Chapter 6. Tax Certificates
6.1 Introduction to Tax Certificate Submissions and Reconciliations
The SARS PAYE Business Requirements Specification
The SARS PAYE BRS (Business Requirements Specification) is a lengthy technical document (about 135 pages and growing year by year) and is not recommended bedtime reading …
It is the result of an ongoing collaboration between SARS and the PAGSA (Payroll Authors Group of South Africa) that started in 1998 when SARS scrapped the continuous 3-part paper tax certificates of the eighties and early nineties (who remembers those nightmares days of printing tax certificates on 3-part continuous paper in a dot-matrix printer …?), and replaced them with the code-driven tax certificate reporting system that we are still using.
The SARS PAYE BRS is an essential document for the PAGSA payroll systems and the SARS systems.
It is a technical specification of the tax certificate requirements that is jointly used by both payroll suppliers and SARS so that the ‘hand shaking’ works smoothly between the download of the tax certificate file out of the payroll systems of PAGSA members and the upload of that file using one of the available submission channels (see below).
The PAYE BRS specifies the technical details of, and the validation rules for, each and every employer and employee data field that must be reported on tax certificates.
To be compliant, payrolls must obey these rules when creating the tax certificate file from the employee data held in the payroll’s database.
SARS would like to issue only one major release of the PAYE BRS at the start of each new tax year in the hope that it will remain valid for the whole of that tax year with only minor releases in between.
However, there are generally two major releases each year, indicated by an increase to the first two digits of the BRS version number.
The tax certificate reporting codes and the validation rules are changed, added to, and sometimes frozen from year-to-year to align the tax certificate reporting requirements to the latest legislation changes.
Submission channels
At this point in time, tax certificates and the EMP501 reconciliation can be submitted using any one of the following channels:
• Employers with up to 50 tax certificates can use either SARS eFiling or SARS e@syFile.
• Employers with more than 50 tax certificates must use SARS e@syFile.
• Employers with a maximum of 5 x tax certificates can still go to a SARS branch where an agent will help them capture the tax certificates and the EMP501.
• Employers with many thousands of employees can use the ‘Connect Direct’ submission channel that caters for high volumes (at a price).
Tax Certificate Testing – PAGSA Members and SARS
Every year, SARS makes a testing platform available to the PAGSA payroll supplier members that develop, install, and support computerised payroll systems in South Africa to test the ’handshaking’ between the tax certificate files that payroll systems create, and the validation checks implemented in the SARS systems.
The ‘ham in the sandwich’ between the systems of payroll suppliers and the SARS systems is the SARS PAYE BRS that species the rules for every data item that can be reported on tax certificates.
The testing platform remains open until SARS (and payrolls) are satisfied that their systems are functioning correctly.
Employers Filing Season
The Interim (or mid-year) tax certificate filing season for employers is September and October, following directly after the closing of the first 6-month tax certificate cycle on 31 August of each year.
The Final (or tax year-end) tax certificate filing season for employers is April and May, giving employers a one-month gap between the closing of the second 6-month tax certificate cycle on 28 February and the opening of the filing season on 1 April to allow them time to make tax year-end corrections and adjustments.
[Rob: This administration nightmare has largely fallen away since the introduction of section 7B (Variable Remuneration) to the Income Tax Act effective from 1 March 2013]
It sometimes happens that SARS delays the opening date of the filing season by a week or two due to ongoing testing between the systems of the payroll supplier members of the PAGSA and SARS, and then issues a notice to that effect.
The closing date filing season for employers is always 31 Oct for the first 6-month tax certificate cycle, and 31 May for the second 6-month cycle.
Submissions received after the closing date will be subject to penalties and interest.
Tax certificate Submissions before the Opening Date
Some employers, perhaps not aware of the opening date, would like to submit their tax certificates before the start of the employers filing season. This is definitely not a recommended practice.
The version of SARS e@syFile and SARS eFiling systems that will be in operation before the opening date will be a version that will probably not include the changes specified in the latest SARS PAYE BRS. It is also possible that the latest software is not yet available from your payroll supplier when an early submission is made.
I belong to the cautious school as far as computerised systems are concerned, and if possible, I prefer to wait long enough for any teething problems to be sorted out (about 5 weeks into the employer filing season) and then submit.
Tax certificate Submissions after the Closing Date
Don’t leave it until too late in the closing month. Submissions received after the closing date will be subject to penalties and interest (see details in a section below). And offering loadshedding or Wifi problems as an excuse for late submission definitely won’t cut it … 
6.2 2023 Interim Tax Certificate Submissions
PAYE BRS Releases
After discussions between SARS and the PAGSA in the first quarter of 2023 to incorporate the legislation changes that came into effect from 1 March 2023, SARS have issued:
1. PAYE BRS version 22.0.0 in February 2023
2. PAYE BRS version 22.1.0 in March 2023
3. PAYE BRS version 22.1.1 in May 2023, and
4. PAYE BRS version 22.1.2 on 4 August 2023.
BRS version 22.1.2 is now in effect until replaced by an updated version, and includes the changes:
1. That were necessary for the 2022/23 Tax year end tax certificate submissions in April and May 2023 in respect of the 12-month reporting period 1 March 2022 to 28 February 2023
2. That are now necessary for the 2023/24 Interim tax certificate submissions in September and October 2023 in respect of the 6-month reporting period 1 March 2023 to 31 August 2023.
SARS live in hope that the latest BRS version 22.1.2 does not have to be changed between now and the February 2024 final submissions for the 2023/24 tax year, but this hope seldom materialises – employment taxes are simply too dynamic, and the requirements can change from month to month.
Important Dates for the 2023 Interim Tax Certificate Submissions
Tax Certificate Testing – PAGSA Members and SARS
SARS provides a testing platform for the PAGSA payroll supplier members so that the tax certificate files that payrolls produce in respect of the 6-month period from 1 March 2023 to 31 August 2023 can be tested against the SARS e@syFile and eFiling systems to ensure that the live submissions in September and October are trouble free.
Testing between SARS and payroll suppliers started on 15 August 2023, and should close on 6 September 2023, depending on whether or not any unexpected problems are discovered during the testing period.
Employers Filing Season
It has been confirmed that the employer’s filing season during which tax certificates for all employees in respect of the 6-month period from 1 March 2023 until 31 August 2023 must be submitted and reconciled, will open on 18 September 2023, and close at midnight on 31 October 2023.
6.3 Tax Certificate Changes – SARS PAYE BRS version 22.1.2
There are a number of cosmetic changes to the BRS that are not important for this workbook.
The validation rules for the tax Directive fields that the payroll must comply with have been changed, but the changes are too difficult to explain here, and one must rely on the payroll supplier to make these changes correctly within their payroll system.
Changes that are relevant for the workbook have been made to the following codes.
Code 3903 – Pension / RAF (PAYE)
The code provides for lump-sum payments accruing prior to 1 October 2007 from a Pension or a Retirement annuity fund in respect of retirement or death, and the change is simply that this code is not applicable from the 2009 tax year.
This change will affect retirement funds that make these payments.
Code 3905 – Provident fund (PAYE)
The code provides for lump-sum payments accruing prior to 1 October 2007 from a Provident fund in respect of retirement or death, and the change is simply that this code is not applicable from the 2009 tax year.
This change will affect retirement funds that make these payments.
This change mirrors the Code 3903 change, except that it applies to Provident funds.
Code 4150 – Reason code for IT3(a)
The value reported under code 4150 on an IT3(a) tax certificate indicates the reason for the non-deduction of tax and can only be one of the following values depending on the rules listed against each value:
• 01 or 1 = Director’s remuneration prior to 2003 year of assessment (Invalid from 1 March 2002)
• 02 or 2 = Earn less than the tax threshold
• 03 or 3 = Independent contractor or Directors fees for RSA resident NED (valid from 1 March 2017)
• 04 or 4 = Non-taxable earnings, including –
o nil directives and
o income protection annuities from 1 March 2015 (see notes under code 3602)
• 05 or 5 = Exempt foreign employment income
• 06 or 6 = Director’s remuneration – income quantified in the following year of assessment (valid from 1 March 2002)
• 07 or 7 = Labour Broker with valid IRP 30 (valid from 1 March 2004)
• 08 or 8 = No Tax to be withheld due to Medical Scheme Fees Tax Credit allowed (valid from 1 March 2014) and/or Additional Medical Expenses Tax Credit if employee ≥65 allowed (valid from 1 March 2016)
• 09 or 9 = Par 11A(5) Fourth Schedule notification – No withholding possible (valid from 1 March 2013).
Since the start of the year, the validation rules for code 4150 have been changed several times across the various releases of versions of the PAYE BRS and have culminated in the following final changes listed in BRS version 22.1.2.
• Value 2 or 02: The validation rule has been removed i.e., this value is not validated
• Value 4 or 04 is valid if transaction year is < 2024 This means that value 4 or 04 is allowed for tax years up to 2023 but is not allowed for tax years from 2023/24 and future years unless the condition set out in the following bullet is met. • Value 4 or 04 is only valid from transaction years >= 2024 if directive information has been completed or if (the value of source code 3696 is greater than zero and the value of 3699 is zero)
o Source code 3696 (Non-taxable Income) is the sum total of all income amounts that are non-taxable.
o Source code 3699 (Gross Employment Income – taxable) is the sum total of all amounts for all income source codes that are NOT included in code 3696.
6.4 Tax Certificates – General Matters of Interest
Third Party Submission of Individual data
Employers have been submitting the financial information of their employees to SARS in tax certificates in various ways for decades.
In recent years, retirement funds, medical schemes, and banks have been required to submit relevant financial details of individuals. This project has been very successful, and SARS continue to make changes to improve the quantity and quality of the financial information that they receive from external third-party organisations.
From this year, Public Benefit Organisations (PBOs) must submit IT3(d) files for the first time (see Government Gazette 48867 issued on 30 June 2023).
Receiving financial data from third-party organisations puts SARS in a position to be able to cross-check and validate the financial data submitted from different sources for the same taxpayer.
Employment Taxes Validation (ETV)
During the employers filing season for the tax year end (April and May), SARS uses the relevant demographic and financial data on the tax certificates to calculate PAYE and SDL and to then check their calculated amounts against the PAYE and SDL totals that are calculated by payrolls using the same data and reported on the tax certificate.
The total UIF contribution is not checked because payrolls calculate the contribution per month on UIF-defined remuneration up to the monthly contribution limit (R 17 712 pm from 1 June 2021), and monthly remuneration totals are not available to SARS on the current year-to-date tax certificates.
After excluding certain categories of employee tax certificates from the validations, and allowing for a small margin of error, any differences are then reported to the employer by SARS using the same submission channel that the employer used to submit the tax certificates to SARS.
The employment taxes are not checked by SARS during the Interim employers filing season (September to October) because there is not enough information on the tax certificate to allow SARS to ‘annualise’ remuneration for the PAYE calculation in the same way as what payrolls do.
SARS new USSD service for Individuals
SARS has announced that they have developed new USSD technology to assist individual taxpayers to become, and to remain, tax compliant.
The options available for individual taxpayers using this technology are—
• Check their income tax reference numbers
• Obtain their SARS account balances
• Check whether or not a tax return must be submitted
• Make an e-Booking to visit a SARS branch.
At this early stage, it also appears that an employee will be able to use this new technology to apply for an income tax reference number which will assist employers to be compliant by reporting income tax reference numbers for all of their employees on tax certificates.
The reason for introducing this channel is that there are many taxpayers who do not have access to eFiling, the SARS MobiApp, or own a smart phone.
The USSD service is free for taxpayers to use, and it doesn’t need access to any data.
In case you are wondering (as I did) what USSD is, it stands for Unstructured Supplementary Service Data. It works similarly to a text message and establishes real-time communication between a cell phone and a server.
A user with a phone that has limited storage will be able to use this service.
Penalties for Tax Certificate and EMP501 Non-compliance
Lastly, the ‘big stick’ …
If an employer submits the EMP501 late, administrative penalties will be charged that will be equal to 1% of the year’s PAYE liability.
The percentage will increase each month by 1% up to 10% of the year’s PAYE liability.
Furthermore, an employer who wilfully or negligently fails to submit an EMP201 or EMP501 return to SARS is guilty of an offence and is liable, upon conviction, to a fine or imprisonment for a period of up to two years.
What constitutes a criminal offence?
Employers are guilty of an offence and will be subjected to a fine or imprisonment for a period of up to two years where they amongst other offences, fail to:
• Deduct employees’ tax from remuneration or pay tax to SARS within the prescribed period.
• Deliver IRP5 and/or IT3(a) to employees or former employees within the prescribed periods.
• Use employees’ tax deducted or withhold for purposes other than the payment of such amount to SARS.
• Apply for registration as an employer.
Employers are advised to always check the status of their tax certificate submissions to ensure that their EMP501 was correctly filed at SARS.

Chapter 5. The Proposed ‘Two‐pot’ Retirement system
The ‘Two-pot’ retirement system proposed in the 2022 Budget Review is a very necessary component of the retirement reforms that were initially introduced from 1 March 2016 with the standardisation of the taxation rules, and that were then taken a step further from 1 March 2021 with the harmonisation of the annuitisation of provident fund pay-outs.
The discussion that follows in this chapter of the workbook makes use of the following terminology:
• “Retirement Fund” is a generic term for Pension, Provident and Retirement Annuity Funds
• “Retirement Interest” (‘RI’) is the accumulated value of all contributions made to the fund plus investment growth and less administration expenses
• “Vested Right” is the right, usually created by legislation, to expect a certain outcome.
5.1 Background to Retirement Reforms
Post-retirement Preservation
Retirement Reforms have been in the spotlight for many years, going as far back as the Michael Katz Commission investigations at the start of the century (millennium  ).
Extensively researched, widely canvassed and in my opinion, handled with admirable transparency by National Treasury, these reforms will improve the quality of life of South African citizens in their later years.
This research resulted in the implementation of the following aspects of the retirement reform process:
1. From 1 March 2016:
The harmonisation of the tax calculation rules for contributions to retirement funds, and an improved tax deduction principle to encourage individuals to join a retirement fund and save for their retirement.
2. From 1 March 2021:
The preservation of the Provident fund retirement interest at retirement by annuitising (i.e., paying monthly annuity payments) what was previously a single lumpsum pay-out.
One of the planned reforms that has not yet been implemented is pre-retirement preservation.
Pre-retirement Preservation
Retirement fund members can currently access their pension or provident fund retirement benefit in full when they cease employment, and they also have a once-off option to withdraw any amount out of their pension preservation funds or provident preservation funds.
Information from retirement fund administrators and SARS indicates that early withdrawals of the retirement interest are taking place (sometimes by resigning from employment), despite the high tax rates that are applied.
The discussion paper entitled Preservation, portability and governance for retirement funds which was published on 21 September 2012, and the paper entitled 2013 Retirement reform proposals for further consultation which was published on 27 February 2013, both included options to increase the level of pre-retirement preservation.
This background brings us to the 2022 Budget proposals and the introduction of draft legislation during 2022 to provide for pre-retirement preservation.
5.2 Two-pot Retirement System – 2022 Draft Amendments
2022 Budget Proposal
The discussion paper entitled ‘Encouraging South African Households to Save More for Retirement’ was published in December 2021.
It outlines a set of reforms to enable pre‐retirement access to a portion of one’s retirement assets – while ensuring that the remainder is preserved for retirement. Public comments on the tax treatment of contributions to the two pots are being reviewed in preparation for public workshops, to be followed by legislative amendments.
Media Statement 29 July 2022
The 2022 Draft Revenue Laws Amendment Bill issued on 29 July 2022 contains key amendments on retirement reform to move towards a “two-pot” retirement system. The intention of the amendments is to enable South Africans to save for non-retirement purposes (e.g. emergencies) via their retirement funds, whilst preserving more of their savings for retirement.
These amendments aim to encourage members to preserve their retirement savings by making it more flexible to accommodate unforeseen pressures that members face during the span of their working life. It makes it possible for workers not to resign from their employment merely to access their retirement funds and would have assisted members during a crisis like the COVID-19 pandemic, when many employees faced reduced salaries or were not paid at all during that time.
The amendments are technically complex [Rob: You can say that again], as they attempt to fit a pre-retirement withdrawal scheme into an existing retirement savings vehicle primarily designed to cater for long term savings.
Explanatory Memorandum 29 July 2022 – Reasons for change
There are two primary concerns with the current design of the retirement system.
1. The lack of preservation of retirement savings before retirement.
For pension funds and provident funds, this access to retirement savings is dependent on an employee terminating employment. Individuals can then access their funds, in full, when changing or leaving a job.
2. Some households in financial distress have assets within their retirement fund(s) that are not accessible, even in case of emergencies. This worsened during and after the COVID-19 pandemic, with numerous calls for financially distressed individuals to be given immediate access to their retirement funds to alleviate financial hardship.
On 15 December 2021, Government published a discussion document entitled Encouraging South Africans to save more for retirement, which proposed a new retirement fund regime that aims to address both concerns – this in the form of a so-called “Two-pot” retirement savings system.
Individuals can contribute to a “savings pot” which is accessible (without resigning from their job), and a “retirement pot” which must be preserved until retirement (or death).
The aim is to have a system that will allow resources to be available when needed, but that will increase the level of savings that are dedicated to retirement.
The new two-pot system seeks to retain the principle of exempting contributions and exempting growth, while taxing withdrawals and benefits (EET).
The tax treatment for withdrawals will be amended, as the value of any withdrawals from the “savings pot” and annuity income from the “retirement pot” will be included in that year’s taxable income.
2022 Overview of the Two-pot Retirement System
In line with the details included in the discussion document, government proposes the following changes in principle to the main areas of retirement administration to enable the new ‘two pot’ system:
Funds
The creation of “retirement pots” and “savings pots” into which the retirement contributions of members are paid is necessary. These ‘pots’ (or accounts) are housed within the current types of retirement funds (a pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund).
All prior contributions and growth (i.e. retirement interest) will have to be valued at the date immediately prior to implementation, to enable vesting of rights at that point in time (referred to as the “vested pot”).
The “retirement pot” and “savings pot” will then be accumulated from 1 March 2023 (the first proposed effective date), which means that there is no seeding finance into either of these two pots.
Contributions
This is where the rubber hit the road for payrolls and for employer administration.
As proposed in 2002, a maximum of one-third of the member’s total contribution can go to the “savings pot”, with the remaining amount going to the “retirement pot”, but individual members were allowed to vary the contribution split (subject to meeting the one-third and two-thirds contribution maximums and minimums).
Members of retirement funds will continue to receive a deduction on contributions up to the lesser of 27.5% of gross remuneration or R350,000 per tax year.
Investment growth within the “retirement pot” and the “savings pot” will follow the same tax treatment as other retirement funds (i.e. tax is deferred until it is withdrawn or paid out as annuity benefits).
Withdrawals
Amounts contributed to the “retirement pot” cannot be accessed before retirement. At retirement date, the total value must be paid in the form of an annuity.
Amounts contributed to the “savings pot” can be accessed at any stage but only one withdrawal can be made during any twelve-month period, with a minimum withdrawal amount of R2 000.
Withdrawals from the “savings pot” will be added directly to normal taxable income in the year of withdrawal.
Permissible withdrawals from the “vested pot” will be taxed according to the respective withdrawal tables.
Any funds available in the “savings pot” at retirement or death can either be withdrawn in full or transferred to the “retirement pot”.
Where the member opts to withdraw funds from the “savings pot” as a lumpsum on retirement, the available balance will be taxable as a retirement lumpsum benefit subject to the retirement lumpsum table.
This could result in a tax-free withdrawal of up to R500 000 (R550 000 from 1 March 2023) upon retirement.
Vested rights
The current provisions for contributions to pension funds, provident funds, pension preservation funds, provident preservation funds and retirement annuity funds will continue to apply for contributions and accumulated interest before the first proposed implementation date (1 March 2023) therefore vesting is allowed up to 28 February 2023, together with the associated growth of that total.
As such, individuals who resign from their employment will be able to access the value of their pension fund or provident fund as at 1 March 2023, plus any growth on that amount. Members of preservation funds will still be able to utilise their once-off withdrawal on amounts (and growth) within those funds.
PAGSA comments on the 2022 draft Bill
At a very early stage of the introduction of the ‘two-pot’ system on the 29 August 2022, the PAGSA submitted comments to National Treasury and SARS expressing our concerns from a payroll processing perspective on the administration in payrolls of the draft requirements as proposed.
Problem Statement – Allocation of the Excess of the total Contribution to the ‘Retirement pot’
The member of the fund can decide on the proportion of his or her total monthly contribution that must be allocated to the retirement and to the savings pot, subject to a maximum of one-third of the total contribution going to the “savings pot” and the remaining amount going to the “retirement pot”.
These ratios will vary per employee, and employees can change them at any stage during the tax year.
Queries:
1. In future, must payrolls report the “savings pot” portion of the total contribution separately from the “retirement pot” portion on the tax certificate?
2. How must the contributions be reported if the employee is a member of more than one retirement fund?
3. Will there be separate tax certificate codes for contributions to the ‘savings pot’ and the ‘retirement pot’ for provident, pension, and retirement annuity funds, and for both the employee and employer?
Problem Statement – Allocation of the Excess of the total contribution to the ‘Retirement pot’
Employees can be members of more than one retirement fund (eg. a Provident fund and a Retirement Annuity fund) and both funds are processed in the payroll.
Our understanding is that the total contribution to these funds will be subject to the tax deduction limits of section 11F (the lesser of 27.5% of gross remuneration or R350,000 per tax year) for PAYE calculation purposes, and that any excess contribution above the deduction limit must be allocated to the “retirement pot” and not to the “savings pot”.
In this example, both the Provident fund and the Retirement Annuity fund have a “retirement pot”. It is not possible for the payroll to do an allocation of the excess contribution to the “retirement pots” of the two funds. The question is then:
• What must the payroll do – simply report the total excess contribution on the tax certificate?
• How will the two funds allocate the excess contribution amount between them?
Problem Statement – ‘Savings Withdrawal Benefit’ included in Remuneration definition
The ‘Savings Withdrawal Benefit’ is defined as gross income in a new subsection (eD). Is the intention that it should be included in the Fourth Schedule definition of remuneration?
If included in remuneration, we assume that funds will have to apply for a directive, requiring a change to Fourth Schedule paragraph 9(3) and once in effect, a new tax certificate code.
Problem Statement – Effective date
In our opinion, the complexity of the changes and the potential for ‘unintended consequences’ indicates that it would be advisable to postpone the proposed effective date of 1 March 2023 for at least one year.
PAGSA COMMENTS END
Effective date Postponed from 1 March 2023 to 1 March 2024
It is important to mention that the retirement funds will take the brunt of these changes, and they submitted a steady stream of comments to Treasury and SARS during 2022.
These comments no doubt led to the decision to postpone the Two-pot retirement system until 1 March 2024.
5.3 Two-pot Retirement System – 2023 Draft Amendments
The draft amendments that introduced the ‘Two-pot’ retirement system in 2022 were complex and fraught with potential ‘unintended consequences’.
It was therefore not a surprise that the 2023 Budget Review announced that there would be changes to the 2022 proposals that would be rolled out during 2023, and that the effective date of their introduction has been postponed from 1 March 2023 until 1 March 2024.
2023 Budget Proposal
The postponement was confirmed, and the process of making substantial changes to the 2022 draft amendments began with a proposal on page 50 of Chapter 4 of the 2023 Budget, that stated as follows.
Following extensive public consultation, the first phase of legislative amendments to the retirement system is due to take effect on 1 March 2024.
The intent of these amendments is to enable pre-retirement access to a portion of one’s retirement assets, while preserving the remainder for retirement.
Retirement fund contributions will remain deductible up to R350 000 per year or 27.5 per cent of taxable income per year – whichever is lower.
Permissible withdrawals from funds accrued before 1 March 2024 will be taxed according to the lump sum tables.
Withdrawals from the “savings pot” before retirement will be taxed at marginal rates.
On retirement, any remaining amounts in the savings pot will be taxed according to the retirement lump sum table (for example, R550 000 is a tax-free lump sum on retirement).
Four areas required additional work:
1. A proposal for seed capital,
2. Legislative mechanisms to include defined benefit funds in an equitable manner,
3. Legacy retirement annuity funds
4. Withdrawals from the retirement portion if one is retrenched and has no alternative source of income.
The first three matters will be clarified in forthcoming draft legislation.
The final matter will be reviewed as a second phase of implementation.
2023 NT Media statement
The revised 2023 Draft Revenue Laws Amendment Bill and 2023 Draft Revenue Administration and Pension Laws Amendment Bill were published on 9 June 2023 for public comment.
These draft bills provide the necessary legislative amendments required to:
1. Implement the first phase (pre-retirement preservation) of the “two-pot” retirement system
2. Take into account public comments received on the 2022 Draft Revenue Laws Amendment Bill published on 29 July 2022
3. Change the word “pot” to the word “component” in the bills to be introduced formally by the Minister in Parliament (the word “pot” is still used in the colloquial form to describe the reform itself).
Legislative amendments dealing with withdrawals from the retirement component if a member of the retirement fund is retrenched and has no alternative source of income will be considered in the second phase of the implementation of the “two-pot” retirement system.
Further complementary measures may also be considered in the second phase, to ensure that the primary objectives for saving for retirement is not compromised, and to protect the liquidity of such funds at all stages.
Members of funds should be encouraged to only exercise the withdrawal option as a last resort, and to try and preserve their savings for retirement for when they retire.
2023 Draft Revenue Laws Amendment Bill and Explanatory Memorandum and Proposed Amendments
Proposals
Substantial changes were made to the definitions of each type of the retirement funds, but these are outside the scope of this workbook. The detail of some of the new definitions will only be discussed in this workbook to clarify some of the important proposals that affects employers and payrolls.
The following 3 components within the retirement funds as well as the introduction of the definitions in Section 1 of the Income Tax Act are proposed. Retirement funds will on or after 1 March 2024, be required to create these components for each member, which will be housed within the currently available retirement fund. I
Savings Component
One-third of a member’s total retirement fund contributions from 1 March 2024 will be allocated to the “savings component”. The funds in the “savings component” will be available for withdrawal before retirement without the member having to cease employment.
A member will be allowed to make a single withdrawal (“savings withdrawal benefit”) within a year of assessment.
The minimum withdrawal amount is R2 000 (there is however no limit on the maximum amount a member can withdraw). If a member resigns and has already made use of their single withdrawal, an additional withdrawal will be allowed provided the member’s gross interest in their “savings component” is less than R2 000.
Withdrawal from the “savings component” will be applicable on a per fund or per contract basis.
Withdrawals from the “savings component” will be added to the individual’s taxable income and will be taxed at their marginal rate. If a member dies, their beneficiary can opt to receive the benefit in the “savings component” as either a lumpsum, or they can transfer it to their “retirement component” and receive an annuity.
Retirement Component
Two-thirds of a member’s total retirement fund contributions from 1 March 2024 will be allocated to the “retirement component”. These two-thirds contributions to the “retirement component” will be preserved until retirement (i.e. withdrawals from this component will be triggered by the member reaching normal retirement age per the fund rules – or death).
Amounts contributed to the “retirement component” are only accessible upon retirement.
Once a member has reached retirement age, the “retirement component” is to be paid in the form of an annuity (including living annuities). The current de-minimis as relates to the commutation of annuities (currently R165 000) will apply to annuities from this component. The ability to commute an annuity will be determined with reference to the member’s interests in their “vested component” and “retirement component” and will be determined on a per fund basis.
The current provisions relating to the payments of benefits to beneficiaries of deceased members will apply to payments from the “retirement component” (i.e., the beneficiary will continue to receive an annuity).
Withdrawals from the “retirement component” are accessible as a lump sum when an individual emigrates from South Africa and ceases to be a tax resident. The payment of the said lump sums is however subject to the 3-year rule that under the current regime applies to members of a retirement annuity fund, pension preservation fund or provident preservation fund.
Vested Component
Retirement funds will be required to value a member’s retirement interest on the date immediately prior to the proposed implementation date(1 March 2024), as these amounts will be subject to the current retirement regime (i.e. vested and non-vested rights arising as a result of the annuitisation reform which came into effect from 1 March 2021 will be retained).
Vested rights as relates to the “vested component” and the rules that apply thereto under the current regime will continue to apply after the implementation of the “two-pots” regime.
Members will no longer be able to make contributions to their “vested component” from 1 March 2024. This will however not apply to members of a provident fund who were 55 years or older on 1 March 2021.
These members have the ability to continue making contributions into their “vested component” until they either retire from or leave the fund they were a member of on 1 March 2021. Should they choose to keep contributing to their “vested component” their full contribution will be allocated to the “vested component”. Continued contribution to their “vested component” means they will not be able to contribute to the “savings component” and “retirement component”.
Provident fund members who were 55 years and older on 1 March 2021 are however not precluded from participation in the “two-pots” regime.
Should they wish to participate in the new regime they will no longer be able to continue contributing to their “vested component” (i.e. their contributions will be split between the “savings component” and “retirement component” as is applicable to other retirement fund members).
Amounts contained in the “vested component” will be subject to the current retirement regime.
This includes the ability to make once-of withdrawals from preservation funds, the ability to access pension and provident funds upon resignation, the continued protection of vested rights arising as a result of the annuitisation reform, and the mandatory annuitisation of two-thirds of a members retirement interest with effect from 1 March 2021.
Withdrawals from the “vested component” are accessible as a lump sum when an individual emigrates from South Africa and ceases to be a tax resident.
The payment of the said lump sums is however subject to the 3-year rule that under the current regime applies to members of a retirement annuity fund, pension preservation fund or provident preservation fund.
Other important proposals include the following:
Savings Withdrawal Benefit
The withdrawal from the “savings component” by a member of retirement fund is defined as a “savings withdrawal benefit. A “saving withdrawal benefit” will be available before retirement and without termination of the membership of the fund, subject to the following limitations:
• The member’s right is limited to one withdrawal during a year of assessment;
• Where a member has multiple contracts in the same fund, the member may be allowed one withdrawal during a year of assessment from each of the contracts;
• The minimum value of each withdrawal before taking into account any charges or transaction costs is R2 000.
• A 2nd “savings withdrawal benefit” is allowable when a member resigns from employment within any year of assessment a withdrawal was already made and the total balance the members interest in the savings component is less than R2 000.
The creation of “Seed capital”
It is proposed that ‘seed capital’ is transferred from the “vested component” into the “savings component” as a starting balance in the “savings component” on 1 March 2024. This balance should be available to the member of the retirement fund for withdrawal on implementation date of the “two-pots” retirement system as a “savings withdrawal benefit”.
In order to limit the adverse implication on liquidity, it is proposed that seed capital should be calculated as 10% of the “vested component”, limited to R25 000 (whichever is the lesser).
The provision for seed capital is included in the definition of “savings component” in section 1 of the Act.
Legacy Retirement Annuity Funds
In is proposed that legacy retirement annuity fund be excluded from the provisions of the “two-pot” retirement system, as the inclusion of the legacy retirement annuity fund policies in the “two-pot” retirement system would require a re-design of these historically acquired legacy retirement annuity fund policies.
Effective date: Proposed to be 1 March 2024

2023 – PAGSA comments on the 2023 draft Bill
On 15 July 2023, the PAGSA submitted the following comments on the Draft Revenue Laws Amendment Bill to National Treasury and SARS.
COMMENTS BEGIN
From the perspective of payroll suppliers and employers, we welcome the simplification in the 2023 draft Revenue Laws Amendment Act of the requirements compared to the original requirements that were proposed in the 2022 draft legislation.
Gross Income: Addition of ‘‘(eD) a “savings withdrawal benefit” other than any amount included under paragraph (a), (e) or (eA);”
The savings withdrawal benefit defined in (eD) of gross income has been added to the Fourth Schedule definition of “remuneration” in paragraph (a) as follows:
‘‘(a) any amount referred to in paragraph (a), (c), (cA), (cB), (d), (e), (eA), (eD) or (f) of the definition of ‘gross income’ in section 1 of this Act;’’.
In line with the principles of the exclusions, we suggest that consideration is given to excluding (eD) from the definitions of remuneration in the following three Acts:
1. Compensation for Occupational Injuries and Diseases Amendment Act, 2022
[Issued in Government Gazette 48431 on 17 April 2023]:

The amended definition is included below:
(g) by the substitution for the definition of ‘‘earnings’’ of the following definition: ‘‘‘earnings’ means the remuneration … as defined in paragraph 1 of the Fourth Schedule to the Income Tax Act, 1962 (Act No. 58 of 1962), but does not include any amount paid or payable to an employee—
(a) by way of any pension, superannuation, allowance or retiring allowance; and
(b) which constitutes an amount contemplated in paragraphs (a), (cA), (d), (e) or (eA) of the definition of ‘gross income’ in section 1 of the Income Tax Act, 1962;’’;

Note: An effective date has not yet been Gazetted for the CF Amendment Act but it is expected “shortly”.

2. Skills Development Levies Act section 3(4)(c):
(c) contemplated in paragraph (a), (d), (e) or (eA) of the definition of “gross income” in section 1 of the Income Tax Act;
3. Unemployment Insurance Contributions Act definition of remuneration:
“which constitutes an amount contemplated in paragraphs (a), (cA), (d), (e) or (eA) of the definition of “gross income” in section 1 of the Income Tax Act; or”;

Payrolls to ‘split’ the one-third/two-third of the total contribution to a Retirement Fund?
If payroll systems are expected to administer ‘split’ contributions to retirement funds it will give rise to problems.
However, our understanding is that payrolls will continue to process the total contribution to a retirement fund and tax these contributions as is currently done, and that payrolls are not expected to ‘split’ the total contribution into one-third/two-third components.
If this is the case, we do not anticipate any problems.
I trust that these comments will be of help to you.
PAGSA COMMENTS END
2023 Summary of the Two-pot Rules
The following summarises the points of the 2023 Explanatory Memorandum that accompanies the draft Amendments.
Contributions
1. All prior contributions and growth (hereinafter ‘the vested pot’), will be valued up to 28 February 2024 and continue to operate under the existing rules as at that date. Permissible withdrawals from the ‘vested pot’ will therefore be taxed according to the lump sum withdrawal tables.
2. No further contributions can be made to the ‘vested pot’ from pension funds, provident funds, or retirement annuity funds, except for members of provident funds who were 55 years or older on 1 March 2021, as they are able to contribute to those funds until they either leave the fund or retire.
3. As from 1 March 2024, contributions will be split by the retirement fund into two pots, two-thirds into the ‘retirement pot’, and one-third into the ‘savings pot’. These are fixed percentages – thankfully the employee has no choice in the matter (as was proposed in 2022 which would have been a nightmare).
4. The two pots will be housed in the current types of available retirement funds, be it a pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund.
Withdrawals
5. Amounts contributed to the ‘retirement pot’ cannot be accessed before retirement. At retirement date, the total value must be paid in the form of an annuity (including a living annuity). The current minimum amount for purchasing an annuity (de minimus of R165 000) will apply to the ‘retirement pot’. It appears that the one-third lump sum / two-third annuity pay-out rules might have been replaced by one-third of the total contribution being allocated to the savings pot, which can be paid out as a cash lump sum, but there is also reference to the ability to “commute” an annuity, so the position is not clear.
6. Amounts contributed to the ‘savings pot’ can be accessed without any conditions, but only one withdrawal can be made during a year of assessment (not every 12 months as was the case with the 2022 proposals). The minimum withdrawal amount is proposed to be R2 000. These withdrawals will be subject to the fund rules allowing them.
7. Any funds available in the ‘savings pot’ at retirement or death can either be withdrawn in full or transferred to the ‘retirement pot’.
8. Where the member opts to withdraw funds from the ‘savings pot’ as a lumpsum on retirement, the available balance will be included in gross income and taxed at the member’s marginal tax rate. This seems unfair – the one-third lump sum is currently taxed using the more beneficial withdrawal tables.
9. Full withdrawals from the retirement, savings and vested pots can take place if an individual ceases to be tax resident for at least 3 years, with the appropriate tax treatment based on the facts and circumstances of the case. In these instances, the ‘vested pot’ will be taxed in accordance with the pre-1 March 2024 tax provisions, the ‘savings pot’ will be included in gross income and taxed at the member’s marginal tax rate, and the ‘retirement pot’ will be taxed using the lumpsum withdrawal tables.
Tax Rules
10. Members of retirement funds will continue to receive a deduction on contributions up to the lesser of 27.5% of gross remuneration or R350 000 per tax year.
11. Investment growth within the ‘retirement pot’ and the ‘savings pot’ will follow the same treatment as other retirement funds (i.e. tax is deferred until it is withdrawn or paid out as annuity benefits).
12. Withdrawals from the ‘savings pot’ (including the ‘seed capital’) will be included in gross income and taxed at the member’s marginal tax rate in the year of withdrawal.
13. Individuals who resign from their employment will be able to access the value of their ‘vested pot’ as established on 28 February 2024, plus any growth on that amount. Members of preservation funds will still be able to utilise their once-off withdrawal on amounts (and growth) within those funds.
14. Intra-fund transfers are allowed at any time the member wishes (tax directive required):
• From his “savings component” to his “retirement component”; and
• From his “vested component” to his “retirement component”.
15. Inter-fund transfers are only permissible when a member resigns or retires from their respective fund and only if all components are transferred to the transferee fund. The below inter-fund transfers will be permissible as tax-free transfers (tax directive required):
• “Saving component” to the transferee fund’s “saving component”
• “Saving component” to the transferee fund’s “retirement component”
• “Vested component” to the transferee fund’s “vested component”
• “Vested component” to the transferee fund’s “retirement component”
• “Retirement component” to the transferee fund’s “retirement component”.
16. Both inter-fund and intra-fund transfers will be subject to the fund obtaining a tax directive.
CAUTION:
The National Treasury workshop to discuss the 2023 public comments will be held on 6 September 2023 (a few days after this workbook was finalised).
The final position will be clarified in revised Bills that will presumably be issued later this year in which case we might still have promulgation early in 2024 and an effective date of 1 March 2024.
2023 Summary of Responsibilities for Two-pot Administration
At this early stage, it appears that the draft Two-pot amendments will result in the following responsibilities.
Two-pot Responsibilities – PAGSA Members (Payroll suppliers)
1. It appears that there are no changes to payroll systems.
2. This is a ‘first’!
Two-pot Responsibilities – Employer
1. Inform employees of their rights and responsibilities regarding the Two-pot retirement system
Two-pot Responsibilities – Employees
1. If an emergency expense arises, request the retirement fund to withdraw and pay a portion of the savings pot balance.
Two-pot Responsibilities – Retirement Fund Responsibilities
1. Create accounts for all members for their vesting, savings and retirement ‘pots’
2. Calculate and allocate the seeding capital into the member’s vested pots
3. Apply the one-third/two-third split of contributions between savings and retirement pots for all members
4. Invest the amounts in the three pots for growth
5. Administer requests for a pay-out from a savings pot
6. Apply for a directive from SARS to tax the pay-out
7. Pay the member.
5.4 Two-pot Retirement System – Next Steps
The following are the next steps that are required to complete the annual legislation amendment cycle.
1. Workshop 6 September 2023:
The PAGSA has been invited to attend the National Treasury and SARS workshop during which the comments on the 2023 Draft Revenue Laws Amendment Bill will be discussed.
As a matter of interest, the agenda for the workshop consists of nearly four pages of bullet points.
2. National Treasury and SARS take away from the workshop the comments that they feel are valid and apply them to the Draft Revenue Laws Amendment Bill to create a Revenue Laws Amendment Bill.

3. The Standing Committee on Finance (a Parliamentary working group) then discuss and check the Revenue Laws Amendment Bill and issue a Final Revenue Laws Amendment Bill.
Usually in October.

4. The Final Revenue Laws Amendment Bill is tabled in the National Assembly and the National Council of Provinces for approval.
Usually in November.
5. The approved Final Revenue Laws Amendment Bill lands on the State President’s desk. Once he signs the final Bill, it is promulgated and will be known as the Revenue Laws Amendment Act. It is then final law and will be put into operation from the effective date stated in the Amendment Act.
Usually in January.
5.5 Two-pot Retirement System – Closing Comments
This well-intentioned legislation will no doubt have a positive result on retirement savings in future years.
At the stage where we are now (September 2023) and thinking of the very long list of points on the agenda for discussion in the workshop of 6 September 2023, in my opinion we might see another postponement from 1 March 2024 to 1 March 2025.
This will bring relief for the system and the infrastructure changes that retirement funds will have to put in place, but on the other hand it might overlap with the roll-out of the Vision 2024 PAYE project.

Chapter 3. Labour Law Amendments
3.1 Employment Equity Amendment Act
Background
The purpose of the Employment Equity Act (EE Act) is to achieve equity in the workplace by promoting equal opportunity and fair treatment in employment through the elimination of unfair discrimination and implementing affirmative action measures to redress the disadvantages in employment experienced by designated groups, in order to ensure their equitable representation in all occupational categories and levels in the workforce.
Chapter II of the EE Act provides the ‘Unfair Discrimination’ measures, and it applies to every employer in the country, from private to public, and from small to large.
Chapter III of the EE Act provides for the ‘Affirmative Action’ measures. In terms of its requirements, ‘designated’ employers must submit annual EE reports containing the prescribed EEA2 and EEA4 information in respect of their 5-year plans.
The Director of Employment Equity, Ntsoaki Mamashela stated at one of the recent country-wide workshops that “self-regulation has not worked. EE does not blindly promote racial discrimination – it promotes the advancement of suitably qualified candidates”.
Status of the Employment Equity Amendment Act
This very long-running amendment Bill was first issued as a draft Bill in Gazette No. 41922 on 21 September 2018.
The PAGSA commented on the draft amendments at that stage, and then again when more changes were made to the Bill over the years, the latest of which was published in December 2021.
The final Bill was approved by the National Council of Provinces and the National Assembly on 17 May 2022 and was assented to by President Cyril Ramaphosa in April 2023.
The final EE Amendment Act was issued in Government Gazette No. 48418 on 14 April 2023, but it has not yet been given an effective date. This date cannot be set until the sectoral numerical targets that are proposed in the draft Regulation and that are referred to in the EE Amendment Act, are finalised and published.
Status of the draft Employment Equity Regulation
The draft Employment Equity Regulation (EE Regulation) was published on 12 May 2023 in Government Gazette No. 48589 and made the proposed sectoral numerical targets available for public comment within 30 days of the Gazette’s publication date (i.e., by 12 June 2023).
The PAGSA did not submit comments on these draft Regulations – there is simply too much detail, and it is too specific to each industry sector to be able to make general comments. As one expert put it, the “draft regulations are, quite frankly, an incoherent mess”.
Public Comments on the draft Employment Equity Regulations
The purpose of this workbook is simply to inform readers of the changes to employment-related legislation and not to delve into the world of policy and its strange bedfellow, politics.
However, some comments in the media on the sectoral and regional employment percentages appear to be valid and important in that there is no doubt that there are proposed targets of 0,0% and 0,1% that effectively ban certain groups from employment in those areas. [0,1% of a person = ?  ]
Court challenges have been threatened and if this happens, at the least they will delay the implementation of the new requirements.
On the other hand, the government position is that:
“Self-regulation of employment equity targets has not moved the needle to expedite change in the workplace.“
And a pragmatic view:
“The reality at present is we have a law and we must engage with that law in light of its purpose and the goals it aims to realise.”
Let’s leave it there. No doubt genuine cases of unfairness and absurdity will come to the surface once employers start to implement the Regulations.
Government Official Announcement – Overview of the Amendments
The following News release (dated 12 April 2023) was published on the Government website on 14 April 2023.
It is included here because it does a reasonably good job of summarising the purpose and the main aspects of the Employment Equity Amendment Act and the associated draft Regulation, albeit from a government perspective.
President Cyril Ramaphosa has signed into law the Employment Equity Amendment Bill of 2020. The Amendment Bill seeks to advance transformation of South Africa’s workforce by setting equity targets for economic sectors and geographical regions and requiring enterprises to develop transformation plans.
The Bill amends the Employment Equity Act of 1998 (Act No 55 of 1998) with new measures to promote diversity and equality in the workplace.
Among its key provisions, the Amendment Bill empowers the Minister of Employment and Labour to set employment-equity targets for economic sectors, as well as regions where transformation is lagging.
The amendment Bill also empowers the Minister of Employment and Labour to regulate compliance criteria to issue Compliance Certificates as per Section 53 of the Employment Equity Act.
The amended Act allows the Minister of Employment and Labour to set regional targets given that racial diversity in South Africa often has regional differences.
The law requires employers with more than 50 employees to submit employment equity plans for their companies, spelling out how they will achieve these targets. Employers are then required to submit annual reports to the Department of Employment and Labour.
In the area of remuneration, the law requires employers to pay workers equal pay for equal work.
The Bill provides clear definitions of discrimination and sets out what workers can do when facing such discrimination – including lodging grievances with the Commission for Conciliation, Mediation and Arbitration, or the Labour Courts.
Companies seeking to do business with the state will be required to submit a certificate from the Department confirming that they are in compliance with the Employment Equity Act and its objectives, and that they do not pay their employees less than the national minimum wage.
As part of ensuring the employment equity objectives become reality, the law now compels labour inspectors to inspect workplaces and to issue employers with compliance orders.
The Department of Employment and Labour has committed to increase the number of labour inspectors and health and safety inspectors who will enforce compliance.
Employment Equity Amendment Act – Summary of the Changes
Change to the definition of a Designated Employer
All employers must comply with the ‘Unfair Discrimination’ requirements of Chapter II of the EE Act, but only ‘designated employers’ must comply with the ‘Affirmative Action’ requirements of Chapter III.
In a significant change that will reduce red tape for ‘smaller’ employers in future, the definition of a “designated employer” will be amended by the deletion of paragraph (b) that currently includes as a designated employer:
“a person who employs fewer than 50 employees but has a total annual turn-over that is equal to or above the applicable annual turn-over of a small business in terms of the Schedule 4 of this Act;”
Once promulgated, designated employers will be defined as follows –
(a) a person who employs 50 or more employees;
(b) … [to be deleted]
(c) a municipality, as referred to in Chapter 7 of the Constitution;
(d) an organ of state as defined in section 239 of the Constitution, but excluding the National Defence Force, the National Intelligence Agency and the South African Secret Service; and
This means that once the changes are made effective, all employers with less than 50 employees will be excluded from Chapter III (‘Affirmative Action’) and will no longer have to submit an annual Equity plan.
Note that those employers that in future will no longer be designated once the changes are made effective and that then do not have to comply with the ‘Affirmative Action’ requirements of Chapter III of the Employment Equity Act, must still comply with the ‘Unfair Discrimination’ requirements of Chapter II of the Act.
To obtain an Employment Equity Compliance Certificate for state tenders:
1. All employers must comply with the National Minimum Wage Act
2. All employers must comply with the ‘Unfair Discrimination’ requirements of Chapter II of the Employment Equity Act
3. Designated employers must in addition submit annual employment equity plans and be seen to be making progress against the targets and goals specified in those plans.
In other words, non-designated employers with less than 50 employees can still be issued with a Certificate of Compliance to enable them to do business with Government if they comply with:
• Chapter II of the EE Act (‘Unfair Discrimination’), and
• The National Minimum Wage Act.
Section 15A (Establishment of Sectoral Targets)
According to the Department of Employment and Labour, the purpose of introducing the sectoral numerical targets is to focus on targets tailored for the specific characteristics of each sector and/or region to achieve:
“the equitable representation of suitably qualified people from designated groups at all occupational levels in the workforce by designated employers”.
There are 18 national economic sectors with their respective sub-sectors (the list of national economic sectors and sub-sectors is contained in the draft Employment Equity Regulations).
Within the sectors, numerical targets may apply to certain sub-sectors, or regions, or occupational levels as proposed in the draft Employment Equity Regulations.
The proposed sectoral targets must be applied to the upper four Occupational levels being:
1. Top Management
2. Senior Management
3. Professionally Qualified
4. Skilled.
Note that it appears that the normal regional and national demographic targets must be applied as usual for the targets for the 5-year equity plans for the remaining two Occupational levels:
1. Semi-skilled
2. Unskilled.
The intention is that the sectoral targets must be applied to the employer’s workforce profile (the EEA2) and won’t impact on the financial reporting (the EEA4).
This was confirmed by the Equity Directorate:
“The Sector EE targets will only affect the composition of the workforce/ employees covered and reported in EEA2 Report – the EEA4 covers the remuneration paid to the employees/ workforce covered in the EEA2.
This means that once finalised and implemented, the new sectoral targets will influence the EEA2 Workforce Profile plans (the employer’s ‘headcount’ numbers).
The results over the years will be measured against the employer’s EEA2 5-year plan and the results of the sectoral target restructuring will be reflected in financial terms in the EEA4 tables.
It now appears certain that all current equity plans will fall away when the new requirements are made effective, and the new plans will have to be aligned with the new five-year sectoral targets.
The PAGSA has asked the Equity authorities in advance to prepare a Guide to assist employers.
Section 20 (Employment Equity Plan)
Section 20 is proposed to be amended by the addition of the following:
“The numerical goals set by an employer in terms of subsection (2) must comply with any sectoral target in terms of section 15A that applies it. “
Section 53 (State Contracts)
This section has a new subsection 6 that states that:
“(6) The Minister may only issue a certificate in terms of subsection (2) if the Minister is satisfied that the employer–
(a) has met any sectoral targets in terms of section 15A that applies to it or has provided reasonable grounds, as contemplated by section 42(4), justifying its failure to comply;
(b) has submitted a report in terms of section 21;
(c) has not been found by the CCMA or a court within the previous twelve months to have –
i. breached the prohibition on unfair discrimination in Chapter 2; or
ii. failed to pay the national minimum wage in terms of the National Minimum Wage Act, 2017.”
Implementation of the EE Amendment Act and the EE Regulation
Ntsoaki Mamashela – Director Employment Equity at Department of Employment and Labour – at a recent roadshow confirmed as follows:
“Although President Cyril Ramaphosa on 6 April 2023 signed the amended Employment Equity Act (EEA) into law, it is not yet effective – hence employers will be expected to report on their 2023 obligations using the current legislation, Department of Employment and Labour Director of Employment Equity advised employers.”
“It was our intention to have the new EE amendments coming into effect from 1 September 2023, so as to allow employers reporting on the new updated reporting system. We are ready to implement the new amendments. Legally, the President is required to proclaim the effective date. The proclamation notice is still pending,” Mamashela warned.”
The bottom line is that until an effective date of the EE Amendment Act is published, EE reporting by employers will be ‘business as usual’. The current Employment Equity Act must be used as normal when the reporting cycle kicks-in with both manual and online reporting opening on 1 September 2023, the manual reporting closing on 02 October 2023, and the online reporting closing on 15 January 2024.
Employment Equity – Practical problems and PAGSA Proposal
In the interests of effective communication, I have used these abbreviated descriptions for the following concepts:
1. ‘Equity Year’
o The employment equity reporting year declared by the employer at the top of page 2 of the EEA2
o The 12-month period applied by the employer to calculate, consolidate, and analyse employee data for submission of the EEA2 and EEA4 reports to the Equity Directorate
2. ‘Equity Submission Period’
o The period during which the EEA2 and EEA4 reports must be submitted by the employer.
You won’t see these abbreviated descriptions in the legislation or the regulations, but the equity authorities are comfortable with their use.
Problems in Practice
The ‘Equity Year’ varies between employers for historical reasons, but it appears that most employers have an ‘Equity Year’ of 1 October to 30 September of the following year.
However, the manual submission dates open on 1 September and closes on 1 October, which means that:
1. The employee data in the payroll in respect of September is only finalised towards the end of September, therefore on the opening date of 1 September data in the payroll is incomplete and therefore inaccurate.

2. If the employer waits until the end of September for the employee data to be complete and accurate, then there are at best only a couple of days in which to create the report and submit it manually before the closing date of 1 October.
This suggests that if the employer’s ‘Equity Year’ is 1 November 2022 to 30 October 2023, the manual reports will then be submitted between 1 Sep 2024 and 1 Oct 2024 because they are too late for the 2023 reporting year.
Another problem is that because employers have different ‘Equity Years’, the 12-month period reported on will include different periods of the year for different employers. As a result, and from a statistical comparison analysis view, the equity statistics for a year can be a ‘scrambled egg’ scenario resulting from different influences and events during the various 12-month periods.
The Covid hard lockdown period in 2020 is a classic example (hopefully not repeated).
The full Covid period fell into the ‘Equity Year’ for some employers, while only portions of the Covid period were included in other employer’s reports. The differences in the years being reported distorts the comparative statistical value for the country of the equity reports for that year – apples are not being compared to apples.
PAGSA Proposal to Equity Directorate
Without going into detail, the PAGSA has submitted a proposal to the Equity authorities:
1. To specify a single standard ‘Equity Year’ for all employers, and
2. To align this ‘standard’ year with the tax year (1 March to 28 February).
The opening and closing dates for submissions will then be the same as for tax certificate submissions and also for the Return of Earnings for the Compensation Fund (1 April to 31 May).
If this proposal is accepted by the Equity authorities (I am not holding my breath) the practical date of implementation should be 1 March 2024. At the time of writing this workbook (early September 2023), our proposal had neither been rejected nor accepted, so we must wait and see what transpires … if anything.

Chapter 4. Tax Law Amendments
Following the Budget proposals on 22 February 2023, the draft amendment Bills giving effect to those proposals were issued in two batches.
The ‘Two-pot Retirement System’ amendment Bills were issued on 9 June 2023:
1. Revised 2023 Draft Revenue Laws Amendment Bill
2. Draft Revenue Administration and Pension Laws Amendment Bill.
The PAGSA and other interested organisations submitted comments to National Treasury and SARS on these two Bills on 15 July 2023. Refer to Chapter 5 ‘The Proposed Two-pot Retirement System’ for more details on these important proposed changes to the legislation.
The proposed changes to general employment tax related legislation were issued on 31 July 2023 in the following amendment Bills:
1. Draft Taxation Laws Amendment Bill [TLAB]
This Bill deals with the substantive changes to the Income Tax Act proposed in the 2023 budget.
2. Draft Tax Administration Laws Amendment Bill [TALAB]
This Bill deals with the administration-related changes proposed in the 2023 budget to the various Acts that are administered by SARS.
3. Draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill [Rates Bill]
This Bill confirms the tax tables, rebates and threshold changes proposed in the 2023 Budget.
Comments on these Bills were submitted by the PAGSA to National Treasury and SARS on 31 August 2023 and where relevant are included in the discussion of the proposed changes that follow.
Note that there are changes in the 2023 amendment Bills that affect retirement funds and the members of these funds, but except for one, these changes are outside of payroll administration and are not discussed here.
4.1 Resident and non-Resident Employers
Budget 2023 Proposal: Aligning tax registration requirements for non-resident employers
It has been noted that non-resident employers may not have representative employers in South Africa for purposes of employees’ tax. They are, as a result, not liable to deduct or withhold tax from the remuneration that is paid to their employees who render services in South Africa. Nevertheless, given that they pay remuneration, they are required to register with SARS as employers.
They are liable for skills development levies and unemployment insurance contributions, which many pay. It is proposed that the various provisions be aligned to ensure consistency.
Proposed Amendment of Fourth Schedule paragraph 2
Before the proposed change, Fourth Schedule paragraph 2(1) stated as follows:
“Every—
(a) employer who is a resident; or
(b) representative employer in the case of any employer who is not a resident,
…who pays … any amount by way of remuneration to any employee shall … deduct or withhold from that amount … by way of employees’ tax an amount … in respect of the liability for normal tax of that employee.”
Assuming that the proposed amendment is accepted, sub paragraphs (a) and (b) of Fourth Schedule paragraph 2(1) will be consolidated and changed to read as follows:
“Every employer or representative employer in the case of any employer who is not a resident, … who pays … any amount by way of remuneration to any employee shall … etc.”.
Comment on the Proposed Amendment
The proposed amendment removes the distinction between the responsibilities and duties of resident employers and non-resident employers and widens the obligation to calculate and withhold employment-related taxes to include all representative employers.
The result will be that:
1. Resident employers must register as employers (no change to this long-standing requirement)
2. Non-resident employers must have a registered representative employer in South Africa.
All resident employers and non-resident employers that pay remuneration to employees must deduct employees’ tax (PAYE), skills development levies, and unemployment insurance contributions.
Experts in this field have indicated (depending on the final wording of the draft amendment) that it might be an option for the foreign employer to appoint a payroll company to be its EOR (Employer of Record)’ in South Africa, but this remains to be seen.
Proposed effective date:
1 March 2024
4.2 Foreign Employment Income – IRP3q Tax directive
Budget 2023 Proposal: Varying employees’ tax withholding in respect of Remuneration
The Fourth Schedule to the Income Tax Act allows employers to request a variation in employees’ tax withholding [Rob: this wording refers to a tax directive] to take into account foreign taxes paid. However, such a variation does not apply to remuneration arising from share options and similar schemes. This could result in cash flow implications for the affected employees, as they will only be entitled to claim a foreign tax credit when they complete their annual tax returns.
It is proposed that SARS be empowered to vary the basis for withholding under these circumstances.
Proposed Amendment of Fourth Schedule paragraphs 9 and 10
From 1 March 2020, the changes to section 10(1)(o)(ii) resulted in the introduction of a new IRP3q directive that enables employers to apply to SARS for the IRP3q tax directive that will take any foreign taxes paid into account when calculating the PAYE amount to be withheld by the employer.
Fourth Schedule paragraph 9 states that the Commissioner may from time to time prescribe deduction tables applicable and indicates that the PAYE to be deducted from any remuneration must, subject to the provisions of paragraph 10 and 11 of the Fourth Schedule and section 95 of the Tax Administration Act, be determined in accordance with such tables.
In terms of Fourth Schedule paragraph 11A(4), where the remuneration includes section 8C share gains, the employer must, before deducting the PAYE payable on the gain, apply for an IRP3s tax directive.
Given the change to section 10(1)(o)(ii) – as stated above – employers may, in terms of paragraph 10, request a variation in the employees’ tax withholding (by applying for an IRP3q tax directive) to take foreign taxes paid by the employee into account.
Currently, such a variation does not apply to withholding required under paragraph 11A of the Fourth Schedule (namely, share gains under section 8C of the Income Tax Act) and the foreign taxes paid in respect of section 8C gains cannot be taken into account for purposes of determining the tax due on the gain.
This could have a negative effect on employees’ cash flow as they will only be entitled to claim a foreign tax credit at the time of completing their ITR12s. The proposed amendment aims to rectify this situation.
Proposed effective date:
While this is not specifically stated in the amendment Bill, I assume that the effective date will be 1 March 2024.
4.3 Apportionment of the Section 11F Monetary cap of R350,000
Background to the Allowable Deduction in respect of Contributions to Retirement Funds
‘Retirement funds’ is a generic term for pension, provident, and retirement annuity funds.
Major retirement fund reforms were introduced with effect from 1 March 2016, and besides other benefits, encouraged individual taxpayers to become members of a retirement fund to save for their retirement years by offering a significant deduction to reduce the taxpayer’s income tax and if the taxpayer is an employee, the amount of PAYE withheld in the payroll.
When calculating the monthly PAYE withholding, payrolls are allowed to deduct employer-paid plus employee-paid contributions to retirement funds from remuneration as long as the deduction in a year of assessment does not exceed the lesser of:
1. R350 000
2. 27,5% of the higher of the employee’s:
• Remuneration (in the payroll), OR
• Taxable income (on assessment).
Spreading the R350 000 Limit over the Year of Assessment
Fourth Schedule paragraphs 2(4)(a) for pension and provident funds, and paragraphs 2(4)(b) and 2(4)(bA) for retirement annuity funds, specifies as follows:
(4) The amount required to be deducted or withheld from any remuneration under this Schedule by way of employees’ tax must be calculated on the balance of the remuneration remaining after deducting therefrom—
(a) any contribution by the employee concerned to any pension fund or provident fund which the employer is entitled or required to deduct from that remuneration, but limited to the deduction to which the employee is entitled under section 11F having regard to the remuneration and the period in respect of which it is payable;
The underlined wording was supported within a year by an amendment that added a proviso to the end of paragraph 2(4) that clarified that payrolls must apply the R350 000 limit on an average per month basis (i.e., not on an annual basis), with retrospective effect from 1 March 2016.
The proviso reads as follows:
“Provided that at any time during the year of assessment the amount of the contribution to be deducted in terms of paragraphs (a), (b) and (bA) [Rob: contributions to retirement funds] must not exceed an amount that bears to the amount stipulated in section 11F (2) (a) the same ratio as the period during which remuneration was paid by an employer to the employee bears to a whole year”.
The result of the amendment was that from 1 March 2016 payrolls limited the allowable deduction to R29 167 per month (R350 000/12) from the start of the year of assessment, thereby spreading the monetary cap to the deduction over the year of assessment.
This means that the maximum deduction limit of R350 000 may not be applied and exhausted in the first few months of the year of assessment even if the total contribution amount in those months justified such a deduction.
Before discussing the latest proposed amendment, it is important to note that the above monetary deduction cap (the R350 000) specified in section 11F is in respect of an employee’s year of assessment, despite the later amendment that clarified that the monetary must be applied on a monthly (average) basis as described above.
If an individual has two years of assessment, then the limit applies twice, once for each year of assessment.
The Problem
When an individual ceases to be a South African tax resident on any date that is not the last day of February, two years of assessment are created during the 12 months of the tax year.
For example, when an individual ceases to be a South African tax resident on 1 June 2022:
1. His year of assessment as a South African tax resident began on 1 March 2022 and ended on 31 May 2022, creating a 3-month year of assessment as a South African tax resident.
2. His year of assessment as a South African non-tax resident began on 1 June 2022 and ended on 28 February 2023, creating a 9-month year of assessment as a non-tax resident.
Both the 3-month and the 9-month years of assessment fall within a single 12-month tax period, creating inconsistencies in two areas of the Income Tax Act:
1. Section 12T(4)(a):
For the exemption of returns earned from a Tax-Free Savings Account to apply, aggregate contributions are not allowed to exceed R36 000 during a year of assessment; and
2. Section 11F(2):
The deduction in respect of contributions to a retirement fund is not allowed to exceed the monetary cap of R350 000 during a year of assessment.
These limits are per year of assessment and are not apportioned if the year of assessment is less than 12 months.
Having two years of assessment in a single 12-month tax period when ceasing to be a South African tax resident, can therefore potentially double the Tax-Free Savings Account annual contribution limitation of R36 000 as well as the R350 000 monetary cap used to calculate the section 11F deduction.
The result is that an individual:
1. Is able to contribute R72 000 to a Tax-Free Savings Account while enjoying tax-free status (R36 000 for the 3-month period and another R36 000 for the 9-month period)
2. Can benefit from a section 11F deduction of R700 000 (R350 000 for the 3-month period and R350 000 for the 9-month period).
The Solution
To address this anomaly, the following changes are proposed in circumstances where the individual’s year of assessment is less than 12 months:
1. Section 12T(4)(a):
The contribution limit that shall apply shall be the amount that bears to the amount referred to in section 12T(4)(a) the same ratio as the number of days in that year of assessment bears to 365 days.
2. Section 11F(2)(a):
The amount that will be used to limit the allowable retirement contribution deduction, shall be:
“the amount that bears to the amount referred to in section 11F(2)(a) of the Act [Rob: R350 000], the same ratio as the number of days in that year of assessment bears to 365 days.”
Effective date
Proposed to come into operation on 1 March 2024.
4.4 Retirement Fund Fringe benefit not included in Income
Background
Contributions to a retirement fund made by the employer on behalf of the employee are a taxable fringe benefit in the hands of the employee.
Section 11F(4) of the Income Tax Act deems the employer-paid contributions to a retirement fund on behalf of an employee to have been contributed by the employee and the total contribution (‘deemed paid’ plus ‘employee-paid’ contributions), are taken into consideration when determining the employee’s allowable deduction in terms of section 11F(2) of the Act.
The Problem
While section 11F(4) specifies that the employer-paid contribution must be given a cash equivalent (taxable fringe benefit) value in terms of the Seventh Schedule, it does not include the cash equivalent amount in the employee’s income when determining the allowable deduction in terms of section 11F(2) of the Act.
As a result, if an employer’s contribution to the retirement fund is not subject to fringe benefit tax because the employee’s remuneration qualifies for foreign income tax exemption in terms of section 10(1)(o)(ii) of the Act, the employee is still entitled to a deduction in terms of section 11F(2) of the Act.
This goes against the principle that a deduction can only be allowed for amounts that are included in the taxpayer’s income (i.e., a tax deduction should not be available for tax exempt amounts).
Budget 2023 Proposal: Clarifying the amount of employer contribution to a retirement fund to be Deductible
Section 11F(4) of the act deems an employer contribution to a retirement fund as a contribution made by the employee, and it is calculated as the amount equal to the cash equivalent of the value of the taxable benefit.
However, there is no requirement that the calculated cash equivalent be included in the employee’s income, as is the case in sections 6A and 6B of the act.
This is against the policy rationale of the act’s provisions.
To address this, it is proposed that the act be amended to require that the cash equivalent of the taxable benefit for employer retirement fund contributions be included in an employee’s income before a tax deduction is allowed.
The Solution
To correct this problem, it is proposed that sections 11F(4)(a)(i) and (ii) are amended so that the deduction only applies if the employer-paid contribution to a retirement fund on behalf of an employee is included in the employee’s income as a taxable benefit in terms of paragraphs 2(l) and 12D of the Seventh Schedule to the Act.
The proposed amendment adds the following wording to the end of sections 11F(4)(a)(i) and (ii):
“… to the extent that the amount has been included in the income of that person …”.
Assuming that these proposed changes are accepted, the full wording of sections 11F(4)(a)(i) and (ii) will be:
‘‘(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 to the extent that the amount has been included in the income of that person; or”; and
“(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 to the extent that the amount has been included in the income of that person;
Effective date
Proposed to come into operation on 1 March 2024.
PAGSA Comments
Foreign Employment Income Exemption
The example provided by the policy makers is that of an employee earning foreign income who has met the ‘183/60 day’ condition after 6 months, and the foreign employment income (remuneration) that was not exempt for the first 6 months, has therefore become exempt going back to the start of the 6-month period.
The payroll would have applied the section 11F(2) deduction monetary and percentage caps and calculated PAYE, SDL, UIF, and ETI during those 6 months.
Once the above amendment comes into effect, the section 11F(2) deduction will not be allowable retrospectively if the fringe benefit value of the employer-paid contribution is exempt.
Between the payroll’s ‘annual equivalent’ calculation for the rest of the tax year, and the final calculation of income tax on assessment, PAYE (but not SDL and ETI) can be sorted out, but it highlights the rather impractical requirements for the administration of foreign employment income, and the fact that employers are at risk if they apply the exemption incorrectly.
Employers should not apply the exemption in the payroll until there is absolute certainty that the ‘183/60 day’ conditions have been met.
Best practice is to leave this to the end of year assessment process, but what if the employee is taxed twice – once in South Africa and once in the foreign country?
Tax Certificate Codes
Assuming that the proposed change to section 11F(4)(a) is approved and implemented, there is uncertainty as to how to report the allowable deduction amount under circumstances where the employee’s remuneration consists of foreign employment income.
Using Pension fund tax certificate codes as an example (the principle is the same for provident and retirement annuity funds, only the code values differ), the tax certificate codes that must be used for reporting are the following, with some comments below each code.
1. Code 4472 – Employer’s pension fund contributions paid for the benefit of employee.
The ‘44xx’ codes are informative codes and are not used by SARS for calculations.
The full value of the employer-paid contribution to the pension fund must be reported under this code.
2. Code 3867 – Benefit: Employer Pension Fund contributions.
The fringe benefit value depends on whether the contribution is paid to a defined contribution fund (will be the same value as code 4472) or to a defined benefit fund (will not be the same value as code 4472).
3. Code 4001 – Total pension fund contributions paid and ‘deemed paid’ by an employee (code 3817/3867).
This is the amount that is available to be deducted but the allowable deduction amount must be determined by applying the section 11F(2) percentage and monetary caps.
4. Code 4587 – Section 10(1)(o)(ii) exemption taken into account by the employer for PAYE purposes.
The ‘45xx’ codes are ‘informative codes’ and are not used by SARS for calculations.
The employer declares the total foreign income exemption amount taken into account for PAYE purposes up to the maximum of R1,25m for PAYE purposes, but SARS only verify the exemption on assessment based on documentation requested from and submitted by the employee.
The tax certificate reporting problems are illustrated by the following scenario.
• The employee’s foreign employment salary is R1 500 000
• The pension fund is a defined contribution fund (the fringe benefit equals the employer contribution)
• The employer-paid contribution to the pension fund is R150 000
• The employee-paid contribution to the pension fund is R50 000.
The employee’s foreign employment income is reported on the tax certificate as follows:
CODE DESCRIPTION AMOUNT
3651 Income R1 500 000
3867 Benefit: Employers Pension Fund contributions R150 000
3699 Total Foreign Employment Income (remuneration) R1 650 000
The foreign employment exemption ‘183/60 day’ conditions of s10(1)(o)(ii) are met, therefore the employer can decide to ‘flag’ R1,25m of the total R1,65m remuneration as exempt in the payroll (note: this is a ‘risk’ decision – if it is found on assessment that the exemption conditions are in fact not met, penalties and interest will follow).
The portion of total remuneration that is not exempt is therefore R400 000.
The employee’s 4xxx codes are reported on the tax certificate as follows:
CODE DESCRIPTION AMOUNT
4587 Section 10(1)(o)(ii) exemption taken into account by the employer for PAYE purposes R1 250 000
4472 Employer’s pension fund contributions paid for the benefit of employee R150 000
4001 Total pension fund contributions paid and ‘deemed paid’ by employee R??
The question is: What is the correct value of the 4001 deduction that must be used and reported by the payroll?
The problem is that there is no guidance in the legislation or elsewhere to decide the sequence in which the employee’s various remuneration amounts are applied (fully or partially) towards the foreign employment income exemption threshold of R1,25m.
The code 4001 deduction amount can be one of the following two amounts:
1. R200 000:
The R150 000 fringe benefit (code 3867) is not allocated to the exempt portion of the total remuneration. It is income and available as a deduction. The code 4001 deduction amount is therefore equal to the total pension fund contribution paid by an employee (R50 000) plus the contribution that is ‘deemed paid’ by an employee (R150 000), subject to the section 11F(2) percentage and monetary caps.
2. R50 000:
The R150 000 fringe benefit (code 3867) is allocated to the exempt portion of the total remuneration, therefore it is not income and is not allowed as a deduction.
The code 4001 deduction amount is therefore equal to the total pension fund contribution paid by an employee (R50 000) subject to the section 11F(2) percentage and monetary caps.
While the draft amendment is correct in principle, the administration thereof is uncertain. The PAGSA has explained the above scenarios to SARS and requested a ruling on how to apply the tax certificate codes.
The section 11F(2) Deduction is more than the Remuneration
This should not happen frequently (if at all?), but just to provide for it in case it happens that the deduction amount is more than the remuneration from which it must be deducted.
Payrolls must apply the deduction up to the amount of the remuneration, resulting in a balance of remuneration equal to R0,00 and there will be no PAYE or SDL calculated – UIF is calculated on (gross) remuneration.
Payrolls are allowed to carry the unused portion of the deduction forward from month-to-month and apply the excess deduction (if possible) in the following month, provided the monthly maximum of R 350 000 ÷ 12 = R 29 166 is not exceeded.
If an unused deduction amount remains available at the end of the year of assessment, payrolls may not carry the excess deduction forward from the end of one year of assessment into the year of assessment that follows for PAYE calculation purposes. In this case, the legislation provides that the final unused deduction amount will be rolled forward into the following year of assessment for income tax application in that year, then the next year, etc.
Note this ‘carry forward’ of an unused deduction amount after the income tax assessment calculation, is only for income tax calculation purposes.
This excess amount is not available to the payroll (i.e., for the PAYE calculation) in the following year of assessment.

3.2 Compensation Fund Amendment Act
Aspects of the COID Bill (Compensation for Occupational Injuries and Diseases Amendment Bill) have been added to this workbook to bring this section up to date as at the time of writing (September 2023).
In addition, a section has been added towards the end that discusses the calculation by payrolls of ‘COID earnings’ up to the ‘Maximum Earnings’ threshold published by the Minister of Employment and Labour.
Background
My ‘Big Picture’ view of the COID Act is that it can be split into two main areas of administration:
1. ‘Front-end’: The annual ROE (Return of Earnings), and assessment
2. ‘Back-end’: Claims for occupational injuries and diseases, payment of medical suppliers, employees, etc.
Payrolls and employers must comply with the front-end requirements, while employers, employees, and medical providers must comply with the back-end requirements.
COID Amendment Process
The COID Bill (Compensation for Occupational Injuries and Diseases Amendment Bill) was first issued on 18 October 2018, and after a lengthy process over years of public comment, NEDLAC, internal discussions, etc. an amended COID Bill was published on 27 August 2020 in Gazette No. 43658.
Three years later, the State President has signed the final COID Bill thereby promulgating it, and the COID Amendment Act was then issued in Gazette No. 48431 on 17 April 2023.
However, at the time of writing (early September 2023), an effective date for the implementation of the COID Amendment Act had not yet been published. This means that employers must continue as normal and comply with the requirements of the current COID Act as it was prior to the COID amendments.
The following News release (dated 6 April 2023) was published on the Government website on 14 April 2023 and gives an overview of the COID Amendment Act.
President Cyril Ramaphosa has signed into law the Compensation for Occupational Injuries and Diseases Amendment Bill, which extends coverage for occupational injuries and diseases to previously excluded vulnerable workers and improves compensation benefits to employees.
The Bill effects a range of amendments to the Compensation for Occupational Injuries and Diseases Act (Act No 130 of 1993) which governs compensation for disablement caused by occupational injuries or diseases sustained or contracted by employees, or for death resulting from injuries or diseases.
The new provisions enacted by the President include one that gives effect to a Constitutional Court judgment in the matter of Mahlangu and Another v Minister of Labour and Others in which the Court declared parts of the Compensation for Occupational Injuries and Diseases Act unconstitutional.
The unconstitutionality related to the exclusion of domestic workers employed in private households from the definition of “employee” and the effective denial of compensation to such workers who contracted diseases or suffered disablement, injuries, or death in the course of their employment.
The amended legislation also protects the livelihoods of workers affected by occupational injuries or diseases by introducing a multi-disciplinary employee-based process of rehabilitation and reintegration of injured employees or employees who contracted occupational diseases.
This requires employers to exhaust all rehabilitation and reintegration processes before laying off an employee.
In turn, employers will be incentivised for full compliance with the provisions.
The new law also addresses institutional arrangements, such as the appointment of members of the Compensation Board.
Structure of the COID Act
My ‘big picture’ view of the COID Act is that it focuses on two areas of administration, namely the:
1. ‘Front-end’: The annual ROE (Return of Earnings), and assessment
2. ‘Back-end’: Claims for occupational injuries and diseases, payment of medical suppliers, employees, etc.
Payrolls and employers must comply with the ‘front-end’ requirements (where the money goes into the Fund), while employers, employees, and medical providers must comply with the back-end requirements (where the money flows out of the Fund).
The summary of the COID Amendment Act that follows focuses on the proposed amendments to the ‘front-end’ requirements, but in the section directly below, it briefly mentions an important change to the ‘back-end’ requirements, that of rehabilitation.
COID Amendment Act – Expands Rehabilitation Provisions
The provisions in the current COID Act that provide for the rehabilitation of employees who have been injured or contracted a disease while on duty, are apparently outdated, inefficient, expensive to administer, and result in delays of payments to medical service providers.
The COID Amendment Act provides comprehensively for ‘rehabilitation’ of occupationally injured employees, but while this is important, this workbook does not go into the details as this falls into ‘back-end’ administration and does not impact on payroll systems.
The following is a summary of the main aspects of rehabilitation that are now provided for:
• A new chapter on orthotics and vocational rehabilitation has been added to the COID Act
• Section 56: Increased compensation if the employer is negligent
• Section 73: Medical expenses – third parties are excluded?
In addition, the Fund has recently introduced a Vocational Rehabilitation, Re- integration and Return-to-Work programme that offers:
• Training and upskilling of occupationally injured employees for identified positions
• Bursaries and short skills programmes for injured workers if they want to reskill or upskill themselves to return back to work
• Incubation programmes so that they can start their own businesses and become self-sufficient.
“What we are asking is for employers to exhaust all rehabilitation and reintegration processes before laying off an employee.”
Modernisation of this aspect of the COID Act is long overdue and will hopefully result in significant improvements.
COID Amendment Act – Domestic workers
The COID Act currently defines an employee to be:
“… a person who has entered into or works under a contract of service or of apprenticeship or learnership, with an employer, whether the contract is express or implied, oral or in writing, and whether the remuneration is calculated by time or by work done, or is in cash or in kind, and includes—
(a) a casual employee employed for the purpose of the employer’s business; …”
The definition goes on to include other categories of employees that are not important for this discussion, and then excludes:
“(v) a domestic employee employed as such in a private household;”
The COID Amendment Act (once it is in operation) will delete the above clause (v) that currently excludes domestic employees from the definition of an employee. This means that from the effective date, domestic workers will be included as employees because they will no longer be excluded.
Domestic workers will then be entitled to the same benefits under the COID Act as other (commercial) employees.
It is interesting to note that the concept of a ‘domestic employee’ is only referred to in the wording of the exclusion that is planned to be deleted.
Domestic employees are not defined in the COID Act as they are in the BCEA and in the two Unemployment Insurance Acts. After the exclusion is deleted, there will no longer be any reference in the COID Act to a domestic employee – they get no special recognition in the Act at all.
They will be employees just like any other (commercial) employee.
This means, for example, that in the event of the death of a domestic worker, the dependants of the deceased worker are entitled to claim a benefit.
Incidentally, the final COID Bill widened the definition of a “dependant” by adding life partners, and a person who was married to the employee according to civil law, civil union, customary law, or any other marriage recognised in terms of any other law.
This has been supported by the ConCourt judgement (see section below).
‘Casual’ Domestic Workers
Note the ‘casual’ workers are defined to be employees, therefore a domestic worker who works on a ‘casual’ basis is an employee by definition.
The COID Act does not have a ‘less than 24 hours pm’ exclusion of employees as there is in the Unemployment Insurance Contributions Act.
For example, this means that a householder who employs a gardener once per week for a morning only (5 hours x 4 weeks = 20 hours; 5 hours x 5 weeks = 25 hours), must declare and pay the Compensation Fund for this individual.
Domestic Employers
Note that it is not necessary to change the definition of an ‘employer’ to include a ‘domestic employer’ because the current definition in the COID Act is already wide enough to include them:
‘‘‘employer’ means any person or legal person, including the State, who employs an employee, …”
This definition means that the householder who employs a domestic worker is a (domestic) employer because the domestic worker is a (domestic) employee.
At this stage, we can only assume that domestic employers (householders) will have to submit an annual Return of Earnings in the same manner as commercial employers are required to do, and that they will be assessed on the earnings declared in the ROE in the same manner as commercial employers.
ConCourt Judgement – Earlier Domestic worker claims
As discussed above, for many years domestic workers have been excluded from the protection of the Compensation Fund against occupational injuries and diseases.
In a judgment handed down in November 2020, the Constitutional Court declared a section of the COID Act unconstitutional to the extent that it excludes domestic workers employed at households from the definition of ’employee’, preventing them from being able to receive compensation for illness or injury (or death) incurred at work.
The dependants of these employees were also not able to claim if their breadwinner sustained a fatal accident at work.
The ConCourt order applies retrospectively, and covers illness, injury, and death at the workplace.
To support the ConCourt order, the COID Bill added a new section headed “Transitional Arrangements” that states that domestic employers and domestic workers must submit a claim within three years after the effective date of the COID Amendment Act if they want to claim for any injury, disease, or death that occurred before the promulgation date of the COID Amendment Act.

 
Domestic Employer Registration
According to section 4 of a notice issued in Gazette No. 44250 on 10 March 2021, the ConCourt ruling on domestic employees:
“means that all employers of domestic employees are obliged to register as employers with the Compensation Fund and submit the necessary returns as obliged by the Compensation for Occupational Injuries and Diseases Act 130 of 1993 (COIDA). All employers of domestic workers are therefore encouraged to register with the Compensation Fund without delay.”
In my opinion, before the COID Amendment Act is made effective, registration is voluntary, and this notice was simply an appeal to domestic employers to register.
Until the COID Amendment Act that removes the current exclusion of domestic employees from the COID Act is made effective, domestic employees are excluded from the current COID Act, and there can be no such thing as a COID domestic employer if there is no such thing as a COID domestic employee.
COID Amendment Act – ‘Earnings’ replaced by ‘Remuneration’
The concept of “earnings” that payrolls and employers must understand and comply with has been a problem for many, many, many … years (see the COID Earnings – Interpretation Issues section below for an explanation).
In a late but very important change to the COID Amendment Bill, the current definition of “earnings” was proposed to be replaced by the Fourth Schedule definition of “remuneration”, and this change is confirmed in the COID Amendment Act.
This is such an important change that I have included the actual wording from the COID Amendment Act, something that I don’t normally do in order to keep the workbook as simple as possible.

‘‘‘earnings’ means the remuneration [of an employee at the time of the accident or commencement of an occupational disease as calculated in terms of this Act] as defined in paragraph 1 of the Fourth Schedule to the Income Tax Act, 1962 (Act No. 58 of 1962), but does not include any amount paid or payable to an employee—
(a) by way of any pension, superannuation allowance or retiring allowance; and
(b) which constitutes an amount contemplated in paragraphs (a), (cA), (d), (e) or (eA) of the definition of ‘‘gross income’’ in section 1 of the Income Tax Act, 1962;’’

The wording in ‘bold’ between square brackets [] will be deleted from the current definition, and the wording from “as defined” until the end of the definition has been added.
This proposed definition of remuneration for the COID Act is exactly the same as the definition of remuneration in the Unemployment Insurance Contributions Act with one exception – ‘commission’ is excluded from the remuneration used to calculate the UI contribution, but (correctly in my view) commission is not excluded from the proposed definition for Compensation Fund purposes.
Could this be an indication that the unfair exclusion of commission from remuneration will be removed from the Unemployment Insurance Contributions Act at some stage in the future? The PAGSA has been asking for this to happen for nearly twenty years … so we can but hope.
Once this change is made effective, life will be much easier for all parties – payroll suppliers, employers, and the relevant statutory body – because the various definitions of remuneration will be closely aligned to one another for the following employment taxes:
• PAYE
• Skills Development levies
• Unemployment Insurance contributions
• Compensation Fund
• Employment Tax Incentive (that is until the change effective from 1 March 2022).
Of the legislation that the PAGSA supports, only the BCEA and the Employment Equity Act will have different definitions of remuneration.
Standardisation of the concept of remuneration is of huge value to all parties as it results in better understanding, simpler administration, less mistakes, and improved compliance.
And of course, this opens the door for the future consolidation of the systems that administer employer payments to some statutory bodies … unlikely, but it makes sense.
Lastly, and just for interest’s sake, about 8 years ago I presented a proposal to the Fund on behalf of the PAGSA to motivate the replacement of the concept of ‘earnings’ with that of the Fourth Schedule definition of remuneration.
I hoped that something would come of this proposal in future years, but now that it has actually happened, I don’t think that it is as a result of the presentation – I think that there are other reasons.
COID Earnings – Interpretation Issues
For many years, different opinions have been expressed on the concept of “earnings” that employers and payrolls must apply for the annual Return of Earnings report (the ‘ROE’ or ‘W.As 8’) annual return. Different opinions create uncertainty, resulting in unnecessary calls to the call centres of PAGSA members and the Fund.
The provisions in the current COID Act (i.e. prior to the COID Amendment Bill discussed above) that refer to “earnings” are summarised below.
Currently, the Compensation Fund makes use of the concept of “earnings” for two purposes:
1. To calculate the value of the compensation at the time of the accident or illness
2. To calculate the employer’s annual assessment value from the ROE.
The calculation of the compensation benefit value is not important for payroll administration, but the concept of earnings used for the ROE results in the assessed amount that the employer must pay and is therefore very important for employers (and the Fund’s income).
It must be correctly understood and compliantly applied by employers in their payroll systems.
The COID Act currently defines “earnings” to be:
“… the remuneration of an employee at the time of the accident or the commencement of the occupational disease as calculated in terms of this Act”.
Remuneration is not defined by the COID Act, but it must be “calculated in terms of this Act”.
Section 60 then instructs the Director General to calculate the earnings of an employee “at the time of the accident” in order to determine the compensation value in such manner as in his opinion is best. This section then provides some guidelines to assist the determination of the earnings value for the calculation of the compensation amount from these earnings.
Section 63 deals with the calculation of earnings but is of no help to payrolls.
It appears to be clear from the above wording that the purpose of the current definition, section 60 and section 63 is to provide for the calculation of the compensation benefit “at the time of the accident or … the occupational disease”.
From this follows that the COID Act does not define earnings specifically for the purposes of the Return of Earnings, nor does the Act make any provision for the concept of earnings for assessment purposes.
This vacuum in the legislation resulted in the Fund, after consulting with and acting on advice from the PAGSA in the mid-nineties, creating an interpretation of earnings for the purposes of the ROE.
This interpretation, unchanged since then, is printed at the end of the Return of Earnings form that employers must complete annually and is the only guidance on the concept of earnings for ROE and assessment purposes that is available to payrolls and employers.
However, some aspects of this interpretation have been overtaken by time and should be revisited to align them with current remuneration principles and practices.
For example, the concept of a ‘package’ in the nineties was substantially different from that of ‘cost to company’ today, and a travel allowance is always difficult to value and to administer in practice.
COID Amendment Act – Inspection, Compliance & Enforcement
To improve compliance the Compensation Fund announced its intention in June 2018 to appoint payroll auditors to improve controls in its enforcement systems.
Vusi Maluleke, deputy director: Employer Assessment for large accounts at the Fund, spoke some time ago of the training sessions that are being held across the country focusing on teaching employers how to register online and how to submit the annual Return of Earnings (ROE) online.
Maluleke said that over 300 000 companies failed to submit their Return of Earnings in the past three years. This is an alarming statistic.
COID Regulation Gazette No. 44409 on 1 April 2021: Correction of Regulation published 3 December 2020
On 3 December 2020, the Minister of Employment and Labour published a regulation in Gazette No. 43959 that amongst other matters, explained that the year in which the ending month falls, indicates the year of assessment.
For example: The 2021 year of assessment is the year starting 1 March 2020 and ending 28 February 2021.
This is the same naming principle as in the tax world, but unfortunately this standardisation was short-lived.
The Department corrected their earlier decision in Gazette No. 44409 of 1 April 2020 (‘yes’, on April Fool’s day) and clarified that the year in which the starting month falls, indicates the year of assessment.
For example: the 2022 assessment year is the year starting 1st March 2022 and ending 28th February 2023.
Those of us in the tax world who are used to the naming principle that the year of assessment is indicated by the year in which the ending month falls, will simply have to remember that the naming principle in the world of labour is different.
Assessment Classes
The Regulation specifies 13 x main assessment classes from ‘A’ to ‘M’, and within each of the main classes, a range of sub-classes (identified by a 4-digit code) that each employer registered with the Fund is allocated to.
The rates (a percentage) for each sub-class and for each year from 2021 (i.e. from 1 March 2021) to 2025 (up to 28 February 2026) are listed in a table in the notice. These rates multiplied by the total earnings declared each year by the employer in the annual Return of Earnings submission, result in the amount assessed by the Fund.
The assessed amount represents the employer’s expense of insuring itself against the risk of its employees suffering an occupational injury or disease while on duty, and this expense is of course the Compensation Fund’s income.
Domestic employers have been added under Class M (the 13th class) as sub-class 2500 and their assessment rate is ‘1,04’ from 2021 up to and including 2025.
To give the domestic employer rating some context, here are some examples of other industry ratings:
1. Coal Mining: ‘1,41’ for 2021, decreasing to ‘0,65’ for 2025 [Sub class = 0411]
2. Open cast Mining: ‘1,16’ for 2021, decreasing to ‘0,81’ for 2025 [Sub class = 0420]
3. Domestic employers: ‘1,04’ for 2021, unchanged to ‘1,04’ for 2025 [Sub class = 2500]
4. Municipal Service: ‘0,70’ for 2021, increasing to ‘0,81’ for 2025 [Sub class = 1800]
5. Breweries: ‘0,57’ for 2021, decreasing to ‘0,51’ for 2025 [Sub class = 0641]
6. Beauty and Hair Salons: ‘0,12’ for 2021, increasing to ‘0,18’ for 2025 [Sub class = 1920]
It is interesting to note that in some cases, the percentages have been reduced in the transition from 2020 to 2021.
Effective Date of the Regulation
The new assessment classes and the rates are effective from the 2021 year of assessment (1 March 2021)
Note that in my opinion, domestic employers must only register once the COID Amendment Bill is made effective, but they can do so voluntarily before then.
*** PAGSA members can refer to Newsflash 2021-20
3.3 Compensation Fund ‘Maximum Earnings’ Calculation
Up to now, the Compensation Fund has not provided guidance to employers and payroll systems on how to calculate earnings up to the earnings threshold despite being requested to do so by the PAGSA in years gone by.
Both Gazette No. 48337, issued on 30 March 2023, and Gazette No. 48673 issued on 30 May 2023, included a section with a notice that is headed “Explanatory Notes on the 2022 ROE Season”.
As explained above, in the Fund’s latest terminology decision, ‘2022’ refers to the year in which March falls, not the year in which February falls, as is the case with tax terminology conventions. The “2022 ROE Season” wording in the “Explanatory Notes” notice was therefore referring to the 2022/2023 year of assessment that by the time the two Gazettes were issued, had ended on 28 February 2023.
‘Maximum Earnings’ Calculation Guidance
Amongst other matters, the “Explanatory Notes on the 2022 ROE Season” notice included a ‘Maximum Earnings’ section that states as follows.
A Maximum Earnings is applied annually at the end of the assessment period (28 February 2023) to the individual employee’s annual total earnings, not per month.
Full annual maximum earnings of R529 264.00 will apply irrespective of the number of months the employee was employed in the 2022 ROE Season.
Examples:
a) If an employee has earned total annual earnings of R600 000.00 from the employer during the period as stated above, the amount should be capped at R529 264.00 and be declared as such.
b) If an employee has earned total annual earnings of any amount below R529 264.00, the total annual earnings that must be declared is the total annual earnings amount as earned by the employee, regardless of whether the said employee worked for a full year or a part of the year.
To the best of my knowledge, this ‘Maximum Earnings’ section was published in the two Gazettes without any discussion with, or notification to, any employment organisation.
There was certainly no discussion with, or notice given to, the PAGSA, who after all has as its members the payroll supplier companies that must apply this calculation across the country for all employers in their payroll systems.
Matters Arising from the Notice of ‘Maximum Earnings’
‘Annual’ vs ‘Average’ Calculation of Earnings up to the Maximum Earnings
There are two methods that payrolls can use to calculate earnings of an employee up to the maximum earnings:
1. ‘Average per month’ calculation:
The ‘average per month’ method divides the annual threshold by 12 and limits an employee’s earnings in each month to the average limit per month.
OR
2. ‘Annual cumulative’ calculation:
The ‘annual’ calculation method is described in the ‘Maximum Earnings’ notice in the section directly above. From 1st March, each employee’s earnings are accumulated per month until the annual threshold is reached, and the accumulation stops.
Each of the two methods has pros and cons, and I have no strong feelings in favour of any one of the two methods, as long as casual employees, workers provided by a labour broker, and seasonal workers are adequately protected against occupational injuries and diseases.
The issue is that there must clarity on which of the two methods of calculation must be used.
See the ‘Steps Taken by the PAGSA’ below for more on this matter.
Effective Date
The “Explanatory Notes” notice does not specifically state an effective date, but the heading refers to ‘2022’, and in its wording, the calculation clearly refers to the year of assessment that had just ended (28 February 2023) as well as specifying the annual earnings threshold for the 2022/2023 year (R529 264).
This wording creates the impression that this calculation method must only be used for the 2022/2023 year of assessment and not for future years, which creates uncertainty for payroll suppliers.
Discussed in the previous section, once it is made effective, the COID Amendment Act will replace the concept of ‘earnings’ with the Fourth Schedule definition of remuneration (with some exclusions).
The reference in the notice to only the 2022/2023 year of assessment might be because the Fund intends in future to issue a new ‘Maximum Earnings’ calculation of remuneration (rather than earnings) from the effective date of the COID Amendment Act.
Number of Employees
Besides the fact that the notice was published too late for payroll suppliers to apply the specified calculation of ‘Maximum Earnings’ for the 2022/2023 year of assessment in their payroll systems, it did not specify how the ‘Number of Employees’ must be calculated.
Employers must complete the ‘Number of Employees’ field per month on the annual Return of Earnings form, therefore payrolls must calculate these totals for the year of assessment to assist the employer to complete and submit the ROE accurately.
If an employee works every month of the year of assessment for the same employer, the number of months that this employee works for the employer is an easy calculation. It follows that calculating the total number of such employees per month for the employer for the ROE form is also an easy matter.
However, it is not clear how to report the number of months for employees who did not work the full year of assessment for the same employer.
In particular, the calculation is not an easy one for what we refer to as ‘broken periods of employment’, being the working periods of casual workers, seasonal workers, and workers provided by a Temporary Employment Service (TES) to a client-employer, who don’t provide services every month to an employer.
The PAGSA has queried the calculation of the number of employees with the Fund by submitting examples of different methods of counting the number of months of those employees who did not work every month during the year of assessment for the same employer and asked for clarification of this calculation.
Audits of the 2022/2023 Return of Earnings
By the closing of the year of assessment on 28 February 2023, payrolls had already calculated earnings up to the earnings threshold of R529 264 for 2022/2023.
This was done well before the two Gazettes were issued at the end of March and May 2023 respectively.
Soon after the publication of Gazette No. 48673 on 30 May 2023, the PAGSA received reports from our members that an external company, presumably appointed by the fund, was auditing employers, and raising penalties and interest on calculations of the ‘Maximum Earnings’ in respect of the 2022/2023 year of assessment that were not aligned with the ‘Maximum Earnings’ calculation method specified in the Gazettes published at the end of March and May respectively.
In our opinion, this was not only unfair but incorrect in law.
Our concerns were brough to the Fund’s attention but there has been no response, which is unusual.
State Law Advisers – Legal Opinion
Fairly recently, the PAGSA was sent a copy of a legal opinion by the State Law Advisers by a third party (i.e., not by the Fund). Until then we were not aware of its existence, and as far as I am aware, it was never issued in the public domain.
This opinion is dated 4 April 2019, and supports the method of calculating the ‘Maximum Earnings’ that has now been published in the two Gazettes.
From this, I can only assume that at some stage after 4 April 2019, the Fund agreed with this opinion and decided to publish its recommendation at the end of March and May 2023 respectively to provide retrospective guidance for the calculation of ‘Maximum Earnings’ for the 2022/2023 year of assessment that had already ended.
Steps Taken by the PAGSA
Queries on the Implementation of the ‘Maximum Earnings’ Calculation
The PAGSA has sent many emails to the fund to try and get clarity.
We have queried the implementation of the ‘Maximum Earnings’ calculation several times, pointing out the impossibility of payrolls applying a specified calculation to a year of assessment that has already ended.
We have also requested that any penalties and interest that have been raised are reversed.
Joint Approach
The lack of response from the Fund resulted in the PAGSA joining forces with other organisations to jointly approach the Compensation Fund and the DoEL.
This process is ongoing, and is focusing on:
1. Determining the legal status of the “EXPLANATORY NOTES ON THE 2022 ROE SEASON” notice
2. Questioning whether the intention that the ‘Maximum Earnings’ calculation that is specified in the notice must be applied for the 2022/2023 year of assessment is reasonable in practical administration terms.
3. Determining whether or not the ‘Maximum Earnings’ calculation as specified in the notice must be applied for the 2023/2024 year of assessment and for future years of assessment.
4. Clarification of the calculation of the ‘Number of Employees’ that must be reported on the ROE form if an employee does not work every month of the year of assessment for the same employer.
5. Requesting that the penalties and interest that have already been raised in respect of the 2022/2023 year of assessment are retracted and that the audits are stopped.
PAGSA Guidance to ‘Maximum Earnings’
Based on the experience of the recent past, I don’t expect a speedy resolution to the above issues, so the question is how to proceed.
My personal guidance:
1. If penalties and interest have been raised for the 2022/2023 year of assessment because the calculation used was not aligned with the ‘Maximum Earnings’ calculation as now specified in the Gazettes, consider appealing this action, and if justifiable, approaching the courts.
Any reasonable person should agree that one cannot implement a requirement at a certain point in time if the requirement was not known at that time.
2. Consider applying the ‘Maximum Earnings’ calculation as specified in the two Gazettes for the 2023/2024 year of assessment in your payroll system.
3. The next step will be to establish what calculation must be used for the 2024/2025 year of assessment.
In my opinion, it is clear that the Fund want an ‘annual’, as opposed to a ‘monthly’, calculation of ‘Maximum Earnings’ to be applied.
If my opinion is correct, we can then assume that this ‘annual’ calculation principle will be retained when we move away from the concept of ‘earnings’ to the Fourth Schedule definition of ‘remuneration’ when the COID Amendment Act is made effective at some stage in the future.
To repeat, this is my personal guidance, and you would be wise to seek other advice in addition to mine.
[For more information refer to the PAGSA Newsflash 2023-28 published on 16 August 2023]

Chapter 2. Rate and Threshold Changes
2.1 Official Rate of Interest
The “Official Rate of Interest” (ORI) is the rate of interest that is equal to the RSA repurchase rate (Repo rate) plus 100 basis points (1%). The official rate of interest changes from the first day of the month following the month in which the Repo rate change comes into effect, and is defined in section 1(1) of the Income Tax Act as follows:
“official rate of interest” means—
(a) in the case of a debt which is denominated in the currency of the Republic, a rate of interest equal to the South African repurchase rate plus 100 basis points; or
(b) in the case of a debt which is denominated in any other currency, a rate of interest that is the equivalent of the South African repurchase rate applicable in that currency plus 100 basis points:
Provided that where a new repurchase rate or equivalent rate is determined the new rate of interest applies for the purposes of this definition from the first day of the month following the date on which that new repurchase rate or equivalent rate came into operation;
Employers must calculate a ‘low-interest loan’ fringe benefit in respect of any personal loans granted by the employer to employees with either no interest or at an interest rate that is less than the ‘official rate of interest’. The value of the fringe benefit is the difference between the interest amount calculated at the official rate of interest in respect of the debt in respect of the year of assessment, and the interest amount calculated at the employer’s lower interest rate in respect of the debt in respect of the year of assessment.
Official Rate of Interest – Recent History
FROM ORI
1 April 2020 6,25%
1 May 2020 5,25%
1 June 2020 4,75%
1 August 2020 4,50%
1 December 2021 4,75%
1 February 2022 5,00%
1 April 2022 5,25%
1 June 2022 5,75%
1 August 2022 6,50%
1 October 2022 7,25%
1 December 2022 8,00%
1 February 2023 8,25%
1 April 2023 8,75%
1 June 2023 9,25%
History of the Official Rate of Interest since 1985
Highest ORI Lowest ORI
19,00% on 1 May 1990 6,00% on 1 Aug 2012
19,00% on 1 Dec 1998 4,50% on 1 Aug 2020
If the interest rate is lower than the official rate of interest, Seventh Schedule paragraph 11(4) specifies three types of loans where the ‘Low Interest’ fringe benefit is given a zero value, therefore there no fringe benefit tax for:
1. ‘Casual’ loan: If the total of a “short term” and “irregular” loan is less than R3 000 “at any relevant time”
2. ‘Study’ loan: Paragraph 11(4)(b): Must be granted to assist the employee to study.
3. Residential accommodation loan: To assist the employee to purchase residential accommodation:
[Paragraph 11(4)(c): Rem proxy <= R250,000 and the Market value <= R450,000] (from 1 March 2019). 2.2 Compensation Fund Earnings Threshold Earnings threshold Increase for 2022/2023 and for 2023/2024 The concept of ‘Earnings’ for the purpose of the Compensation for Occupational Injuries and Diseases Act (COID Act) is discussed in the next Chapter of this workbook. The COIDA earnings threshold places a ceiling on the earnings that employers must declare annually to the Fund in the ROE (Return of Earnings) form. Payrolls calculate the “earnings” per employee up to the earnings threshold and accumulate the ‘capped’ earnings of all employees to assist the employer to complete the ROE annual return. The Fund then calculates the assessment value by multiplying the total earnings reported on the ROE by the employer’s industry rate (or tariff as it is sometimes referred to) and issues an invoice to the employer for payment. The invoiced amount is the expense of injuries and disease insurance for the employer, and income for the Fund. If all goes well, and payment has been made, the process is ended by the Fund making a ‘Letter of Good Standing’ available for the employer to download, which is an electronic process that apparently now works well. Gazette No. 48065 Published 17 February 2023 The Director-General of Employment and Labour issued Government Gazette Number 48065 on 17 February 2023 to announce that the period during which employers must submit the annual Return of Earnings for Actual earnings for 2022/2023, and Provisional earnings for 2023/2024, is 1 April 2023 to 31 May 2023. A second Gazette with the same number (48065) and the same date of issue (17 February 2023) specified the two earnings thresholds for the two years of assessment as follow: 1. R 529 264 for 1 March 2022 to 28 February 2023 2. R 563 520 for 1 March 2023 to 28 February 2024. Gazette No. 48187 Published 10 March 2023 On 10 March 2023, Gazette No. 48187 was published (also signed on 13 Feb 2023 but by the Minister of Employment and Labour) containing a notice that listed the “Increase in Monthly Pensions” over several pages. To everyone’s surprise, an earnings threshold for 2023/24 of R568 959 was specified at the end of this Gazette after the listing of the Monthly Pension Increases. After an exchange of emails between the PAGSA, the Fund, and the Department of Employment and Labour, it was confirmed that the earnings threshold specified in the second Gazette No. 48187 is the correct one and must be used for the estimated earnings calculation for the 2023/24 year of assessment. To confirm, the two earnings thresholds that must be applied in payroll systems for ROE reporting purposes are: 1. R529 264 for 1 March 2022 to 28 February 2023 2. R568 959 for 1 March 2023 to 28 February 2024. 2.3 BCEA Earnings Threshold In terms of section 6(3) of the Basic Conditions of Employment Act, the Minister of Employment and Labour issued Government Gazette 48092 on 20 February 2023 to increase the BCEA earnings threshold from R224 080,48 pa to R241 110,59 pa, an annual increase of R17 030,11 (7,6% pa), with effect from 1 March 2023. Important aspects of the application of the BCEA Earnings threshold are discussed below. BCEA - Application of the Earnings Threshold The BCEA earnings threshold governs the sections of the BCEA that regulate the hours of work in various ways. Abbreviated, the notice states that: “… all employees earning in excess of R241 110,59 per annum … [must] be excluded from sections 9, 10, 11, 12, 14, 15, 16, 17(2) and 18(3) [of the BCEA]”. This means that employees who earn more than the BCEA earnings threshold are not entitled to the automatic protection provided by the following sections of the BCEA: • Section 9 (Ordinary hours of work) • Section 10 (Overtime) • Section 11 (Compressed working week) • Section 12 (Averaging of hours of work) • Section 14 (Meal intervals) • Section 15 (Daily and weekly rest period) • Section 16 (Pay for work on Sundays) • Section 17(2) (Night work) • Section 18(3) (Public holidays not ordinarily worked). In other words, only those employees that earn below or equal to the BCEA threshold enjoy the protection of these sections of the BCEA, and for example, must be paid overtime if they work overtime as envisaged by BCEA section 10 that provides the rules for overtime. Employees that earn above the threshold are not entitled to the automatic protection of these sections. Again, a commonly occurring example is that of overtime - employees that work overtime are not automatically entitled to be paid overtime if they earn above the threshold. If the employer so wishes, the provisions of the above sections of the BCEA that are not automatically provided can be included in the employment contract. Note that: 1. Section 18(3) of the BCEA (public holidays that are not ordinarily worked), protects only those employees that earn below the BCEA threshold, whereas section 18(2) (public holidays that are ordinarily worked), protects all employees i.e., the earnings threshold is not applied to section 18(2). 2. Those employees that earned between the previous threshold of R224,080 and R241 110,59 per year before the earnings threshold was increased to R241 110,59 per year, were not entitled to the protection listed above, but after the increase they are entitled to the protection, notwithstanding the fact that their employment contracts might state that they do not qualify for overtime payment. 3. Most of the ‘working time’ provisions of the BCEA do not apply to senior managerial employees even if they earn less than the threshold. A senior managerial employee is “an employee who has the authority to hire, discipline and dismiss employees and to represent the employer internally and externally”. What is ‘BCEA Earnings’? The notice goes on to define ‘Earnings’ to be: "… 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.” The BCEA earnings definition is explained by ‘parsing’ (examining its component parts one by one). These components are underlined in the definition and discussed below: “… Remuneration …” The notice is issued in terms of section 6(3) of the BCEA, therefore the ‘remuneration’ that is used as the base amount for ‘earnings’ in the definition of “earnings” in the notice, is ‘BCEA remuneration’, defined to be: “… any payment in money or in kind, … made … in return for that person working for any other person, …” BCEA remuneration is a complex subject that is outside of the scope of this Newsflash, but in short, BCEA remuneration does not include: • Allowances • Benefits that are not granted in return for ‘work done’ (in other words, benefits that are granted in return for ‘work done’ are BCEA remuneration). “… before deductions …” This part of the definition specifies what could be termed ‘gross’ remuneration i.e. remuneration before deductions, but the wording starting from “but excluding” is clumsily drafted and easily misinterpreted. It is clear (and obvious) that remuneration must not be reduced by the employment taxes (PAYE, SDL and UIF). What is not clear is that the wording following “but excluding” appears to specify that remuneration must be reduced by employer-paid contributions to medical schemes, retirement funds etc. This is not correct - employer-paid contributions to medical schemes, retirement funds, etc. are included in BCEA remuneration (as ‘payments in kind’) and must be included in BCEA earnings for the purposes of this threshold. The Department of Employment and Labour has confirmed this by providing the PAGSA with their interpretation that states that employer-paid contributions to medical schemes, retirement funds, and similar, are BCEA earnings and the value of the amount contributed must be included. “… subsistence and transport allowances …” As pointed out above, all allowances are excluded by definition from BCEA remuneration. However, to reduce queries and prevent misunderstandings, the notice specifically names, and excludes, two commonly used allowances, being the subsistence allowance and the travel allowance. “… achievement awards …” Even though they are normally BCEA remuneration, the notice specifically excludes ‘achievement awards’ from BCEA earnings. Achievement awards include: • Bonuses based on performance • Commissions • Incentive payments, etc. “… overtime …” is specifically excluded from BCEA Earnings. Application of the BCEA Earnings Threshold to the BCEA As stated above, only employees earning below the earnings threshold are subject to the provisions of BCEA section 10 that provides the rules for overtime. This means that if an employee works overtime and earns – • Below the threshold, then the overtime must be paid by the employer, • Above the threshold, then the overtime may be paid (the employer can choose whether or not to pay). In the past, when calculating the value of an employee’s BCEA earnings, the notice at the time specified that only ‘occasional’ overtime was excluded from BCEA earnings. This was a nonsensical requirement - how does one decide which overtime hours are ‘regular’ and which are ‘occasional’? By its nature, overtime is an irregular payment. The PAGSA submitted comments on this impractical requirement for many years until finally the wording in the notice was changed to what we have now - all overtime payments are excluded from BCEA earnings.   Application of the BCEA Earnings Threshold to Other Acts The BCEA earnings threshold is applied in the LRA (Labour Relations Act) and the EEA (Employment Equity Act). Labour Relations Act [sections 198A, 198B, and 198C] Certain categories of employees earning below the earnings threshold are seen as being ‘vulnerable’ and are entitled to additional protection. The vulnerable categories of employees are those in non-standard employment arrangements including fixed term contracts, brokered labour, and part-time employees. Fixed-term contracts: Employees who earn below the threshold and are employed for a period exceeding 3 months, may be regarded as permanently/indefinitely employed if there is no justifiable reason (there are nine reasons) for the limited duration of the contract (section 198B(4) of the LRA). Those earning above the threshold do not enjoy the same protection. Temporary employment services (TES): Employees earning below the threshold may be deemed to be permanent employees of the client of the TES in certain circumstances. For example, if they are placed with the client for a period exceeding 3 months or if they are not merely substituting an employee who is temporarily absent (Section 198A(3)(b) of the LRA). The same does not apply to those earning above the threshold – they remain the employees of the TES. Employment Equity Act An employee who earns above the earnings threshold and who has a dispute under Chapter II of the EEA (unfair discrimination) is not permitted to refer the dispute to the CCMA for arbitration (unless the dispute relates to alleged unfair discrimination on the grounds of sexual harassment, or the parties agree to arbitration) and is obliged to refer the dispute to the Labour Court for adjudication. There are other areas of the LRA and the EEA that take the BCEA earnings threshold into account such as ‘monetary claims’ and ‘unfair discrimination disputes’ but these are outside of the scope of this workbook. History of BCEA Earnings Increases BCEA EARNINGS THRESHOLD Effective Annual 1 Mar 2008 R149 736 1 Jul 2011 R172 000 1 Jul 2012 R183 008 1 Jul 2013 R193 805 1 Jul 2014 R205 433 1 Mar 2021 R211 596,30 1 Mar 2022 R224 080,48 1 Mar 2023 R241 110,59 The history of the increases to the BCEA earnings threshold shows a 7-year gap from 2014 until 1 March 2021 during which the threshold was not increased. This was presumably because of the amendments to the Labour Relations Act in 2014 to introduce the concept of ‘deemed employment’ for those employees that fall into a “temporary services” category, and that only applies to employees that earn below the BCEA threshold (discussed in the Labour Relations Act sub-section above). The application in practice of the concept of ‘deemed employment’ is difficult, and my understanding is that the BCEA earnings threshold was not increased annually to keep the number of occurrences of ‘deemed employment’ as low as possible while the challenges to the new requirements wound their way through the courts. Following the ConCourt judgement, the labour authorities felt comfortable enough to increase the threshold. 2.4 Unemployment Insurance Limits The calculation of the UIF TERS benefit during the recent Covid-19 lockdown periods underlined the importance of the UIF benefit limit when calculating UIF benefits. Remuneration above the benefit limit is ignored, and the result is that the value of the benefit is ‘capped’. The 2021 Budget announced (correctly) that the remuneration limit for contributions will increase from R14 872 pm to R17 711,58 pm, and (incorrectly) that the effective date of this increase is 1 March 2021. There were two problems with this announcement: 1. The benefit limit is R17 712 – why does the contribution limit differ by a few cents? 2. The Minister cannot change the contribution limit with immediate effect by announcement in the budget – it requires a notice in a Gazette in terms of Unemployment Insurance Contributions Act section 6(2). The upshot of a frantic few days of discussions between the PAGSA, SARS, and National Treasury is that the 1 March 2021 effective date announcement in the Budget was scrapped, and the proposed increase to the UIF contribution limit was issued for public comment. Following the public comment period, Gazette No. 44641 was issued on 28 May 2021, and increased the monthly UIF contribution limit to R17 712 with effect from 1 June 2021. The effective date was only a few days after the publication of the notice, leaving payrolls very little time to implement the increase for June. The monthly contribution limit is now aligned with the monthly benefit limit that is used by the Fund to calculate all benefits (including the TERS and the latest TFRS benefit) and is based on monthly remuneration but limited to R17 712 per month. Comments on the UIF Contribution Increase The 2020 Covid lockdown and TERS period, followed by the July 2021 civil unrest riots, hit the Fund financially very hard from three sides: 1. The TERS benefit payments (approximately R60 billion by February 2021) 2. A spike in unemployment benefits as a result of a massive increase in retrenchments 3. A reduction in the inflow of UIF contributions - remuneration either disappeared (unemployment) or was reduced by agreement to keep companies afloat. An increase to the contributions limit will result in larger contribution amounts that will over time help the Fund to get back onto solid financial ground. Prior to the Covid-19 problems and the recent civil unrest, the Fund – fortunately for South Africa – had a healthy surplus. We need the Fund to reach this position again – who knows when it will have to weather the next storm? Chapter 3 of Budget 2023 expects the various social security Funds (including UIF) to return to a surplus position by 2025/2026, and states as follows: “Social security funds ran cash deficits of R46.7 billion in 2020/21 due to the higher spending by the Unemployment Insurance Fund (UIF) in response to COVID-19. Social security funds are projected to run cash deficits until 2024/25 mainly driven by the UIF and Road Accident Fund. The social security funds are expected to return to a surplus position by 2025/26.” Since 1 June 2021, the UIF limit for both contributions and benefits are unchanged – R17 712 per month.   2.6 Increases to the National Minimum Wage Rates Background The National Minimum Wage Act (NMW Act) was promulgated on 12 Dec 2018 and made effective on 1 January 2019 - leaving payrolls less than 3 weeks in which to implement. The NMW Act establishes the National Minimum Wage Commission and tasks it with the duty to every year investigate and review the impact of the national minimum wage rate on the South African economy. After evaluating the impact of the national minimum wage against a list of seven economic factors, of which unemployment is arguably the most important, the Commission must then recommend increases (or decreases, or no change) to the national minimum wage rates specified in Schedules 1 and 2 of the NMW Act to Government. Legislation Background to the NMW Increases NMW Act Section 4(2) Any minimum wage rate that is not reviewed regularly would soon fall behind inflation and cease to be relevant. Section 4(2) of the NMW Act provides that the rates can be changed on an annual basis, and sections 6 to 14 establish the National Minimum Wage Commission and assign to it responsibilities and duties. NMW Act Section 9 Section 9 sets out the composition of the Commission, as follows: 1. A chairperson appointed by the Minister 2. three members nominated by organised business 3. three members nominated by organised community 4. three members nominated by organised labour, and 5. three independent experts, who are knowledgeable about the labour market and conditions of employment, appointed by the Minister. NMW Act Section 6 Section 6 puts a duty on the Commission to review the national minimum wage annually and make recommendations to the Minister on any adjustment (i.e. an increase, no change, or a decrease) of the wage rate. NMW Act Section 7 For the purpose of the annual review, the Commission must in general promote: 1. the medium-term targets referred to in section 11(d) (to set medium-term targets for the minimum wage) 2. the alleviation of poverty, and 3. the reduction of wage differentials and inequality. When considering changes to the rates, the Commission must consider the following economic factors: 1. inflation, the cost of living and the need to retain the value of the minimum wage 2. wage levels and collective bargaining outcomes 3. gross domestic product 4. productivity 5. ability of employers to carry on their businesses successfully 6. the operation of small, medium or micro-enterprises and new enterprises 7. the likely impact of the recommended adjustment on employment or the creation of employment, and 8. any other relevant factor. Unemployment is arguably the most important of these economic factors. National Minimum Wage Rates – Increases In a welcome acknowledgement of the economic role that payrolls play, in 2021 the National Minimum Wage Commission aligned the effective date of changes to the minimum wage rates with the start of the tax year. Government Gazette No. 48094 issued on 21 February 2023 increased the National Minimum Wage rates that are specified in Schedule 1 and Schedule 2 of the National Minimum Wage Act with effect from 1 March 2023. National Minimum Wage Hourly rates for the Four categories of workers other than Learners NATIONAL MINIMUM WAGE Rate/hr Rate/hr Rate/hr Rate/hr Rate/hr Worker Categories 1-Jan-19 1-Mar-20 1-Mar-21 1-Mar-22 1-Mar-23 General workers 20.00 20.76 (3,8%) 21.69 (4,5% 23.19 (6,9%) 25,42 (9,6%) Farm workers 18.00 18.68 (3,8%) 21.69 (16,1%) 23.19 (6,9%) 25,42 (9,6%) Domestic workers 15.00 15.57 (3,8%) 19.09 (22,6%) 23.19 (21,5%) 25,42 (9,6%) Public Works workers 11.00 11.42 (3,8% 11.93 (4,5%) 12.75 (6,9%) 13,97 (9,6%) Note: 1. In terms of section 4(3), the minimum wage rate in respect of workers in the extended public works program must be increased by the same percentage as for general workers. 2. The Minister decided on an across-the-board increase of 9,6% resulting in a minimum R25,42 per hour. 3. This is pretty stiff - for the year to January, the national inflation rate was 6,9% (and Budget 2023 anticipates inflation increases at 4,9% for the year ahead). 4. R25,42 per hour equates to R203,36 per day, R1 016,80 per week, and R4 406,13 per month on average. In a recent announcement in February 2023, the Minister stated that farm workers and domestic workers: “… are generally unorganized and vulnerable, and without the introduction of the National Minimum Wage Act, they would have continued to endure exceedingly low wage levels and poverty. This significant increase [9,6%] will benefit 892 000 domestic workers who are overwhelmingly women, and 800 000 farmworkers.” Weekly Minimum Wage rates for Learners in terms of Section 17 of the Skills Development Act LEARNERS Credits Min Min Min Min Min Already Wage Wage Wage Wage Wage NQF Levels Earned 1-Jan-19 1-Mar-20 1-Mar-21 1-Mar-22 1-Mar-23 Level 1 to 2 0 to 120 301.01 312.45 326.51 349.04 382.55 121 to 240 601.99 624.87 652.99 698.05 765.06 Level 3 0 to 120 301.01 312.45 326.51 349.04 382.55 121 to 240 566.93 588.47 614.95 657.38 720.49 241 to 360 928.11 963.38 1 006.73 1076.19 1 179.50 Level 4 0 to 120 301.01 312.45 326.51 349.04 382.55 121 to 240 602.05 624.93 653.05 698.11 720.49 241 to 360 928.11 963.38 1 006.73 1 076.19 1,179.50 361 to 480 1 354.51 1 405.98 1 469.25 1 570.63 1,721.41 Level 5 to 8 0 to 120 301.01 312.45 326.51 349.04 382.55 121 to 240 652.15 676.93 707.39 756.20 828.80 241 to 360 975.75 1 012.83 1 058.41 1 131.44 1,240.06 361 to 480 1 374.61 1 426.85 1 491.06 1 593.94 1,746.96 481 to 600 1 755.84 1 822.56 1 904.58 2 036.00 2,231.46 Increase Percentage Rate 3,8% 4,5% 6,9% 9,6% All categories of learners have been granted a 9,6% increase effective from 1 March 2023 (the previous increase was 3,8% from 1 March 2020, 4,5% from 1 March 2021, and 6,9% from 1 March 2022). Increases to Sectoral Determinations The increase to the NMW rate affects sectoral determination wage rates set that are higher than the NMW. These higher wage rates must be increased by the same increase percentage as that for general workers and are specified in Gazette 48094 for: 1. Sectoral Determination 1: Contract Cleaning Sector 2. Sectoral Determination 9: Wholesale and Retail Sector. The detail of the job levels and minimum wage rates can be found in the Gazette. National Minimum Wage Act - Important Definitions Definition of ‘Worker’ in the National Minimum Wage Act The BCEA defines an employee to be: “any person, excluding an independent contractor, who works for another person … and who receives, … remuneration” To prevent employers from falsely classifying employees as independent contractors and paying them less than the NMW rate, the NMW Act was amended at a late stage of its creation to define a “worker” by removing the exclusion of independent contractors from the BCEA definition of an employee: “any person who works for another and who receives, … any payment for that work whether in money or in kind. This means that if the above definition is satisfied, it is possible that while they are not BCEA employees, common law independent contractors can be workers in terms of the NMW Act definition and they must then be paid at least the national minimum wage rate. Definition of ‘Wage’ in the National Minimum Wage Act “Wage” is a subset of ‘remuneration’ (‘wage’ is always ‘remuneration’ but amounts that are ‘remuneration’ are not always ‘wage’), and is defined in the BCEA as follows: “wage” means the amount of money paid … to an employee in respect of ordinary hours of work or, …”. The NMW Act definition is identical to the BCEA definition except that the term “employee” has been replaced by that of “worker”, as follows: “wage’’ means the amount of money paid … to a worker in respect of ordinary hours of work or, …”. ‘Money’ means ‘cash’, therefore employer-paid contributions and benefits are not ‘wage’. Any payment that is not made in respect of the “ordinary hours of work” such as lump sum payments, allowances, premium payments such as overtime or shift premiums, as well as incentive payments such as bonuses or commissions, is not ‘wage’ as defined, and must not be included when checking the employee’s wage rate per hour against the national minimum wage rate per hour. *** PAGSA members can refer to Newsflash 2022-06   2.7 History of UIF, BCEA and COIDA Earnings Thresholds Table: Summary of the changes to the thresholds for UIF, the BCEA, the Compensation Fund, and the NMW Rates UIF LIMIT FOR CONTRIBUTIONS UIF LIMIT FOR BENEFITS BCEA EARNINGS THRESHOLD COIDA EARNINGS THRESHOLD NMW ACT GENERAL WORKERS Effective Monthly Effective Monthly Effective Annual Effective Annual Effective Per Hour 1 Apr 2002 R8 099 1 Apr 2002 R8 099 1 Mar 2008 R149 736 1 Apr 2017 R403 500 1 Apr 2003 R8 836 1 Apr 2003 R8 836 1 Jul 2011 R172 000 1 Mar 2018 R430 944 1 Oct 2005 R10 996 1 Oct 2005 R10 996 1 Jul 2012 R183 008 1 Mar 2019 R458 520 1 Mar 2019 R20,00 1 Jul 2006 R11 662 1 Jul 2006 R11 662 1 Jul 2013 R193 805 1 Mar 2020 R484 200 1 Mar 2020 R20,76 1 Feb 2008 R12 478 1 Feb 2008 R12 478 1 Jul 2014 R205 433 1 Mar 2021 R506 473 1 Mar 2021 R21,69 1 Oct 2012 R14 872 1 Oct 2012 R14 872 1 Mar 2021 R211 596,30 1 Mar 2022 R529 264 1 Mar 2022 R23,19 1 Jun 2021 R17 712 1 Apr 2017 R17 712 1 Mar 2022 R224 080,48 1 Mar 2023 R563 520 1 Mar 2023 R25,42 Note that only the history of the National Minimum Wage Rate for ‘General workers’ is recorded in the above table, but that from 1 March 2022 the rate of R23,19 also applies to Farm workers and to Domestic workers. This same principle also applies to years after 2022. Due to lack of space, the hourly minimum wage rate for Public Works Program workers and the weekly minimum wage rates for Learners are not recorded in the above history table. See the ‘Increases to the National Minimum Wage Rates’ section above for more details.

Chapter 1. Introduction
1.1 Scope of the Legislation and Regulations
This workbook focuses on the changes to employment-related tax and labour legislation, as well as on related administration requirements that are issued as regulations, notices, or specification documents.
The following Acts, Bills, Regulations, Notices, and specification documents are discussed in this workbook.
Amendment Bills
The Two-pot Retirement System amendment Bills were issued on 9 June 2023.
1. Revised 2023 Draft Revenue Laws Amendment Bill
2. Draft Revenue Administration and Pension Laws Amendment Bill.
The following Tax amendment Bills were issued on 31 July 2023.
1. Draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill [Rates Bill]
This Bill confirms the tax tables, rebates and threshold changes proposed in the 2023 Budget.
2. Draft Taxation Laws Amendment Bill [TLAB]
This Bill deals with the substantive changes to the Income Tax Act proposed in the 2023 budget.
3. Draft Tax Administration Laws Amendment Bill [TALAB]
This Bill deals with the administration-related changes proposed in the 2023 budget to the various Acts that are administered by SARS.
The following Labour Law Amendment Acts were promulgated in April 2023, but have not yet been made effective:
1. Compensation for Occupational Injuries and Diseases Amendment Act [COID Amendment Act]
2. Employment Equity Amendment Act [EE Amendment Act].
Regulations and Notices
1. Gazette No. 44702 Compensation Fund regulation issued on 15 June 2021.
Specifies minimum assessment amounts but it is unsigned, undated, and with no effective date.
Specifications
1. SARS PAYE BRS (Business Requirements Specification) version 22.1.2 issued on 4 August 2023.
Specifies the tax certificate fields, formats, and validation rules that payrolls must obey for 2023/24.
Terminology
A reference to ‘he’ or ‘his’ includes ‘she’ or ‘her’ in the case of a female taxpayer, and ‘it’ or ‘its’ in the case of a taxpayer other than an individual and is not intended to be discriminatory. The following abbreviations might be used in this workbook –
• ITA Income Tax Act
• TLAA Taxation Laws Amendment Act
• TALAA Tax Administration Laws Amendment Act
• SDLA Skills Development Levies Act
• UICA Unemployment Insurance Contributions Act
• ETIA Employment Tax Incentive Act
• BCEA Basic Conditions of Employment Act
• LRA Labour Relations Act
• EEA Employment Equity Act
• UIA Unemployment Insurance Act
• COIDA Compensation for Occupational Injuries and Diseases Act
• PAGSA Payroll Authors Group of South Africa

Chapter 13. Archive: Clarification of ETI ‘Qualifying Months’
The purpose of the ETI Act (Employment Tax Incentive Act) is to encourage employers to hire young people between the ages of 18 and 29 by subsidising their wage cost.
The Employment Tax Incentive is therefore an employment incentive, not a training incentive.
This chapter focuses on a difficult and not well-known aspect of the ETI Act – the concept of what I referred to in 2014 as ‘ETI months’ but now more correctly referred to as ‘ETI qualifying months’ by SARS, or simply ‘qualifying months’ as used in this workbook.
The detail of the legislation that is relevant to the discussion of the concept of ‘qualifying months’ is included in the section at the end of this chapter for your convenience.
13.1 Summary of the ‘Qualifying Months’ Legislation
Before discussing the principles and application of the qualifying months legislation in the next two sections, this summary of the relevant sections of the ETI Act will give you the ‘big picture’.
1. Section 3:
‘Defines’ an “eligible employer” by stating that an employer is eligible to receive the incentive if:
• it is registered for PAYE withholding,
• is not excluded by the legislation (government organisations, public entities, and municipalities), and
• is not disqualified from receiving the incentive (no disqualifying criteria have as yet been published).
2. Section 4:
States that an employer is not eligible to receive the employment tax incentive in respect of an employee if the wage paid to that employee is less than the minimum wage amounts specified in sections 4(1)(a) and (b).
3. Section 6:
Provides that an employee is a “qualifying employee” if all seven of the conditions specified in section 6 are met.
4. Sections 7(2) and (3)
These two sections specify the two formulas that must be applied by payrolls to calculate the ETI amount.
• The first formula caters for the first 12 months during which an employee qualifies
• The second formula for the second 12 months during which an employee qualifies.
5. Section 7(4)
Specifies that if the employee was previously employed by an associated person in relation to the employer that employs the qualifying employee, the number of (qualifying) months that the qualifying employee was employed by the associated person must be transferred to the current employer and vice versa.
6. Section 9(4)
ETI amounts are claimed via the SARS EMP201 and EMP501 administration processes within each 6-month tax certificate cycle (March to August, and September to February).
In terms of section 9(4), ETI amounts that are not claimed within the 6-month cycle are forfeited irrespective of the reason that they were not claimed.
13.2 Qualifying Months – Principles
ETI Act Section 6
Section 6 provides the seven tests, all of which must be satisfied every month before an employee ‘qualifies’ to generate an ETI amount for an eligible employer for that month.
For every month in which an employee qualifies for ETI by meeting the seven conditions of section 6, the number of qualifying months must be increased by one.
Note that the sixth condition refers to the ‘minimum wage’ test of sections 4(1)(a) and (b), and the seventh condition is the ‘remuneration test’ (ETI monthly remuneration must be less than R6,500 for each month).
Whereas the first 5 tests are based on demographic employee information that does not change frequently, ‘wage’ and ‘remuneration’ (in particular) can, and does, fluctuate from month-to-month. These fluctuations can result in an employee ‘qualifying’ in certain months and not in other months.
It follows that qualifying months might not be consecutive, and the maximum of twenty-four qualifying months might be accumulated over a much longer period of service than twenty-four.
ETI Act Section 7
The preamble to section 7(2) introduces the concept of ‘qualifying months’:
“(2) During each month of the first 12 months in respect of which an employer employs a qualifying employee, …”.
Section 7(2) goes on to specify the formula that the payroll must use to calculate the ETI for each of the first 12 months in which the employee qualifies, and section 7(3) specifies the formula to be used for the second 12 qualifying months of the maximum of 24 qualifying months.
The payroll identifies the correct formula (first or second twelve months) from the number of the employee’s qualifying months in the payroll at that point, and then calculates the ETI amount for that month.
13.3 Qualifying Months – Application
New Employee Appointments
Qualifying months must be calculated by payrolls for every month in which the employee qualifies by satisfying all seven conditions of section 6, even if the employer did not claim ETI for that month.
This means that the eventual length of the 24-month ETI qualifying period is determined by the number of months that an employee qualifies, not the number of months in respect of which ETI is claimed for that employee.
If, for example, an employer does not claim the ETI for a qualifying employee in a month, that month still counts towards the 24 qualifying months that an employer may claim the ETI in respect of that qualifying employee, illustrated by the following example.
SARS ETI Guide Example 4 – Calculation of qualifying periods (Example 3 of the LAPD Guide)
Employee C was employed by an eligible employer, Employer D, on 1 January 2018 and met all the requirements of a qualifying employee as provided for under section 6 from 1 January 2018 to 31 December 2018.
Employer D was entitled to claim the ETI for Employee C during this period but only claimed the ETI for Employee C for 5 months during this 12-month period.
Result: Even though Employer D only claimed the ETI for 5 months during the period 1 January 2018 to 31 December 2018, the 7 months that Employer D was entitled to claim the ETI for Employee C but did not claim the ETI must still be included in the calculation of the 24 qualifying months. In December 2018, Employee C would be in the 12th qualifying month.
Note:
If an employer did not participate in the ETI project for some years, and then decided to participate from a certain month, the qualifying months of the qualifying employees in that initial month does not start with one month. It must start with the number of qualifying months that accumulated during the years of employment prior to the month in with the employer joined the ETI project.
Associated Persons
In line with the Seventh Schedule, the ETI Act defines an associated person in relation to an employer that is a company to be any other company which is associated with that employer as a result of both companies being managed or controlled, directly or indirectly, by substantially the same persons.
If a qualifying employee changes employment from one associated person employer to another, then the qualifying months accumulated by the last employer must be carried forward to the new employer. The latest employer must accumulate qualifying months using the number of months carried forward from the previous employer as the starting point and must not use zero qualifying months as the starting point.
If this was not the case, it would be possible for two companies that are associated persons to shuffle employees from the one company to the other to remain indefinitely within the first 12-month bracket, or to escape the limitation of the maximum of 24 qualifying months for an employee.
Re-appointment of a Qualifying employee
Carrying the ‘associated persons’ concept forward, a single employer is obviously an associated person to itself. Therefore, the above principle is applied to a qualifying employee that has left the services of an employer, only to be re-employed by the same employer at a later stage.
The qualifying months recorded for the employee when the employee left the services of the employer must be used as the starting point for further accumulation of qualifying months when the employee re-joins the employer.
Seasonal Workers and ‘Casuals’
It is fairly common practice that seasonal workers, as well as so-called ‘casuals’ or ‘temps’, are employed by an employer for short periods of employment broken by periods of unemployment.
The above ‘re-appointment of a qualifying employee’ rule must be applied to these broken periods of employment with the same employer – the qualifying months must continue from where they were at the end of the previous period of employment and must not start from scratch with one qualifying month.
EMP201 Claims, Qualifying months, Tax certificates, and SARS audits
As discussed in the ‘New Employee Appointments’ subsection above, the number of qualifying months is determined from the number of months in which the employee qualified by meeting all seven conditions of section 6, not by the number of months that ETI is claimed by the employer.
While there is a direct link between the payroll’s ETI calculations and the ETI information reported on the tax certificate, there is no direct link (or upload) between the payroll and the EMP201. The EMP201 administration is independent of the payroll system, and it is the employer’s responsibility to complete the EMP201 accurately and to submit it timeously.
Irrespective of whether or not the employer submits an EMP201 containing the ETI claim for a certain month, the payroll must increase the number of qualifying months by one month and record the ETI information for the tax certificate for that month irrespective of the fact that the ETI was not claimed by the employer.
This can result in a mismatch between the number of months the payroll records as being a qualifying month in which ETI should have been claimed, and the number of months that ETI was actually claimed.
In terms of section 9(4) of the ETI Act, the employer can ‘catch up’ months that were not claimed by submitting a ‘catch-up’ EMP201 that consolidates the ETI claims for the current month plus the unclaimed months, as long as the months being retrospectively claimed fall within the same 6-month tax certificate cycle.
But the point is that the payroll must accumulate qualifying months for each month in which an employee qualifies, irrespective of what happens to the money (the ETI claim).
Expanded ETI Relief
As a result of the four months of Covid lockdown in 2020 and the civil unrest in July 2021, the qualifying conditions of section 6 were relaxed to allow more employees to qualify, thereby increasing the ETI. This improved the company’s cash flow, reduced retrenchments and business closures, and preserved jobs.
During those special tax relief periods, the principle of calculating, recording, and applying qualifying months in payrolls was no different to ‘normal’ months.
13.4 Relevant Extracts from the Employment Tax Incentive Act
Section 3. Eligible employers.—
An employer is eligible to receive the employment tax incentive if the employer—
(a) is registered for the purposes of the withholding and payment of employees’ tax by virtue of paragraph 15 of the Fourth Schedule to the Income Tax Act; and
(b) is not—
(i) the government of the Republic in the national, provincial or local sphere;
(ii) a public entity that is listed in Schedule 2 or 3 to the Public Finance Management Act, 1999 (Act No. 1 of 1999), other than those public entities that the Minister of Finance may designate by notice in the Gazette on such conditions as the Minister of Finance may prescribe by regulation;
(iii) a municipal entity defined in section 1 of the Local Government: Municipal Systems Act, 2000 (Act No. 32 of 2000); and
(c) is not disqualified from receiving the incentive—
(i) by the Minister of Finance in accordance with section 5 (1) (b), due to the displacement of an employee by virtue of section 5 (2); or
(ii) by not meeting such conditions as the Minister of Finance, after consultation with the Minister of Labour, may prescribe by regulation, including—
(aa) conditions based on requirements in respect of the training of employees; and
(bb) conditions based on the classification of trade in the most recent Standard Industrial Classification Code issued by Statistics South Africa.
Section 4. Compliance with wage regulating measures.—
(1) An employer is not eligible to receive the employment tax incentive in respect of an employee in respect of a month if the wage paid to that employee in respect of that month is less than—
(a) the higher of the amount payable by virtue of a wage regulating measure applicable to that employer or the amount contemplated in section 4 (1) of the National Minimum Wage Act, 2018 (Act No. 9 of 2018), or Schedule 2 to that Act; or
(b) if the amount of the wage payable to an employee by an employer is not subject to any wage regulating measure or not subject to section 3 of the National Minimum Wage Act, 2018 (Act No. 9 of 2018), or exempt under section 15 of that Act —
(i) where the employee is employed and paid remuneration for at least 160 hours in a month, the amount of R2 000 in respect of a month; or
(ii) where the employee is employed and paid remuneration for less than 160 hours in a month, an amount that bears to the amount of R2 000 the same ratio as 160 hours bears to the number of hours that the employee was employed for and paid remuneration by that employer in that month.
(2) If an employer receives the employment tax incentive in respect of an employee despite not being eligible by reason of subsection (1), that employer must pay a penalty to the South African Revenue Service in an amount equal to 100 per cent of the employment tax incentive received in respect of that employee in respect of each month that the employer received the employment tax incentive.
(3) For the purposes of this section “wage regulating measure” means—
(a) a collective agreement as contemplated in section 23 of the Labour Relations Act;
(b) a sectoral determination as contemplated in section 51 of the Basic Conditions of Employment Act, or
(c) a binding bargaining council agreement as contemplated in section 31 of the Labour Relations Act, including where such agreement is extended by reason of a determination of the Minister of Labour in terms of section 32 of that Act.
(4) For the purposes of this section, “hours” means “ordinary hours” as defined in section 1 of the Basic Conditions of Employment Act, 1997 (Act No. 75 of 1997).
Section 6. Qualifying employees.—
An employee is a qualifying employee if the employee—
(a)
(i) is not less than 18 years old and not more than 29 years old at the end of any month in respect of which the employment tax incentive is claimed;
(ii) is employed by an employer that is a qualifying company as contemplated in section 12R of the Income Tax Act, and that employee renders services to that employer mainly within the special economic zone in which the qualifying company that is the employer carries on trade; or
(iii) is employed by an employer in an industry designated by the Minister of Finance, after consultation with the Minister of Labour and the Minister of Trade and Industry, by notice in the Gazette;
(b)
(i) is in possession of an identity card referred to in section 14 of the Identification Act, 1997 (Act No. 68 of 1997), issued to that employee after application for the card in terms of section 15 of that Act;
(ii) is in possession of an asylum seeker permit, issued to that employee in terms of section 22 (1) of the Refugees Act, 1998 (Act No. 130 of 1998), after application for the permit in terms of section 21 (1) of that Act; or
(iii) is in possession of an identity document issued in terms of section 30 of the Refugees Act, 1998 (Act No. 130 of 1998);
(c) in relation to the employer, is not a connected person as defined in section 1 of the Income Tax Act;
(d) is not a domestic worker as defined in section 1 of the Basic Conditions of Employment Act, 1997 (Act No. 75 of 1997);
(e) was employed by the employer or an associated person on or after 1 October 2013 in respect of employment commencing on or after that date;
(f) is not an employee in respect of whom an employer is ineligible to receive the incentive by virtue of section 4; and
(g) receives remuneration in an amount less than R6 500 in respect of a month.
Section 7. Determining amount of employment tax incentive.—
(1) During each month, commencing from 1 January 2014, that an employer employs a qualifying employee, the amount of the employment tax incentive available to that employer is the sum of the amounts determined in respect of each qualifying employee of that employer stipulated in subsections (2) and (3) and section 9.
(2) During each month of the first 12 months in respect of which an employer employs a qualifying employee, the amount of the employment tax incentive in respect of that qualifying employee, if the monthly remuneration of the employee is— … [calculation formula follows]
(3) During each of the 12 months after the first 12 months that the same employer employs the qualifying employee, the amount of the employment tax incentive in respect of that qualifying employee, if the monthly remuneration of the employee is—… [calculation formula follows]
(4) If a qualifying employee was previously, on or after 1 January 2014, employed by an associated person in relation to the employer that employs the qualifying employee, the number of months that the qualifying employee was employed by the associated person must be taken into account by that employer for the purposes of this section as if that employee had already been employed by that employer for that number of months.
“Associated person”, in relation to an employer—
a. where the employer is a company, means any other company which is associated with that employer by reason of the fact that both companies are managed or controlled directly or indirectly by substantially the same persons;
b. where the employer is not a company, means any company which is managed or controlled directly or indirectly by the employer or by any partnership of which the employer is a member; or
c. where the employer is a natural person, means any relative of that employer;
Section 9. Roll-over of amounts.—
(1) Subject to subsection (4) and section 10 (3), if in any month the amount of the employment tax incentive available to an employer exceeds the amount payable by the employer in respect of employees’ tax, the amount of the employment tax incentive by which the employees’ tax may be reduced in the succeeding month must be increased by adding the amount of that excess to the amount of the employment tax incentive that is available in that succeeding month.
(2) If an employer does not reduce employees’ tax in the amount of the employment tax incentive despite that amount being available to that employer, the sum of the amounts by which the employer would have been entitled to reduce employees’ tax must be treated as an excess contemplated in subsection (1) in the first month that the employer reduces employees’ tax in the amount of the tax incentive available to the employer.
(3) If, by virtue of section 8, an employer may not reduce employees’ tax in the amount of the employment tax incentive available to that employer, the sum of the amounts by which the employer would have been entitled to reduce employees’ tax payable by that employer if the employer had not been subject to section 8 must be treated as an excess contemplated in subsection (1) in the first month that the employer is not subject to section 8.
(4) Any amount as contemplated in subsection (2) or (3) on the first day of the month following the end of the period for which the employer is required to render a return in terms of paragraph 14 (3) (a) of the Fourth Schedule to the Income Tax Act, must be deemed to be nil in respect of each qualifying employee employed by the employer on that date.

Chapter 8. 2023 Budget Review – Presented on 22 February 2023
As an introduction to the aspects of the 2023 Budget Review that are important for payroll suppliers and employers, it is worth noting the following paragraph in Chapter 4 of Budget 2023 that recognises the SARS revival:
“The South African Revenue Service (SARS) celebrated its 25th anniversary in October 2022.
SARS continues to enhance its service offering as it rebuilds from the period of state capture. Over the past three years it has strengthened revenue collection and worked to ensure that its systems, officials and leadership are capacitated to improve the taxpayer’s experience, increase compliance and generate additional tax revenue.
In November 2022, SARS finalised the reparation process for current and former employees as recommended by the Nugent Commission of Inquiry. It continues to build a tax administration that collects tax receipts in an efficient and fair manner.”
Thankfully for all of us, in recent times revenue collections continue to outperform budget forecasts partly as a result of the improved SARS efficiency, taking pressure off the need to increase taxes.
8.1 2023 Budget Overview
Presented on 22 February 2023 by our relatively new Minister of Finance Enoch Godongwana, the 2023 Budget Review was hard-hitting with the finance minister making it clear that difficult times lie ahead of us.
“This is not an austerity budget,” finance minister Enoch Godongwana assured everyone from the podium at Cape Town City Hall on Wednesday. Instead, he said, it’s a budget in which “tough trade-offs” had to be made.
There is however good news from SARS.
Tax revenue collections for 2022/23 are expected to total R1.7-trillion, exceeding the 2022 Budget estimate by about R94-billion, which means that there are no increases to tax rates this year.
Budget 2023 Snippets
Before getting into the numbers, I have copied some interesting snippets from the budget speech as well as from the financial media. They give a flavour of where we are in economic, tax, and political terms.
1. The growth rate for 2023 is revised downward to 0,9%.
Where Enoch is giving…
2. Tax relief of R13bn to support the clean energy transition and increase electricity supply.
3. Roughly 70% of this is to incentivise companies (R5bn) and individuals (R4bn) to invest in generating electricity from renewables.
4. Fiscal drag is addressed through inflation-related adjustments to the personal income tax tables (R13 bn), the retirement tax tables, and transfer duties.
5. The old age and disability grants increase by R90 on 1 April 2023 and a further R10 on 1 October 2023. The result is a total increase to R2090.
6. The child support grant rises from R480 to R510 on 1 October 2023, while the foster care grant increases from R1070 to R1130 over the same period.
Where Enoch is taking …
7. Excise duties on alcohol and tobacco rise 4.9%.
Where Enoch is leaving things as they are….
8. As in the 2022 Budget, Government proposes no changes to the General Fuel levy or the Road Accident Fund levy
9. No increase to the Health Promotion Levy (formerly the “Sugar Levy”) to allow industry time to recover.
10. The diesel fuel levy refund for manufacturers of foodstuffs is extended until 31 March 2025.
Things are bad and the risks are growing ….
11. Real GDP will fall below SA’s population growth rate for the next two years – to 0.9% in 2023 and 1.5% in 2024. This is due to power cuts, deteriorating rail and ports infrastructure and weaker global economy.
12. Inflation is expected to fall from 6.9% in 2022 to 5.3% this year and 4.9% in 2024.
What’s being done about it……
13. Government will implement ‘urgent measures’ to reduce power cuts including opening electricity supply to the private sector.
14. Several reforms are under way to improve transport sector, specifically freight rail.
Getting closer but a long way from balancing the books….
15. The cost of servicing debt mostly built up during the Zuma spending spree era continue to grow and are projected to rise from the current 18% to almost 20% of revenue by 2026.
16. In aggregate, despite some improvement, SA’s Government is still spending R5 for every R4 collected.
17. Annual debt service costs are now over R340bn – triple what is spent on Police and the Budget’s biggest line item, ahead of Basic Education (R310bn) and Social Grants (R286bn).
18. The Budget Deficit will decline from 4.6% to 4.2% of GDP for this year; with Treasury targeting 3.2% in 2025/26. This is a significant improvement helped by higher tax income due to better commodity prices and compares with projections of 5.1% for 2022; 4.9% for 2023 and 3.3% for 2026.
19. The assumption of R254bn in Eskom debt means total government debt stabilises at 73.6% of GDP in 2025/26, later and at a higher level than previously expected.
Odds and Ends
20. South Africa was ‘Grey listed’ on 23 Feb 2023 …
21. Excise duties on alcohol and tobacco will increase by the expected inflation rate of 4.9 percent:
o A 340ml can of beer or cider will cost 10c more
o A 750ml bottle of wine will be 18c more expensive
o A 750ml bottle of sparkling wine will cost an additional 9c
o A 750ml bottle of spirits will be R3,90 more expensive
o A packet of 20 cigarettes will cost an additional R0,98
o 25 grams of pipe tobacco will cost an extra 33c
o A 23 gram cigar will be R5,47 more expensive
BUT … 
o Excise duty on traditional African beer is unchanged at 7.82 c/litre (no increase for at least a decade)
o Excise duty on traditional African beer in powder form is also unchanged at 34,7 c/litre (ditto).

 
8.3 Tax Rates, History, and Analysis Tables
Table: Contribution to Tax Revenue

TAX REVENUE Feb 2021 Budget Feb 2022 Budget Feb 2023 Budget
SOURCE Billions % Billions % Billions %
Personal Income Tax (PIT) R516,0 37,7% R587,9 36,8% R640,3 35,8
VAT R370,2 27,1% R439,7 27,5% R471,5 26,4
Corporate Income Tax (PIT) R213,1 15,6% R269,9 16,9% R336,1 18,8
Customs & Excise Duties R100,5 7,3% R117,4 7,3% R137,9 7,7
Fuel Levies R83,1 6,0% R89,1 5,6% R90,4 5,0
Other R82,2 6,0% R94,5 5,9% R111,3 6,2
TOTAL R1 365,1 R1 598,5 R1 787,5
Note that the above table shows forecast amounts and percentages for the year ahead as announced in each year’s Budget Review, and not actual figures.
What is very satisfying from the perspective of payroll suppliers is the high percentage of tax revenue (35,6%) that flows through payroll systems as PAYE into the fiscus (the total also includes provisional tax but my understanding is that the major portion of the total amount is PAYE).
Granted that economic circumstances in each year play a role (the Covid-19 year is a good example), but from memory, the Personal Income Tax percentage has never dropped below 34% in the last 20 years or so.

Table 4.6: Estimates of individuals and taxable income, 2023/24
Taxable bracket Registered
individuals Taxable
income Income tax payable
R thousand Number % R billion % R billion %
R0 – R961 7 545 020 – 292.2
R96 – R150 1 528 990 21.5 182.0 6.2 14.9 2.3%
R150 – R250 1 505 950 21.1 292.0 9.9 22.0 3.3%
R250 – R350 1 248 123 17.5 370.1 2.5 48.5 7.4%
R350 – R500 1 233 846 17.3 516.3 17.4 89.5 13.6%
R500 – R750 842 653 11.8 506.4 17.1 113.9 17.3%
R750 – R1 000 354 263 5.0 305.1 10.3 84.3 12.8%
R1 000 – R1 500 244 586 3.4 294.3 9.9 92.8 14.1%
R1 500 + 163 702 2.3 493.6 16.7 193.9 29.4%
Total 7 122 113 100.0 2 959.9 100.0 660.0 100.0%
Grand total 14 667 133 3 252.1 660.0
1. Registered individuals with taxable income below the income-tax threshold
Source: National Treasury

Comparison Table: Tax Rates, Rebates, and Thresholds for 2022/23 and 2023/24
2022/23 2023/24
Taxable income (R) Rates of tax Taxable income (R) Rates of tax
R0 – R226 000 18% of each R1 R0 – R237 100 18% of each R1
R226 001 – R353 100 R40 680 + 26% of the amount above R226 000 R237 101 – R370 500 R42 678 + 26% of the amount above R237 100
R353 101 – R488 700 R73 726 + 31% of the amount above R353 100 R370 501 – R512 800 R77 362 + 31% of the amount above R370 500
R488 701 – R641 400 R115 762 + 36% of the amount above R488 700 R512 801 – R673 000 R121 475 + 36% of the amount above R512 800
R641 401 – R817 600 R170 734 + 39% of the amount above R641 400 R673 001 – R857 900 R179 147 + 39% of the amount above R673 000
R817 601 – R1 731 600 R239 452 + 41% of the amount above R817 600 R857 901 – R1 817 000 R251 258 + 41% of the amount above R857 900
R1 731 601 and above R614 192 + 45% of the amount above R1 731 600 R1 817 001 and above R644 489 + 45% of the amount above R1 817 000
Rebates Rebates
Primary R16 425 Primary R17 235
Secondary R9 000 Secondary R9 444
Tertiary R2 997 Tertiary R3 145
Tax threshold Tax threshold
Below age 65 R91 250 Below age 65 R95 750
Age 65 and over R141 250 Age 65 and over R148 217
Age 75 and over R157 900 Age 75 and over R165 689
National Treasury

Table: Six-year History of Income Tax Rates and Rebates
STATUTORY TAX TABLE 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24
Primary tax rebate – all individuals 14 067 14 220 14 958 15 714 16 425 17 235 4,9%
Secondary tax rebate –65 and over 7 713 7 794 8 199 8 613 9 000 9 444 4,9%
Tertiary tax rebate – 75 and over 2 574 2 601 2 736 2 871 2 997 3 145 4,9%
Tax threshold – under 65 78 150 79 000 83 100 87 300 91 250 95 750 4,9%
Tax threshold – 65 and older 121 000 122 300 128 650 135 150 141 250 148 217 4,9%
Tax threshold – 75 and older 135 300 136 750 143 850 151 100 157 900 165 689 4,9%
Bottom marginal percentage rate 18% 18% 18% 18% 18% 18%
Top tax bracket starts at 1,5 m 1,5 m 1,577 m 1,657 m 1,732 m 1,817 m 4,9%
Top marginal percentage rate 45% 45% 45% 45% 45% 45%
Total Personal Income Tax relief 6,8 bn 0 bn 2 bn 2,2 bn 13,5 bn 15,7 bn

 
Table: Five-year History of Payroll Limits and Thresholds
GENERAL TAX LIMITS AND RATES 2019/20 2020/21 2021/22 2022/23 2023/24
Medical – Primary tax credit 310 319 332 347 364 4,8%
Medical – Secondary tax credit 209 215 224 234 246 5,1%
Subsistence: RSA (meals & incidentals) 435 452 452 493 522 5,8%
Subsistence: RSA (incidentals only) 134 139 139 152 161 5,9%
‘Day trip’ reimbursements (meals & incidentals) 134 139 139 152 161
Residential Accommodation Abatement 79 000 83 100 87 300 91 250 95 570 4,7%
Personal Service Provider Company 28% 28% 28% 28% 27%
Personal Service Provider Trust 45% 45% 45% 45% 45%
Travel – Cost Scale ceiling 595 000 665 000 665 000 665 000 800 000 20,3%
Travel – Prescribed Rate per km 3,61 3,98 3,82 4,18 4,64 11%
Bursary: Remuneration proxy ceiling 600 000 600 000 600 000 600 000 600 000
Bursary: Relative – Basic Education. 20 000 20 000 20 000 20 000 20 000
Bursary: Relative – Higher Education. 60 000 60 000 60 000 60 000 60 000
Table: SARS ‘Cost Scale’ Table for 2023/24 (effective from 1 March 2023)
Determined Value
of the Vehicle Fixed Cost Fuel Cost Maintenance Cost
(R pa) (c/km) (c/km)
0 – R100 000 R33 760 141,5 43,8
R100 001 – R200 000 R60 329 158,0 54,8
R200 001 – R300 000 R86 958 171,7 60,4
R300 001 – R400 000 R110 554 184,6 65,9
R400 001 – R500 000 R134 150 197,6 77,5
R500 001 – R600 000 R158 856 226,6 91,0
R600 001 – R700 000 R183 611 230,5 102,1
R700 001 – R800 000 R209 685 234,3 113,1
R800 001 and above R209 685 234,3 113,1
Prescribed Rate/km R4,64 / km
Note:
1. The prescribed rate per km includes the Fixed, Fuel, and Maintenance cost elements and represents a fair value for a car of ‘average’ value that travels an ‘average’ number of kilometers per year.
2. It is a safe (no risk) option that employers should consider using when estimating travel allowance amounts and for the calculation of travel reimbursement claims.
3. The prescribed rate for 2023/24 has been increased by 11,0% from R4,18 to R4,64 per kilometer.
4. Employers that prefer not to use the prescribed rate per kilometer, must use the ‘Cost Scale’ table to determine a rate per km that is based on the determined value of the privately-owned vehicle for the estimation of a travel allowance, and for the calculation of a travel reimbursement.
5. On assessment, SARS use the ‘Cost Scale’ table and the kilometers declared in the logbook to determine the ‘cost’ rate per km that will be used to calculate the value of the business travel deduction expense that will reduce income tax.

Table 4.8: Retirement Fund Lump Sum Table (including Severance Benefits)
2022/23 2023/24
Taxable income (R) Rates of tax Taxable income (R) Rates of tax
R0 – R500 000 0% of taxable income R0 – R550 000 0% of taxable income
R500 001 – R700 000 18% of taxable income above R500 000 R550 001 – R770 000 18% of taxable income
R700 001 – R1 050 000 R56 700 + 27% of taxable income above R700 000 R770 001 – R1 155 000 R39 600 + 27% of taxable income above R770 000
R1 050 001 and above R141 750 + 36% of taxable income above R1 050 000 R1 155 001 and above R143 550 + 36% of taxable income above R1 155 000
National Treasury

Table: Retirement Fund Lump Sum [early] Withdrawal Table
2022/23 2023/24
Taxable income (R) Rates of tax Taxable income (R) Rates of tax
R0 – R25 000 0% of taxable income R0 – R27 500 0% of taxable income
R25 001 – R660 000 18% of taxable income above R25 000 R27 501 – R726 000 18% of taxable income above R27 500
R660 001 – R990 000 R114 300 + 27% of taxable income above R660 000 R726 001 – R1 089 000 R125 730 + 27% of taxable income above R726 000
R990 001 and above R203 400 + 36% of taxable income above R990 000 R1 089 001 and above R223 740 + 36% of taxable income above R1 089 000
National Treasury

Table: Social grants
SOCIAL GRANT DESCRIPTION 2019/20 2022/23 2023/24
State Old Age Grant 1 780 1 985 2 085
State Old Age Grant, over 75’s 1 800 2 005 2 105
War Veterans Grant 1 800 2 005 2 105
Disability Grant 1 780 1 985 2 085
Foster Care Grant 1 000 1 070 1 125
Care Dependency Grant 1 780 1 985 2 085
Child Support Grant 425 480 505
Grant-In-Aid 480 505
According to the 2023 Budget:
• 19,6 million people are expected to receive social grants by March 2026
• R36 billion is allocated to the Covid-19 relief of distress grant that has been proposed (at this stage) to be extended to 31 March 2024 to provide eligible beneficiaries with R350 per month.

Chapter 11. Archive: ‘Fixed Rate’ Tax Calculations
This chapter has been updated with recent events and opinions, including changes to the 1 March 2022 process of implementing Fourth Schedule paragraph 2(2B) that allows SARS to provide a ‘SARS Effective Tax Rate’ instruction to employers that must be used to calculate PAYE for pensioners with more than one stream of remuneration.
Calculating the various employment-related taxes is not an easy matter for payroll systems, made more difficult by the fact that the remuneration used in these calculations is defined differently for the purposes of PAYE, SDL, UIF, ETI, Employment Equity, and the BCEA.
11.1 ‘Fixed rate’ Tax Calculation Principles
Note that the terminology that I have used to identify the three fixed-rate methods of PAYE calculation referred to in this workbook is my attempt to create a standard naming principle that is consistent, clear, and short.
It appears that using a short reference to the underlying Fourth Schedule legislation (for example ‘Par 2(2B) Effective Tax rate’) hopefully achieves this objective. Of course, it helps if you are familiar with the legislation!
Methods of PAYE Calculation
Up until 28 February 2022, there were three different methods of PAYE calculation:
1. Standard employment (the annual statutory tax table rate per employee)
2. Non-standard employment (the 25% fixed tax rate per employee)
3. SARS Fixed tax rate (a SARS-calculated fixed tax rate per employee).
From 1 March 2022, a fourth method of PAYE calculation came into effect:
4. ‘Par 2(2B) Effective Tax rate’ (a SARS-calculated rate per annuity in terms of paragraph 2(2B)).
Of the four methods, one uses the statutory tax table, and the other three use various types of fixed tax rates.
Fourth Schedule Paragraph 2(2B)
Fourth Schedule paragraph 2(2B) was introduced from 1 March 2022 to allow SARS to calculate, for pensioners who are in receipt of annuities and other remuneration streams from an employer, a ‘Par 2(2B) Effective Tax rate’ that takes the other remuneration streams into account to prevent additional income tax from being raised on assessment on the unsuspecting pensioner’s combined income as a result of our progressive tax system.
UPDATE:
It appears from information received late in February that the SARS Fixed tax rate issued to pensioners during 2022/23 comes to an end on 28 February 2023. From 1 March 2023, the PAYE calculations must revert to the statutory tax tables until when (or ‘if’) a new SARS fixed rate is issued, unless the pensioner has provided the retirement fund administrator with a valid ‘opt out’ request in either the 2023 or the 2024 tax year.
Directive Request
Of the three fixed-rate options above, only option 3 (the fixed rate, or ‘hardship’ directive) must be applied for.
Employers must not apply to SARS for:
1. The Fixed 25% Tax rate (employers must simply apply it for all employees in non-standard employment)
2. The Par 2(2B) Effective Tax rate (SARS calculates and issues these rates as an instruction to employers).
SARS Employment Taxes Validation (ETV)
After the employers filing season (April and May), SARS use the demographic and financial data reported on tax certificates to recalculate and check the PAYE and SDL reported on the final year-end tax certificates by payrolls.
If the PAYE (or SDL) calculated by payrolls differs by more than an allowable margin of error from that calculated by SARS during the Employment Tax Validation (ETV) process, the PAYE (or SDL) differences are reported to employers for correction using the same channel as that used to submit the tax certificates.
PAYE Calculation Principles
It is important for all parties that the total of the PAYE calculated by the payroll during the tax year is the same as (or very close to) the PAYE calculated by SARS from the tax certificate data at the end of the tax year. If the methods of calculation of PAYE used by payroll systems differ from those used by SARS, then there will be PAYE differences. The PAGSA and SARS are in discussion regarding the different methods of PAYE calculation.
11.2 PAYE vs Income Tax Calculation
The structure of the PAYE and Income Tax calculations are summarised, and the basic concepts are compared in the following ‘Tax 101’ Comparison table that lacks a lot of detail, but hopefully gets the principles across.
Comparison Table: Taxpayers vs Employees, Income vs Remuneration, and Income tax vs PAYE
INCOME AND INCOME TAX REMUNERATION AND PAYE
Taxpayers Employees
• Receive or accrue Income
• On which Income tax is calculated
• At the end of the tax year
• Giving a final income tax amount • Receive or accrue Remuneration
• On which PAYE is calculated
• During the tax year
• Giving an estimated income tax amount
Gross Income (Section 1 definition)
• Plus: Section 1 special inclusions
• Less: Section 10(1) Exemptions
Income Remuneration (Fourth Schedule definition)
• Less: Sections 11 and 23 deductions
• Plus: Unexpended section 8 allowances • Less: Paragraph 2(4) deductions
• Plus: Defined inclusions
Taxable Income Balance of Remuneration
• Calculate ‘Gross’ Income Tax • Calculate ‘Gross’ PAYE
‘Gross’ Income Tax ‘Gross’ PAYE
• Less: Section 6 ‘age’ rebates
• Less: Section 6A Medical Tax Credit (MTC)
• Less: Section 6B Additional MTC (AMTC) • Less: Section 6 ‘age’ rebates
• Less: Section 6A Medical Tax Credit (MTC)
• Less: Section 6B Additional MTC (AMTC)
INCOME TAX PAYE
The above ‘Tax 101’ table has been further simplified for the purposes of this workbook to focus on the main steps of the two tax calculations that are relevant for the PAYE Fixed-rate discussion that follows.
Simplified Comparison Table: Income vs Remuneration, and Income tax vs PAYE
INCOME AND INCOME TAX (Taxpayers) REMUNERATION AND PAYE (Employees)
GROSS INCOME (Section 1 definition)
• Less: Exemptions (Section 10)
Equals: INCOME REMUNERATION (Fourth Schedule definition)
• Less: Deductions • Less: Deductions
Equals: TAXABLE INCOME (‘Gross’) Equals: BALANCE OF REMUNERATION
Calculate: INCOME TAX (before rebates) Calculate: PAYE (before rebates)
• Less: Section 6 ‘age’ rebates
• Less: Section 6A Medical Tax Credit (MTC)
• Less: Section 6B Additional MTC (AMTC) • Less: Section 6 ‘age’ rebates
• Less: Section 6A Medical Tax Credit (MTC)
• Less: Section 6B Additional MTC (AMTC)
Calculate: INCOME TAX (final – after rebates) Calculate: PAYE (final – after rebates)
Note that the fundamental purpose of:
• REMUNERATION is that it is an estimate of the final employment INCOME, and
• PAYE is that it is an advance payment towards the final INCOME TAX liability.
The above tables show that REMUNERATION (by definition) is on the same ‘level’, or directly linked, to INCOME.
From that point onwards, both the PAYE and the income tax calculations follow the same basic steps – their calculation methods are therefore aligned in principle and the tax results should be the same or very similar.
11.3 PAYE Fixed-Rate Calculation Methods
There are three calculations that must be aligned and work hand-in-hand with one another to achieve the objective of calculating employee’s tax in a transparent, accurate, and fair manner for all parties:
1. The payroll’s PAYE calculation
2. The SARS calculation of the value of the three ‘Fixed rates’, namely:
a. Par 10 25% tax rate [Paragraph 10: Non-standard Employment]
b. Par 11 Fixed-rate Directive [Paragraph 11: Hardship Directive]
c. Par 2(2B) Effective rate [Paragraph 2(2B): Multiple income streams]
3. The SARS income tax calculation on assessment.
As stated earlier, the total monthly PAYE withholding for the year, besides being accurate and fair to all parties, must have the same value (or very close to), the final tax year end PAYE calculated by SARS. If these objectives are achieved, it will significantly minimise administration time, costs, and queries, for all parties.
It is important to note that the three SARS ‘Fixed rate’ calculations in points 2a, 2b, and 2c above are the proverbial ‘Ham in the Sandwich’ that sits between the payroll’s PAYE calculation and the SARS income tax calculation.
This means that when applying the three SARS fixed tax rates, payrolls should calculate PAYE in harmony with the way in which the fixed tax rates were calculated by SARS. In a perfect world, component amounts that were used by SARS when determining the value of the fixed tax rate, must not be used again by payrolls, and vice versa.
But as we will see, it is not a perfect world (not yet anyway).
There are four main components of the various methods of PAYE tax calculations that SARS and payrolls should apply in harmony with one another:
1. The Remuneration base: ‘Gross’ Remuneration or the ‘Balance of Remuneration’
2. Section 6: ‘Age’ rebates
3. Section 6A: Medical Tax Credits (MTC)
4. Section 6B: Additional Medical Tax Credits (AMTC).
These four components are included as columns in the following ‘Comparison Table’ that specifies whether or not the component must be applied by payrolls across the four methods of PAYE calculation.
Comparison Table: PAYE Calculation Methods
PAYROLL PAYE CALCULATION REMUNERATION TO BE APPLIED IN THE
PAYROLL’S CALCULATION CALCULATION IS BASED ON?
METHOD OF CALCULATION Base for PAYE Calculation S6 Age Rebates S6A
MTC S6B
AMTC
1 Statutory Table
(Standard Employment) ‘Balance of Remuneration’ Yes Yes Yes Employee
2 Par 10 25% tax rate
(Non-standard Employment) ‘Balance of Remuneration’ No (?) Yes Yes Employee
3 Par 11 Fixed rate Directives
(Hardship Directive) ‘Gross’ Remuneration No No (?) No (?) Employee
4 Par 2(2B) Effective rate
(Multiple remuneration) ‘Gross’ Remuneration (?) No No Yes (?) Annuity
A B C D
What the table clearly shows, is the differences in application of the four components by the payroll across the four PAYE calculation methods. What the table does not show, is whether or not these components were included in the SARS calculation of each of the fixed tax rates.
The ‘Yes’ and ‘No’ in the table are the current calculation rules that the payroll calculation must obey, and the ‘(?)’ next to some of them, indicate that there are some questions regarding the current rules.
Comments on the ‘Comparison Table: PAYE Calculation Methods’
The row numbers (1 to 4) in the left-hand column of the table, coupled to the column indicator (A to D) in the bottom row of the table, are used in the same manner as spreadsheet ‘cells’ in the comments that follow to refer to a particular area of the calculations.
1. Line 1: (Standard Employment calculation)
The standard employment calculation that uses the statutory tax table has been included in line 1 of the table to provide a benchmark against which the three fixed-rate PAYE calculations can be compared.
Note that the payroll’s PAYE calculation is fully aligned with the SARS Income Tax calculation.
2. Cell 2B: The age rebates for the non-standard employment Par 10 25% tax rate
2 Par 10 25% tax rate
(Non-standard Employment) ‘Balance of Remuneration’ No (?) Yes Yes
The SARS ruling is that payrolls must not reduce PAYE by the age rebate amount, which implies that the age rebates were applied when the 25% tax rate was determined by SARS many years ago. This cannot be confirmed – the reasoning and the mathematics behind the determination of the 25% rate is buried in the mists of time.
However, common sense says that it was impossible for SARS to have applied the age rebates when the 25% rate was determined because this rate must be applied to employees of all age groups that are in non-standard employment, and not to a single employee where the age rebate could be correctly applied.
One can only assume that the legislators at the time of its introduction adopted a conservative approach to avoid an under-withholding of PAYE that could not be recovered on assessment, particularly during the years when SITE was in force.
‘Best practice’ is that all 65 or older employees in non-standard employment from whom PAYE has been withheld at the 25% rate should voluntarily submit an ITR12 annual return to access a possible refund.
The following is not an interpretation, but simply an explanation of a complex area of the Fourth Schedule that throws some light on this issue as well as on the other scenarios.
The 25% withholding rate has been in existence as a standard practice carried out by SARS under paragraph 9(1), read with paragraph 13.4 of The Guide for Employers iro Employees’ Tax. It merely serves to operate as another ‘tax table’.
It is paragraph 2(1) which contains the withholding obligation, and it is clear under paragraph 2(1) that the employees’ tax must be determined under paragraphs 9, 10 or 11 or section 95 of the TA Act. As a result of the inclusion of the word “or” in paragraph 2(1), only one of these provisions [Rob: paragraph 9] can apply.
In addition, when prescribing the rates under paragraph 9(1), paragraph 9(6) provides that there must be deducted from the amount to be withheld or deducted by way of employees’ tax as contemplated under paragraph 2, the medical tax credit and qualifying additional medical expenses tax credits.
Paragraph 9(1)(a) also prescribes that the rate of 25% as determined by the Commissioner [par 10] must take “into account the [age] rebates applicable in terms of section 6”.
When applying the fixed rate under paragraph 9(1), after accounting for the rebates outlined in paragraph 9(1)(a) and 9(6), the fixed rate of 25% must be applied to the balance of remuneration outlined in paragraph 2(4), read with paragraph 2(1).
This action is also aligned with paragraph 13.4 of the Guide for Employers where it is indicated that the fixed rate must be applied to the balance of remuneration.
3. Cells 3C and 3D: The MTC and AMTC calculations for ‘Par 11 Fixed-rate Directives’:
3 Par 11 Fixed rate Directives
(Hardship Directive) ‘Gross’ Remuneration No No (?) No (?)
Payrolls are not allowed to reduce the PAYE calculated in terms of a Par 11 Fixed-rate Directive by the MTC or AMTC rebates. The question (to which there is no answer at the moment) is whether SARS take the MTC and AMTC into account when calculating the IRP3e fixed tax rate.
If they do, then one wonders how accurate the information can be that SARS bases its calculations on.
If the MTC and the AMTC are not applied by the SARS calculation of the IRP3e fixed rate, and payrolls are not allowed to apply them, then these rebates can only be applied during the SARS income tax calculation, implying that the employee must submit an ITR12 annual return, otherwise these tax credits will be lost.
The PAGSA has suggested that a fairer and more accurate result would be achieved if the payroll applies the MTC and AMTC rebates, and the calculation rules should be changed accordingly.
The drawback to this suggestion could be if the employee has multiple employment, then these rebates might be applied by each employer. However, it is almost a certainty that only one of the employers will take the MTC into account because only one employer will contribute to a medical scheme, and the same logic applies in principle to AMTC.
Note for payroll suppliers
It appears that this decision has been reversed by SARS from a ‘Yes’ (as applied by payrolls since 2012) to a ‘No’ during the recent discussions. If so, this means a change to the payroll system.
4. Cells 4C and 4D: The MTC and AMTC calculations for the ‘Par 2(2B) Effective Tax rate’:
4 Par 2(2B) Effective rate
(Multiple remuneration) ‘Gross’ Remuneration (?) No No Yes (?)
Firstly, if there is no medical scheme contribution, there is no MTC and no AMTC to be applied in the payroll’s PAYE calculation, and the instructions in the table for the payroll’s calculation are moot.
Secondly, it is important to remember that PAYE calculations in terms of paragraph 10 (the Par 10 25% tax rate) and paragraph 11 (the Par 11 Fixed tax rate) are based on an employee, whereas the PAYE calculation in terms of paragraph 2(2B) is based on the annuity.
This is a major difference. There is only one employee, but one employee can have more than one annuity, each of which is either paid by the same fund or by more than one fund.
It follows that the rebates that are linked to the employee, cannot be applied per annuity, otherwise this would be double-dipping – the rebates would be applied more than once for the same employee.
It therefore makes sense to not allow the MTC because otherwise it might be applied per annuity, but why then did the Commissioner allow the AMTC in the latest SARS letter in the next section?
Again, the following is not an interpretation, but simply an explanation of a complex area of the Fourth Schedule that throws some light on this issue.
Paragraph 2(2B) operates differently because the law in paragraph 2(2B) must be read “Notwithstanding the provisions of subparagraph (1)”. This means that ‘something’ in paragraph 2(1) must be ignored or replaced by that outlined in paragraph 2(2B).
Paragraph 2(1) contains the withholding obligation, but paragraph 2(2B) would not remove the withholding obligation, since this would be nonsensical under the law and would make paragraph 2(2B) superfluous. Instead, it removes the requirements to apply the provisions of paragraphs 9, 10 or 11 or section 95 of the TA Act.
The withholding obligation therefore remains, but paragraph 2(2B) requires that the Commissioner prescribe a rate in terms of paragraph 2(2B) itself, making no reference to paragraphs 9, 10 or 11 or section 95 of the TA Act.
The Commissioner has prescribed that only the additional medical expenses tax credit can be taken into account after applying the fixed rate to the balance of remuneration.
It would be nonsensical to deduct the same MTC from every annuity to which paragraph 2(2B) applies – in the same way it would be nonsensical to allow a section 6 rebate against each annuity (thus preventing duplication). To do otherwise would not achieve what paragraph 2(2B) wishes to achieve.
11.4 SARS Notices – Paragraph 2(2B)
Starting in February 2022, SARS have issued several notices explaining the purpose and principles of paragraph 2(2B) as well as outlining the application of the ‘Par 2(2b) Effective Rate’ (or the ‘SARS Fixed Rate’ as SARS sometimes refers to it in their notices) when calculating PAYE for pensioners.
The purpose of these notices is to clarify how Retirement Fund administrators and Insurers that pay annuity income to pensioners and their payroll systems must apply the SARS Par 2(2B) Effective Tax rates to calculate PAYE for those pensioners that according to the SARS records, have more than one stream of remuneration.
It is logical to assume that at the time of issuing the earlier notices that the latest information available to SARS at that stage would have been sourced from the pensioner’s 2022 Interim (August 2021) certificates.
The second round of SARS par2(2B) effective rates that were issued recently might (I am not sure of this) have included data from the 2022 tax year-end certificate submissions that would result in more up to date and accurate calculations.
Dated 29 July 2022, a notice was sent directly to only those retirement fund administrators that received a file containing revised SARS Effective Fixed rates. This notice was not issued to employers in general and can unfortunately not be included in this Newsflash.
However, point 9.3 of this notice is pertinent to the discussion that follows, and is included for your information:

In my opinion, point 9.3 is in line with normal PAYE annualisation forecasting that recalculates PAYE from month-to-month to ensure accurate PAYE withholding, and it should not be difficult for payroll suppliers to comply with.
At the same time as the above notice, SARS issued another notice to all employers titled:
“Updated Par 2(2B) Fixed Rate Directive Rules and Incorrect File Information”.
Extracts from this notice are discussed in the next section.
[Payroll and Associate members of the PAGSA can refer to PAGSA Newsflash 2022-34 that includes the full SARS notice in the Annexure of the Newsflash]
11.5 Comments on Extracts from the SARS Notice
The SARS notice states as follows:
“However, where the revised fixed rate directive file prescribes a higher fixed PAYE rate than previously, the administrator must apply the higher fixed rate only from a current month and not backdated from 1 March/April 2022.” [my emphasis added]
Applying a new higher tax rate from a current month and not backdated from 1 March/April 2022 means that normal annualising (forecasting) methods that would include the include the first month of the tax year cannot be applied and two tax records must be created, one for the first period of the tax year at the lower tax rate, and the second for the period of the increased tax rate.
In the interests of calculating PAYE as accurately as possible over the year using the SARS fixed rates, the PAGSA requested SARS to interpret the word “must” in their own notice to be “may”.
This would allow employers and payrolls, at their option, to apply annualisation calculations when calculating PAYE with the revised SARS fixed rate.
At the time of writing this workbook, these discussions are ongoing, but it appears that a legal interpretation of the application of paragraph 2(2B) will not allow the full year to be annualised using the SARS latest fixed rate.
The other uncertainty is whether separate tax certificates must be created for every change in the rate or the method of PAYE calculation (see code 3220 in the Tax Certificate chapter).
The SARS notice goes on to state that:
“As advised in the latest directive letter, where the revised fixed rate directive file prescribes a lower fixed PAYE rate than previously, the administrator may reduce PAYE to be withheld for subsequent periods with amounts over-deducted in previous pay periods during the same year of assessment.
The over-deduction in previous pay periods may be used to reduce the PAYE to be deducted in any of the subsequent pay periods.”
This paragraph correctly allows payrolls to annualise using the lower fixed rate over the full tax year.
[Payroll and Associate members of the PAGSA can refer to PAGSA Newsflash 2022-39]
11.6 Tax Certificate Requirements for Fixed Rate Calculations
The SARS Business Requirements Specification (PAYE BRS) version 21.2 for the February 2023 tax year end, has recently changed the reporting rule for tax certificate code 3220 (Fixed Rate Taxation Indicator).
Code 3220 must be set to ‘Y’ if the PAYE was calculated using one of the following fixed rates:
1. Non-standard employment (25%), or
2. Paragraph 2(2B) of the Fourth Schedule.
Note that code 3220 used to, but no longer provides an option for SARS Fixed-rate Directives.
If a fixed rate directive is reported on the tax certificate, this is indicated in code 3230 (Directive number) that must be completed if one of the income codes that require a directive are reported on the tax certificate. These income codes are listed in code 3230’s validation rules in the BRS and also in the Tax Certificate chapter in this workbook.
Importantly, the rule goes on to state that if the employee’s PAYE tax calculation method is changed from one of the two fixed rate methods of calculation provided for by code 3220 to the statutory tables, or vice versa, a separate tax certificate must be submitted for each period of different tax calculation.
It makes no sense for SARS to check the tax during a certain period in the tax year by using a different method of PAYE calculation from that used by the payroll. This rule was put in place to align the ETV (Employment Tax Validation) calculation of PAYE with the payroll’s calculation of PAYE per tax certificate. ETV is not applied if there is a directive reported on the tax certificate.
Very recent discussions resulted in agreement that the rule specifying a ‘single tax certificate per tax calculation method’ will be removed, and this has just been published in SARS PAYE BRS version 22.0.
11.7 PAYE Calculations: Relevant Legislation
If you wish to check the legislation yourself, here are the main references:
1. Standard employment: Annual statutory table Fourth Schedule paragraph 9
2. Non-standard employment: 25% tax rate Fourth Schedule paragraph 10
3. SARS Fixed rate Directive Fourth Schedule paragraph 11
4. ‘SARS Par 2(2B) Effective Tax rate’ Fourth Schedule paragraph 2(2B).
The legislation that underpins the four methods of PAYE calculation is lengthy and in places has been shortened to make it more readable without changing the thrust of the requirement.
Paragraph 2(1)
This is an important paragraph.
It provides the imperative for employers to withhold PAYE and is referred to in the new paragraph 2(2B) and in paragraph 9 that allows the Commissioner to prescribe the rates of normal tax (the annual statutory tax table) and the manner in which the tables must be applied.
It applies to SA resident employers as well as representative employers in SA, and abbreviated, states that:

“Every employer … who pays … any amount by way of remuneration to any employee shall … deduct or withhold from that amount … by way of employees’ tax an amount which shall be determined as provided in paragraph 9, 10 or 11 or section 95 of the Tax Administration Act, whichever is applicable, in respect of the liability for normal tax of that employee, … and shall … pay the amount so deducted or withheld to the Commissioner within seven days after the end of the month during which the amount was deducted or withheld …”

Paragraph 2(4)

(4) The amount required to be deducted or withheld from any remuneration under this Schedule by way of employees’ tax must be calculated on the balance of the remuneration remaining after deducting therefrom—
(a) any contribution by the employee concerned to any pension fund or provident fund which the employer is entitled or required to deduct from that remuneration, but limited to the deduction to which the employee is entitled under section 11F having regard to the remuneration and the period in respect of which it is payable;
(b) at the option of the employer, any contribution to a retirement annuity fund by the employee in respect of which proof of payment has been furnished to the employer, but limited to the deduction to which the employee is entitled under section 11F having regard to the remuneration and the period in respect of which it is payable;
(bA) any contribution made or amount paid by the employer to any retirement annuity fund on behalf of or for the benefit of the employee, but limited to the deduction to which the employee is entitled under section 11F having regard to the remuneration and the period in respect of which it is payable;
(f) so much of any donation made by the employer on behalf of the employee—
(i) as does not exceed 5 per cent of that remuneration after deducting therefrom the amounts contemplated in items (a), (b) and (bA); and
(ii) for which the employer will be issued a receipt as contemplated in section 18A (2) (a):

Fourth Schedule paragraph 2(2B) [the ‘SARS Par 2(2B) Effective’ tax rate]
“ Notwithstanding [Rob: i.e. in spite of, or ignoring] the provisions of subparagraph 2(1), a person that pays an annuity and is a pension fund, pension preservation fund, provident fund, provident preservation fund, retirement annuity fund or is licensed as an insurer under the Insurance Act shall, when deducting or withholding employees’ tax in respect of any year of assessment, apply the fixed tax rate that the Commissioner directs must be used in determining the amount of employees’ tax to be withheld, where the person to whom that annuity is paid receives an amount of remuneration from more than one employer.

Fourth Schedule paragraph 9
Paragraph 9 allows the Commissioner to prescribe the rates of normal tax (the annual statutory tax table) and the manner in which the tables must be applied, taking into account the applicable ‘age’ rebates in terms of section 6, subject to subparagraphs 3 and 4, and also subject to paragraph 10 (the 25% non-standard employment rate) and paragraph 11 (the IRP3e Fixed rate Directive).
9.
(1) The Commissioner may from time to time, having regard to the rates of normal tax as fixed by Parliament or foreshadowed by the Minister in his budget statement and to any other factors having a bearing upon the probable liability of taxpayers for normal tax, prescribe—
P9(1)(a)
(a) deduction tables applicable to such classes of employees as the Commissioner may determine, taking into account the rebates applicable in terms of section 6; and
(b) the manner in which such tables shall be applied,
and the amount of employees’ tax to be deducted from any amount of remuneration shall, subject to the provisions of subparagraphs (3) and (4) of this paragraph and paragraphs 10 and 11 and section 95 of the Tax Administration Act, be determined in accordance with such tables or where subparagraph (3) or (4) is applicable, in accordance with that subparagraph.
(3) (a) The amount to be deducted or withheld in respect of employees’ tax from any lump sum to which paragraph (d) or (e) of the definition of “gross income” in section 1 or section 7A applies, shall be ascertained by the employer from the Commissioner before paying out such lump sum, and the Commissioner’s determination of the amount to be so deducted or withheld shall be final.
(4) The amount to be deducted or withheld in respect of any amount contemplated in paragraph (eA) of the definition of “gross income” in section 1 of this Act, shall be ascertained by the employer on inquiry from the Commissioner before the date of transfer or conversion of any amount for the benefit or ultimate benefit of any member as contemplated in such paragraph and the Commissioner’s determination of the amount to be so deducted or withheld shall be final.
(6) There must be deducted from the amount to be withheld or deducted by way of employees’ tax as contemplated in paragraph 2 the amount—
(a) of the medical scheme fees tax credit that applies in respect of that employee in terms of section 6A; and
(b) where the employee is entitled to a rebate under section 6 (2) (b), of the additional medical expenses tax credit that applies in respect of that employee in terms of section 6B (3) (a) (i),
if—
(i) the employer effects payment of the medical scheme fees as contemplated in section 6A (2) (a); or
(ii) the employer does not effect payment of the medical scheme fees as contemplated in section 6A (2) (a), at the option of the employer, if proof of payment of those fees has been furnished to the employer.

Fourth Schedule paragraph 10 [the non-standard employment 25% tax rate]
10. (1)
If the Commissioner is satisfied that the circumstances warrant a variation of the basis provided in paragraph 9 for the determination of amounts of employees’ tax to be deducted or withheld from remuneration of employees in the case of any employer, the Commissioner may agree with such employer as to the basis of determination of the said amounts to be applied by that employer, and the amounts to be deducted or withheld by that employer in terms of paragraph 2 shall, subject to the provisions of paragraph 11 and section 95 of the Tax Administration Act, be determined accordingly.

Fourth Schedule paragraph 11 [Provides for the IRP3e Fixed tax rate Directive]
11. The Commissioner may, having regard to the circumstances of the case, issue a directive—
(a) to an employer authorising that employer—
(i) to refrain from deducting or withholding any amount under paragraph 2 by way of employees’ tax from any remuneration due to any employee of that employer; or
(ii) to deduct or withhold by way of employees’ tax from any remuneration in terms of paragraph 2, a specified amount or an amount to be determined in accordance with a specified rate or scale,

in order to alleviate hardship to that employee due to circumstances outside the control of the employee or to correct any error in regard to the calculation of employees’ tax, or in the case of remuneration constituting commission or where the remuneration is paid or payable to a personal service provider and that directive must be complied with; or

Tax Administration Act Section 95
Estimation of assessments.—
(1) SARS may make an original, additional, reduced or jeopardy assessment based in whole or in part on an estimate, if the taxpayer—
(a) does not submit a return;
(b) submits a return or relevant material that is incorrect or inadequate; or
(c) does not submit a response to a request for relevant material under section 46, in relation to the taxpayer, after delivery of more than one request for such material.
(2) SARS must make the estimate based on information readily available to it.
[continues].
In Closing
It would not surprise me if some of the above fixed tax rate calculation rules are revisited and changed at some stage in the future.