirements are met the income will not be subject to normal tax in South Africa:
• He/she is present in SA for a period or periods in aggregate not exceeding 183 days in any 12 month period (not necessarily a year of assessment),
• The services are performed for or on behalf of a person who is not a resident of SA,
• The remuneration is subject to tax in the other country with whom the DTA exists,
• His/her remuneration is not borne by a “permanent establishment” that the foreign employer has in SA.

Chapter 9. Payroll Authors Group of South Africa
9.1 Associate Membership of the Payroll Authors Group of South Africa
The information in this workbook is informed by my activities as Chairman of the Payroll Authors Group of South Africa (the PAGSA).
Who is the PAGSA and What does it do?
The Payroll Authors Group of South Africa was established in 1989 with the support of SARS and is an ‘Association of Persons’ registered in terms of section 30B of the Income Tax Act, with a constitution approved by SARS.
Since its establishment 34 years ago in 1989, the PAGSA has represented the companies that develop, install, and support computerised payroll systems in South Africa, known as the “Payroll Members” of the PAGSA.
In its role as payroll industry representative, the PAGSA’s mandate is to focus on employment-related legislation and regulation requirements, and to engage with the various statutory bodies (National Treasury, the Department of Employment and Labour, the Unemployment Insurance and Compensation Funds, and SARS) to facilitate the impact of their legislation and administrative requirements on payroll suppliers, employers, and tax practitioners.
The PAGSA plays a critical role by providing balanced and informed input to these statutory bodies to identify anomalies and blockages in current requirements as well as to help shape future requirements, and it is valued by these bodies as an essential non-partisan partner.
As a result of this role, the PAGSA is uniquely positioned to provide informed and up to date information on employment tax related legislation, administration requirements, practices, tax certificate requirements, electronic returns, etc.
The PAGSA’s information services are of great value to its members, and in response to requests we have opened a class of membership to allow tax practitioners and employers to join the group as an “Associate Member”.
Benefits of Associate Membership
The services that the PAGSA can offer its members result from its role and the position that it occupies between the statutory bodies on the one hand, and payroll suppliers, employers, and tax practitioners on the other hand.
Newsflashes
Newsflashes are issued as events unfold and will keep you up to date in an employment world that is characterised by rapidly changing requirements. They are written in plain English, are practical and down-to-earth, and will assist you to understand and comply with the latest requirements.
As soon as you are registered as an Associate member, all Newsletters and Newsflashes issued in the past can be accessed by scrolling through the archive of these publications on our website.
PAGSA Seminars and Webinars
In association with our statutory partners, the PAGSA presents seminars and webinars from time to time that focus on employment-related topics that provide important practical, down-to-earth assistance to payroll suppliers, tax practitioners, and employers.
As an Associate member, your company will be entitled to a discount for attendance of the PAGSA’s seminars.
Legislation Proposals and Comments
Your company can make use of the PAGSA’s established communication channels with the statutory bodies and add your voice to our efforts to streamline payroll administration processes that are unnecessarily complex.
Advertise your Membership of the PAGSA
You will be issued with a membership badge for the year as soon as your fees for the year are paid. This badge can be displayed on your website to advertise your membership of a long-standing and highly regarded employment organisation.
Email Query Service
The PAGSA now offers a voluntary email query service to our Associate members that supports employment-related legislation and administration requirements.
Registration of Your Membership
You can register up to three different email addresses per company that is an Associate member. These contact addresses receive a notification email when a new Newsflash is issued.
How to become an Associate member of the PAGSA
Membership is R254 per month for up to three individuals in your organisation for our communication service, and an additional R381 per month for our optional email query service.
To apply for Associate membership, please visit our website: www.pagsa.org.za and select the ‘Register Here’ tab on the top of the page, then select the ‘Register Now’ button for Associate membership and complete the registration process.
If you have any queries, please feel free to email the PAGSA management team on [email protected].
I look forward to welcoming you as a member.
Without your support, the work that we do to promote and develop our payroll world would not be possible.

Chapter 8. Miscellaneous Matters of Interest
8.1 Reviewing tax provisions for Travel and Working from Home
For many years the PAGSA has submitted requests to National Treasury to investigate and make changes to travel allowances (we also submitted proposals for suggested changes),
In 2020, as a result of the Covid lockdowns and the subsequent spotlight on working from home, we also submitted proposals for changes to the Home Office allowance.
Budget 2021 Proposal:
This proposal from Budget 2021 is included here to provide some history and context.
Proposed in the 2021 Budget (but not again in the 2022 Budget), is the intention to review travel and home office allowances, as follows:
In light of the large‐scale migration to working at home over the past year, the National Treasury will review current travel and home office allowances to investigate their efficacy, equity in application, simplicity of use, certainty for taxpayers and compatibility with environmental objectives.
In recognition of the potential effect on salary structuring, this will be a multi‐year project, starting with consultations during 2021/22.
This was good news at the time of the 2021 Budget.
Normally all of the budget proposals are converted into draft legislation, but as stated “this will be a multi-year project”, consequently the budget proposal to review the tax provisions for travel and working from home was not included in the 2021 amendment legislation.
This was disappointing, but my understanding at the time was that this budget proposal is not off the table but rather that it requires more time for investigation and discussion before draft legislation can be formulated.
The 2022 Budget did have this to say about home office allowances:
“A discussion document will be published in 2022 on a personal income tax regime for remote work” but was silent on travel allowances.
Budget 2023 Intention: Broadening the personal income tax base.
The intention to broaden the personal income tax base is stated in Chapter 4 of the 2023 Budget as follows.
As part of exploring the effect of remote work on the personal income tax regime, the National Treasury and SARS committed to a multi-year review of allowances.
A discussion document will be released this year to outline workplace practices and policies, changes in the current environment and how different workplaces are affected by home office and travel allowance policies.
PAGSA Comments
The intention stated in Budget 2023 to investigate home office allowances, and in particular travel allowances, with a view to changing their requirements is a welcome and positive step forward.
For many years the PAGSA has requested National Treasury and SARS to investigate and make changes to travel allowances (we have also submitted suggested changes), and in 2020, because of the Covid lockdowns and the subsequent spotlight on ‘working from home’, we also requested changes to home office allowances.
Our requests surfaced for the first time in the 2021 Budget that spoke to a “multi-year” intention to review travel and home office allowances, but as far as can be determined, that investigation was not started.
The fact that the 2021 Budget proposal has been included again in the Budget 2023 proposals signals intention.
The travel allowance is the most frequently used of all of the allowances and is an important and difficult area of employment law to tackle.
Travel allowance non-compliance, whether deliberate or inadvertent, is high.
The “multi‐year review” wording of the 2023 budget indicates that it will take more than a year to investigate these two allowances and to draft proposed changes to the legislation.
Unrelated, but perhaps of significance, keep in mind that in recent times there have been indications from the policy makers of a general move to replace allowances with reimbursements.
There are three ‘special’ allowances (as I refer to them because the law gives them ‘special’ attention in section 8 of the Income Tax Act):
1. Travel allowances including travel reimbursements (reimbursive travel allowances)
2. Subsistence allowances
3. Public Office allowances.
Until changes are made to the travel allowance requirements as proposed in Budget 2023, the taxation rules for travel allowances will remain unchanged.
However, if you pay ‘non-special’ (or ‘general’) allowances, you might want to investigate their role in your company and consider replacing them with reimbursements.
Remember that ‘general’ allowances are remuneration, and once remuneration is paid, PAYE, SDL. UIF must be calculated, withheld, and paid to SARS, as well as ETI if you are part of the ETI process.
Reimbursements that are correctly implemented are not remuneration – there is no PAYE, SDL, UIF or ETI.
8.2 Update on the UIF E-Compliance Certificate System
Still reeling from the Covid-19 lockdown hardship period and the TERS benefit application difficulties, the UIF authorities decided to replace their manual Compliance Certificate system by launching their new E-Compliance Certificate system (E-CC) at the end of January 2021.
There was no discussion with employment bodies such as the PAGSA, nor was the system tested externally before it was released.
It didn’t take long to discover that the E-CC system had problems such as:
• If any gaps in the submission of monthly declarations going back to 2002 were identified, the Certificate was refused, and the employer was asked to recreate the declaration data …
• Employees appointed in month 1 were added to the payroll in that month, but their remuneration details were too late for the payroll run, and were added to month 2’s remuneration, resulting in the system identifying month 1 as a ‘gap’ month because a UIF contribution was not made in that month.
• Changes in ownership of the company, or section 197 transfers, also appear to result in a ‘declaration gap’ being identified.
It appears that the E-CC system traces an employee’s history of employment movement from one employer to the next by using the employee’s ID number, and if there is a ‘declaration gap’ at a previous employer because that employer did not submit a declaration, then the current employer is penalised by the system refusing to issue a Compliance Certificate.
Many, many emails were sent to the Fund by the PAGSA and other organisations complaining about these and other problems, as well as the negative impact on the economy and increased unemployment because some organisations could no longer tender for new business, but to no avail.
The UIF authorities politely refused to arrange meetings with external employment and business organisations.
Finally in April 2022, a meeting was arranged that included the PAGSA and other employment organisations, and these organisations presented detailed reports of the problems as well as suggestions for solutions.
Halfway through the presentation of the PAGSA’s report, the Fund announced that the E-CC system would be temporarily shut down and that a notice would be issued to the effect that a UIF Compliance Certificate was no longer required for tenders and other requirements.
After prompting by the same group of organisations, this was followed by a “What Now?” meeting in August 2022, during which we again agreed to present a consolidated report of the problems and our proposals for a solution.
8.3 Update on the Modernisation of UIF Declarations
When creating the file that employers must email every month to the Fund to declare the employee data for that month, payrolls must obey a specification document known as the ‘E03’ Declaration Specification (‘E03’ because this specification was first drawn up in 2003).
During 2016 and 2017 the PAGSA and the UIF authorities met regularly to bring the E03 specification up to date, but after considerable progress was made, the project was halted before it could be finalised and implemented.
After the meetings in April and August 2022, the Fund agreed in December 2022 to resume the regular meetings with the PAGSA that had been the hallmark of our excellent relationship for nearly 25 years.
This laid the foundation for regular meetings between the Fund and the PAGSA that started in January 2023, and at the time of writing (late February 2023) there have been 3 productive meetings.
The purpose of these meetings is to revise and modernise the E03 specification document so that payrolls can provide the additional employee data that the Fund needs to be able to issue E-Compliance Certificates correctly in certain scenarios that under current circumstances are difficult for the Fund.
Hopefully payrolls will also be able to provide additional data that will assist the Fund to approve benefit claims more accurately and cost efficiently.
These meetings are ongoing and hopefully will result in a much-improved E03 specification document that will benefit all three parties (payrolls, employers, and the Fund).
PAGSA Working Groups
Two PAGSA working groups have been set up to investigate the main two areas of problems being remuneration issues, as well as to investigate possible changes to uFiling that could result in significant benefits to all parties in a number of areas.
The leaders of the two PAGSA teams presented their investigation and suggestions to the Fund for their consideration in a long but productive meeting on 21 February 2023.

Chapter 7. Vision 2024 – Monthly Tax Certificates
7.1 Early History of the Vision 2024 PAYE Project
In a special meeting on 12th February 2020, SARS briefed the PAGSA Exco members on the intention to modernise the technical capability of their systems “where increasingly its work will be informed by data-driven insights, self-learning computers, artificial intelligence and interconnectivity of people and devices”.
With SARS permission, PAGSA Newsflash 2020-05 was issued to PAGSA members on 24 February 2020 to give PAGSA payroll members an early warning of what lay ahead.
This was followed 6 weeks later by the State President’s unexpected announcement of the Covid-19 pandemic, the subsequent lockdowns, the under-pressure roll-out of the tax and ETI relief amendment Acts, the July 2021 Civil Unrest, followed by another round of tax and ETI relief amendment Acts. These unexpected catastrophic events put the Vision 2024 project on the back foot for more than 18 months.
From mid-2021, the PAGSA compiled several lengthy documents that explain the essential features that payroll systems provide, as well as some practical aspects of payroll administration of employment taxes to assist the SARS Vision 2024 team.
During this time we also engaged with SARS in a number of meetings to explain fundamental concepts such as the forecasting of the annual equivalent of remuneration (referred to in short as ‘annualisation’), and the practical difficulties of processing PAYE, SDL, UIF, and ETI on a weekly, fortnightly, and monthly basis as opposed to the relatively simple calculation of income tax by SARS at the tax year end when all the figures are known and final.
The frequency and complexity of these meetings increased substantially from December 2022 onwards.
These discussions were confidential – besides a brief mention in the February 2020 Budget, the project itself was officially put in the public domain by a ‘statement of intention’ in Chapter 4 of the 2023 Budget Review.
Budget 2023 Intention: Third-party data and personal income tax administration reform
The pay-as-you-earn (PAYE) and personal income tax administration reform announced in the 2020 Budget has given pensioners the option to agree to more accurate PAYE withholding rates to take account of multiple sources of income, as well as enabling 2.9 million individual taxpayers to be automatically assessed without the need to file personal income tax returns.
The reform will continue over the medium term with a view to reducing the administrative burden for employers, payroll administrators and SARS, as well as individual salaried taxpayers.
Work has commenced, in consultation with employers and representative organisations, to provide employer and employee data on a monthly basis in a fully automated fashion. Over time, the need for employer PAYE annual reconciliation is expected to fall away, and the reform will be extended to third-party data providers.
In short, the Budget was referring to the introduction of monthly tax certificate submissions to SARS by employers.
[Rob: Payroll suppliers, employers, and tax practitioners: Take a deep breath … ]
7.2 Overview of the Vision 2024 Project
In February 2020, the main objectives of Vision 2024 PAYE project were given as:
1. Accurate and timely withholding of employment taxes from employees and payments to SARS
2. Reduction of administration for employers, payroll administrators and SARS
3. Employees will be able to monitor their tax obligations during the tax year
4. The annual reconciliation process for employers will be simplified
5. Over time, most salaried taxpayers will not have to file personal tax returns.
These overall objectives have not changed significantly since 2020.
Benefits of the Vision 2024 Project
In my opinion, providing employee information by submitting monthly tax certificates is a project that will benefit the country in general and all of the major role players (with the exception of payroll suppliers).
1. National Treasury will benefit from:
o Accurate general employment and remuneration statistics on a monthly basis will result in more informed decision making and better policy
o Monthly information will allow the success or otherwise of changes to the law to achieve certain objectives to be measured far more accurately than at present.

2. SARS will benefit from:
o Automation and simplification of their PAYE administration
o Reduced administration burden for the Mid-year and Tax year end reconciliations
o Phase out some internal systems over time
o Having the option in the future to increase revenue by charging interest on positive corrections made in an earlier accrual month (and of course paying interest on negative corrections)
o Improve compliance and increase tax revenue collection by identifying suspicious trends and events from the monthly employment and remuneration information.

3. PAGSA Payroll Suppliers:
o No immediate benefits – they will have to retain the annual tax certificate system functionality and in addition develop and maintain the new monthly tax certificate system.

4. Employers will benefit from:
o Not having to do the Interim Mid-year reconciliation (and possibly the year-end reconciliation)
o Being ‘forced’ by the submission of monthly tax certificates into a rolling month-by-month reconciliation routine.

5. Employees will benefit from:
o Being able to monitor their monthly remuneration and deductions from month to month
o Keeping track of their tax obligations as the tax year progresses.
Exciting times lie ahead for all of us in the payroll world, no doubt with a few bumps in the road, but in my opinion, with a big light at the end of the tunnel to look forward to.
There are some aspects of the monthly tax certificate project including monthly accrual (discussed in the next section) and monthly ETV (Employment Tax Validation) that will probably not be introduced from the start but only at a later stage when the monthly tax certificate process has settled down and is running smoothly.
7.3 Monthly Accrual and Section 7B Variable Remuneration
The concept of ‘accrual’ underpins tax legislation requirements and is a complex subject.
In simple terms, the principle behind accrual is that income, including remuneration as defined by the Fourth Schedule of the Income Tax Act, accrues on either the date when there is ‘an unconditional entitlement to the money’, or the date of the payment of the remuneration, whichever comes first.
Fortunately, accrual has been made easier to apply by the introduction of the concept of ‘variable remuneration’ from March 2013 in section 7B of the Income Tax Act.
Because of its potential importance for the Vision 2024 project in the future, this workbook explains the concept of ‘variable remuneration’ as well as aspects of its application in payrolls in some detail.
Background to the Introduction of Section 7B
The Problem
For many years, the PAGSA has drawn the attention of the tax authorities to the administration difficulties experienced by payroll suppliers and employers when certain types of remuneration accrue in the last month (or months) before the end of a tax year but can only be paid in the first month (or months) after the start of the new tax year when the amounts are available and/or can be quantified.
If this happens, the payroll for the last month of the tax year must be re-opened, the remuneration adjustments made, the payroll re-run, employees paid the additional net pay amount, the EMP201 in respect of that last month must be adjusted and paid with penalties/interest, and possibly the tax certificates in respect of the previous tax year must be adjusted.
These retrospective adjustments placed a significant administration burden on payrolls, employers, and in some cases on SARS (adjustments to the EMP201 and possibly tax certificates).
The Solution
After many requests from the PAGSA over the years prior to 2013, section 7B was added to the Income Tax Act and introduced the concept of ‘variable remuneration’ from 1 March 2013 as the solution.
Variable and Non-variable Remuneration
Section 7B allocates the various types of Fourth Schedule remuneration into two groups:
1. ‘Variable’ remuneration, and
2. ‘Non-variable’ remuneration:
Variable Remuneration
‘Variable remuneration’ includes the following types of remuneration:
1. Overtime
2. Bonuses (annual, quarterly, performance, etc.)
3. Commission (commission is calculated based on a percentage, not on the number of units produced)
4. Travel allowances (an allowance or advance paid in respect of business travel expenses)
5. Leave paid out (BCEA annual leave that is owing and paid on termination of services)
6. Reimbursive travel allowances (kilometer-based payment in respect of business travel expenses)
7. Night shift allowances
8. Standby allowances
9. Employer-paid reimbursements (these must be ‘true’ reimbursements as specified in the IT Act), and
10. An amount that is determined based on the employee’s work performance (from 1 March 2023).
Section 7B goes on to specify that all remuneration types that are classified as ‘variable remuneration’ are deemed to accrue in the month in which they are paid (not in the month in which they would normally have accrued) and must be taxed in the month in which they are paid.
Non-variable Remuneration
All remuneration types that are not variable remuneration, are referred to as ‘non-variable’ remuneration, of which the most obvious examples are salaries and wages, as well as most allowances and fringe benefits.
Non-variable remuneration must be taxed at the earlier of the date of accrual (when there is an unconditional entitlement to the money), and the date of payment of the remuneration.
Comments on the Application of Section 7B
The section 7B requirements are gradually spreading into other legislation and payroll tax administration areas.
Unemployment Insurance Contributions Act
Section 7B is linked to the Unemployment Insurance Contributions Act by the definition of remuneration in the Fourth Schedule. Remuneration paid in a month (or months) after an employee’s services have been terminated can have two different results depending on whether the remuneration paid is ‘variable remuneration’ or ‘non-variable remuneration’.
Under discussion.
SARS Vision 2024 PAYE Project
As explained in the introduction to this section, section 7B was introduced in March 2013 to simplify the transition for employers and payrolls from the end of one tax year into the start of the next tax year.
However, the accrual principles and section 7B apply equally to any month during a tax year.
7.4 Monthly Accrual and Monthly Tax certificates
Accrual is generally applied to a year of assessment, but the introduction of monthly tax certificate reporting has put the spotlight squarely on applying the accrual rules on a monthly basis (as opposed to per year of assessment).
In effect, the accrual principles, and the section 7B provisions must be applied to any month during a tax year.
At the heart of the difficulty of producing monthly tax certificates is that corrections made in the current payroll processing month to remuneration amounts in earlier months, may or may not accrue in that earlier month depending on whether or not the remuneration amount being corrected is ‘variable’ or non-variable’.
If these corrections do accrue in the earlier month, then they should be taxed and reported ‘as though’ they were processed in that earlier month, not in the current payroll processing month.
What follows from this is that if an amount of PAYE is paid by an employer to SARS in a later month than the earlier month in which it accrued, then there is a ‘cost of money’ problem. SARS is entitled to collect interest from the employer on a debit correction in an earlier month and must pay the employer interest on a credit correction.
At the time of writing this workbook (early September 2023), the PAGSA and SARS were in discussion on the difficulties and the pros and cons of whether or not to apply monthly accrual principles to the administration of monthly retrospective corrections.
7.5 Vision 2024 – Next Steps
Before payroll suppliers (and SARS) can even start thinking about making changes to their systems to implement the submission of tax certificates on a monthly basis, there must be a Monthly BRS in place that specifies the new requirements, fields, validation rules, etc.
SARS Monthly PAYE BRS – Technical specification of Monthly Tax Certificates
Towards the end of 2022 and during 2023, SARS and the PAGSA (as well as other bulk producers of tax certificates such as BASA (the banking institutions) and ASISA (the retirement funds)), have spent a lot of time discussing the monthly PAYE BRS that specifies the technical requirements for monthly tax certificate creation and submissions.
This monthly BRS will be used by both SARS to inform the changes to their tax certificate systems (e@syFile, eFiling, Connect Direct, and the online system used in the SARS branches) and also by PAGSA payroll supplier members for the changes to their payroll systems.
The move from the current bi-annual tax certificate submission process to a monthly tax certificate submission process does not appear to be a difficult one, but I can assure you that this is not an easy matter.
Besides the employer and employee demographic and financial fields (the majority of which remain the same as in the current annual BRS), additional fields have been added.
There are significant changes to the File Structure as well as to the various record types.
Other important areas of administration that are still under discussion are the channels of submission, the reporting of corrections, and the EMP201 declaration and payment process.
It is anticipated that a ‘near-final’ Monthly PAYE BRS will be put into the public domain ‘fairly soon’.
Further Discussions
The following aspects of the monthly tax certificate submission process are still under discussion:
1. Monthly accrual
2. Monthly corrections, including interest being raised
3. ETV (Employment Tax Validation)
4. Period available in which monthly submissions must be made
5. Payment of the employer’s liabilities
6. Reconciliation requirements
7. ‘Big bang’ approach, or parallel submission options?
8. Submission channel options, including API submissions.
‘Heads-up’ for Payroll Suppliers
It goes without saying that payroll suppliers will have to schedule as much time as possible, and as many resources as possible, for the design and programming of the changes that will have to be made to payroll systems to cater for monthly tax certificates.
The same applies to SARS for the SARS systems that process tax certificate submissions that must be changed.
At a stage, and probably for a fairly lengthy period of time, SARS and PAGSA members must schedule extensive time to test the compatibility of the SARS and PAGSA payroll systems.
This was put into writing in PAGSA Newsflash 2023-17 that was issued to PAGSA members in May 2023 to warn them that they will be required to make significant changes to their payroll systems to accommodate the monthly tax certificate requirements, and that quality assurance testing between the SARS systems and the payroll systems of the country is likely to be a lengthy process.
Payroll suppliers were advised to make time available in their development schedules to provide for the development and testing of the new requirements.
As with all major IT system upgrades, it is likely that this process could take some time before it is running smoothly.
Communication
At the time of finalising this workbook (early September 2023), this very beneficial but equally complex project is not yet in the public domain and as the PAGSA we are not yet allowed to communicate the detail of the project.
However, I am hopeful that we will be able to do so within a few months, and I feel confident that we will be able to provide detailed information to employers to help their planning in the Annual Payroll Tax Update webinars in March 2024, if not before.
As far as the technical specifications are concerned, this is a different matter.
The PAGSA will communicate the technical requirements of the new system to payroll suppliers as soon as possible (when the Monthly BRS is finalised) to enable them to make the necessary changes to their payroll systems and will also explain the impact on payroll administration to employers.