The following is knowledge that has been shared from Rhona van Taak on previous COIDA queries

COID (also reffered to as COIDA)

COID Earnings (also referred to COIDA Earnings, COID Remuneration or COIDA Remuneration)

The COID Act uses ‘remuneration’ in its definition of ‘earnings’, being –
“… the remuneration of an employee at the time of the accident or the commencement of the occupational disease as calculated in this Act.”
Remuneration is not defined, but is “… calculated in terms of this Act.”. Section 63 that deals with the calculation of earnings, is of no help. It seems that the W.As 8 form that must be completed by employers for their annual return contains the most practical and up to date information to help us to find out what remuneration is.

The W.As 8 form states that ‘earnings’ are all payments that are made regularly, before any deductions, in cash or in kind, and to employees. It then lists a number of items that are included in earnings, and a number that are excluded, and qualifies this by stating that the list is not exhaustive.
Included in gross earnings are the following:
• overtime of a regular nature;
• bonuses of any kind;
• commission (UIF take note!);
• cash value of food & quarters, company car, free or cheap accommodation;
• travel and other allowances paid regularly;
• the employee’s package, excluding employer contributions such as medical aid;
• earnings/drawings paid to working directors and members.
Excluded from gross earnings are the following:
• payments of a reimbursive nature;
• overtime worked occasionally;
• payments for non recurring tasks that are not part of the employee’s normal duties;
• ex gratia payments;
• intangible fringe benefits such the medical aid benefit;
• special expenses such as subsistence and travel costs, lunch, meetings etc.;
• travel and other allowances paid occasionally;
• if a director’s remuneration is profit share, the director is not included by the Act.

Some comments on these inclusions and exclusions –
• The principle is that regular items are included and irregular items are excluded;
• Another principle is that tangible (things you can touch) payments in kind (benefits and employer contributions) are included; intangible payments in kind are excluded;
• The inclusion of travel and other allowances paid regularly is in conflict with the labour law principle that allowances, whether regular or not, are payments to allow work to take place and are not included in an employee’s BCEA remuneration;
• One can only assume that all employer contributions are excluded, not only those made to a medical aid. Again, this in conflict with the BCEA, which includes all these ‘payments in kind’ to benefit and retirement funds into BCEA remuneration.

Earnings up to the maximum of the COID limit (also referred to as the COIDA remuneration threshold) must be declared per employee at the end of each year (the end of each year is defined as the last day of February), and this maximum earnings amount is included in the totals on the W.As 8 return form.

The definition of remuneration for the CF (Compensation Fund) will in the future be the same as the definition of remuneration for UIF, with the same exclusions, except that commission is excluded from UIF but will be included for CF. The COID Amendment Bill is final but has not yet been promulgated, so it is not yet in effect (this may be sometime in 2023). So currently one must still use ‘earnings’ while knowing that ‘remuneration’ is around the corner.

When ‘remuneration’ replaces ‘earnings’ down the line (with the promulgation of the Amendment Bill), it will be a radical change. Employers will be informed that it is a radical but necessary change, and their assessment could go either up or down in the future depending on the circumstances.

Also note that the fund has recently changed the ‘risk’ percentages per sector type (in many cases reducing the percentages) therefore a lower assessment value.

Tips when determining COID Earnings (also referred to COIDA Earnings, COID Remuneration or COIDA Remuneration)
1. Be consistent:
Recommend the same thing for all of your clients
2. Don’t change now:
Unless there is good reason, don’t change from what you have been advising in the past. Keep doing what you have been doing unless you are certain that it is incorrect.
3. This last point is for you to decide.
Knowing that remuneration will replace earnings at some stage in the future, if you are uncertain of whether a remuneration type is ‘earnings’ or not, consider including it now as ‘earnings’ if it is currently ‘remuneration’. Then you will be moving in the right direction.

Employer
The Occupational Injuries and Diseases Act defines an employer as:
“any person, including the state, who employs an employee, and includes –
• any person controlling the business of an employer
• if the services of an employee are lent or let or temporarily made available to some other person by his employer, such employer for such period as the employee works for that other person
• a labour broker who against payment provides a person to a client for the rendering of a service or the performance of work, and for which service or work such person is paid by the labour broker.”

This definition, as in the Basic Conditions of Employment Act, is dependent on the existence of an employee. Further –
1. The first bullet brings in the concept of representative employers as in the Fourth schedule.
2. The second bullet seems to specify that where a ‘casual’ arrangement has been made for an employee to work for another employer, then the employer where the employee works becomes the responsible employer.
3. The third bullet provides that a labour broker is the employer of a worker supplied by the labour broker to a client and is responsible under the Act for that worker.

Employee
According to the COIDA an employee is defined as:
“ … a person who has entered into or works under a contract of service or of apprenticeship or learnership, with an employer, … and whether the remuneration is calculated by time or by work done, or is in cash or kind, and includes:
• a casual employee employed for the purpose of the employer’s business;
• a director or member … who has entered into a contract … in so far he acts within the scope of … such contract;
• a person provided by a labour broker … for the rendering of a service or the performance of work, and for which … such person is paid by the labour broker;
• in the case of a deceased employee, his dependants, …”
Excluded as employees are:
• persons undergoing military service or training
• members of the Permanent Force while defending the Republic
• members of the Police Force while defending the Republic
• a person who contracts for the carrying out of work and himself contracts other persons to perform such work
• a domestic employee in a private household.

Being an Act administered by the Department of Labour, one can safely assume that the reference to working under “… a contract of service …“ as opposed to a contract for services, is intended to exclude labour law independent contractors. See the paragraph which deals with contracts of service in the BCEA Chapter of this manual.

Learners working in terms of a learnership agreement are specifically included, irrespective of whether they have an employment contract or not.
Incorrect classification

Where an employer is incorrectly classified for COID purposes due to the online registration functionality which do not allow the correct sub-class selection, the employer may completed the CF-1B (Application for the Change of the Nature of Business) form and mail it to [email protected] and [email protected] for correction.
Evidence should also be forwarded with the completed forms.

Incorrect assessment rate applied by COID
Where an incorrect assessment was applied by the COID Commissioner due to the incorrect classification of the employer due to the online registration functionality which do not allow the correct sub-class selection, the employer may completed the CF-1B (Application for the Change of the Nature of Business) form and attached CF-2B (Application for Revision of the Assessment Form) and mail it to [email protected] and [email protected] for correction.
Evidence should also be forwarded with the completed forms.

Introduction
While the principle of accrual has not changed, the advent of monthly tax certificate submissions has put the spotlight squarely on monthly accrual as opposed to annual accrual.
Besides the introduction of section 7B, accrual is not something new, and anecdotally, I will be the first to admit that over decades, the compliance by the majority of employers with monthly accrual principles when correcting mistakes made in earlier months, was probably very low.
To make it clear, the PAGSA understands the accrual requirement, and this document is not attempting to open non-compliance loopholes, but rather hoping to find a pragmatic solution for all parties in the interests of the roll-out of a very important and beneficial new era in PAYE administration.
Under discussion for quite some time, have been the serious practical administration difficulties that result from the monthly tax certificate requirement when coupled with the application of corrections in the current payroll processing month of incorrect non-variable and variable remuneration amounts in earlier months (both in the current year of assessment and in previous years), clawbacks of remuneration paid in earlier months, and the correction of YTD PAYE liabilities as a result of PAYE over-deductions.
Under the principle of taking it step-by-step, this document summarises the problems that we foresee with corrections to earlier months in the current year of assessment and then takes it further to what in our opinion is a logical necessity, that of allowing negative amounts on monthly certificates (but not on final YTD certificates) including negative PAYE.
Although it was suggested that a new “Clawback Code” [i.e. an amended section 11(nA) deduction code] in respect of over-paid amounts refunded by the recipient employee to the employer) as a replacement for negative corrections of the bottom-line figures, the PAGSA is concerned that the actual detail will not be corrected or the correct detail will not be visible, see more detail later in this document. In essence, our impression in general is that the section 11(nA) solution addresses the ‘form’ but not the ‘substance’ of the problem.
Summary of Problems related to Corrections to Earlier Months
This is an overview of the administration problems resulting from the correction of non-variable and variable remuneration amounts in earlier months that have been discussed in the recent meetings with SARS, but without differentiating between ‘clawbacks’ and ‘mistakes’ (whether deliberate or inadvertent).
1. SDL: The least problematic of the payroll taxes (no monthly limit and a flat 1% of the leviable amount).
2. UIF: The legal application of the monthly UI limit means that the earlier month must be re-opened by the payroll, the remuneration correction applied to that month, the UI contribution recalculated, the revised UI contribution amount declared and paid to SARS, and a revised declaration made to the UI Fund for that month (that will invalidate any current UIF benefit claims in process).
3. PAYE: All payrolls allow the annual balance of remuneration to be calculated by applying either an ‘average’ or a ‘cumulative average’ method of forecasting, and the majority of employers make use of these methods because of its beneficial ‘smoothing of PAYE’ results.
The principle behind these ‘annualisation calculations’ is that the total PAYE for the year of assessment is correct at the end of the year and is ‘smoothed’ over the year.
The knock-on effect of a remuneration correction in respect of an earlier month (say) March to the subsequent months as a result of the annualisation calculation principle means that PAYE previously declared for those subsequent months will also be incorrect and should be re-declared and paid, subject to interest and penalties.
The volumes of correction transactions will be excessive.
4. ETI: To be frank, because of the difficulties with UIF and PAYE, we have not analysed the potential problems that ETI might have on ETI administration.
These problems would be as a result of the monthly R6,500 remuneration limit, and the application of the ‘three-step’ formula that payrolls must use to calculate ETI, as well as the administration of the corrections within the 6-month ETI claim cycle.
Allowing Corrections to be Reported as Negative Income Amounts
There are various situations where amounts reported to SARS on an employees’ monthly payroll information record might subsequently need to be corrected. For the purposes of this section, we will be focusing only on ‘mistakes’ made in previous months, and not on ‘clawbacks’ which will be discussed in the next section.
Suppose an employee is paid R1 000 under income source code 3607 in respect of 10 hours of overtime worked in March. In June it was realized that the employee should only have been paid for 8 hours of overtime, so was therefore overpaid by R200. The employer must therefore recover the R200 over-payment from the employee in the June pay period.
As has been discussed on various occasions, reopening the March pay period in the payroll to correct the overtime payment is usually not possible in computerized payroll systems, and even if it was, would result in the EMP201, UIF declaration, general ledger and management reports all having to be redone and/or resubmitted for March. There is also the question of the knock-on effect on the YTD PAYE calculated in all subsequent pay periods to consider, which might result in all subsequent months to be resubmitted as well.
To avoid this complexity, most payroll systems will simply recover the R200 over-payment from the employee in the June pay period and correct the YTD PAYE, UIF etc. in June.
In the case of over-payments specifically, this is usually achieved in the payroll by adding a negative income transaction under the relevant income source code to the employee’s payslip in the current pay period, June in this example.
We understand that what happened in the past cannot dictate to what happens in the future, but we are trying to get a better understanding of the process envisaged by SARS, and then to see how we can take it forward.
If the employee had income under code 3607 in the June pay period that was equal to or greater than the value of the correction being made, the balance of code 3607 in June after the negative income transaction had been added would still be a positive value or would be zero.
If however the employee did not have income under code 3607 in the June pay period, the balance of code 3607 in the June pay period would be -R200 (i.e.: negative).
The value of code 3607 reported to SARS in the employee’s monthly payroll information record in the June declaration file will therefore be -R200 (negative).
The YTD value reported to SARS for code 3607 on the employee’s tax certificate will however be R800, which is still positive.
This will also be a true reflection of the employee’s payslip for June. If the March payroll will have to be reprocessed, there will not be remuneration to withhold the overpayment from as the employee would already have been paid, and the employer will have to deduct the overpayment from the June remuneration in any case.
The use of the suggested “Clawback code” [section 11(nA) deduction code] with a value and allowing an employer to take this deduction into account for the June PAYE calculation, instead of a negative 3607 income source code, will provide the same result in this example.
The only difference will be that there will be a zero value 3607 for June but a new Clawback deduction code for the section 11(nA) deduction of R200. This will result in the 3607 value on the Employee YTD Certificate at the end of the year of assessment being reflected as R 1 000 and the section 11(nA) code with a value of R200.
This is not the true reflection of the detail as the section 11(nA) deduction will not be linked to the 3607 income – it could also provide for repayments of any other type of remuneration such as code 3601, particularly on the YTD certificate.
SARS has mentioned previously that the intention is to create a SARS App that will allow taxpayers to inspect their tax certificate data on a regular basis. When this happens, and the section 11(nA) correction is not recorded against the source of the problem, it could result in misunderstandings, queries, etc.
Recommendation
To facilitate the correction of over-payments in the current processing month it is recommended that the validation rules of the monthly BRS be changed to allow for the value of income codes to be reported as negative values in the monthly payroll information records, provided that the associated YTD value of the relevant income code is not less than zero.
No income source code will therefore ever be reported on an employee’s tax certificate with a value of less than zero.
Allowing Clawbacks to be Reported as Negative Income Amounts
Background
There are various instances in which remuneration that was previously paid to an employee might subsequently have to be refunded to the employer. For the purposes of this section, we will refer to such refunds of remuneration as “clawbacks”.
Note that clawbacks are not “errors” that were made in previous pay periods that then need to be corrected at a later stage – they are new and independent transactions that result from events that occurred subsequent to an amount of remuneration previously being paid to an employee, which events then necessitate the repayment of some (or all) of said remuneration to the employer by the employee.
Also note that clawbacks are not generally treated as after-tax “deductions” from an employee’s net pay in payroll systems. Instead, they are treated as refunds of income that was previously paid to an employee, and as such generally result in the reduction of the YTD value of the income source code under which the remuneration was originally paid to the employee. Note that this does not constitute a reversal of a previous accrual, but rather a reduction in the value of the remuneration that accrues in the period in which the clawback is processed.
Amounts that need to be refunded to an employer in terms of clawbacks can either be paid to the employer by the employee “outside” of the payroll (in which case the employer must issue the employee with a section 11(nA) letter so the employee can claim a deduction on assessment) or it can be recovered from the employee “inside” of the payroll.
This will probably change if the amounts refunded are to be included on the IRP5/IT3 tax certificates under the new suggested deduction codes.
Current Practice
The way in which clawbacks are usually achieved inside of payroll systems is by adding a negative income transaction for the value of the relevant repayment to an employee’s income in the current pay period. If the employee has existing income under the relevant income source code in the current pay period and the value of that existing income is greater than or equal to the absolute value of the negative income transaction being added, then the net value of the relevant income source code in the current pay period after processing the clawback will still be a positive value or will be zero.
If however the employee has no existing income under the relevant income source code in the current pay period, or the value of any existing income under the relevant income source code in the current pay period is less than the absolute value of the negative income transaction being added, the net value of the relevant income source code in the current pay period after processing the clawback will be negative.
This is unavoidable, as the clawback must be processed against the same income source code under which it was previously paid to the employee, but that income source code might not have sufficient value (or might not exist at all) on the employee’s payslip for the current pay period.
It should however be noted that even though the net value of a given income source code might therefore be negative in one or more individual pay periods, the YTD value of that income source code will never be negative.
The value of any given income or deduction source code on an employee’s YTD tax certificate will therefore never be less than zero.
Example 1:
An employee earning R10 000 per month is granted paid maternity leave for 2 months from the beginning of April to the end of May on the condition that the employee remains employed with the employer for at least 12 months after returning from maternity leave. The employee subsequently resigns at the end of June, so needs to pay back the full value of the paid maternity leave (R20 000) to the employer.
The employee’s normal June salary of R10 000 is reflected under code 3601 (Income – Taxable).
Since the maternity leave was originally paid to the employee under code 3601, the clawback of the -R20 000 maternity leave must also be processed under code 3601 to reduce the YTD value of code 3601.
However, since the value of code 3601 on the employee’s June payslip is only R10 000, the balance of code 3601 after processing the -R20 000 clawback will be negative (i.e.: -R10 000) in the June pay period.
The value of code 3601 reported to SARS in the employee’s monthly payroll information record in the June declaration file will therefore be -R10 000 (negative).
The YTD value reported to SARS for code 3601 on the employee’s tax certificate will however be R20 000, which is still positive.
Example 2:
An employee receives a ‘sign-on’ bonus of R5 000 in March. The employee’s contract stipulates that the employee will have to repay a pro rata portion of the sign-on bonus to the employer if the employee is terminated within the first six months of service. The employee is subsequently terminated in June, so needs to pay back R2 000 of the sign-on bonus to the employer.
The employer is refunded the R2 000 in June by adding a negative income item with a value of -R2 000 under code 3605 to the employee’s June payslip, thereby reducing the YTD value of code 3605 by R2 000.
Since the employee did not have any other income under code 3605 in the June pay period against which the clawback could be offset, the net value of code 3605 in June will be -R2 000 (negative).
The value of code 3605 reported to SARS in the employee’s monthly payroll information record in the June declaration file will therefore be -R2 000 (negative).
The YTD value reported to SARS for code 3605 on the employee’s tax certificate will however be R3 000, which is still positive.

Clawbacks Under Different Codes
Without laboring the point and providing a multitude of very similar examples using different income source codes, it should be evident how the above scenario could apply not only to normal income under code 3601 or bonuses under code 3605, but to any number of income source codes.
For instance:
• An insurance broker might be paid commission on policies sold, following which clawbacks might need to be processed under code 3606 if the policies lapse.
• An employer might pay for an employee’s training or accreditation based on certain conditions being met, following which clawbacks might need to be processed under codes 3801 or 3808.
• An employee might receive any number of fringe benefits as a sign-on bonus or provided he/she achieves a set target or goal, following which clawbacks might need to be processed under codes 3802, 3805 or 3806.
• An employee or his/her family or dependants might be awarded a bursary or scholarship on condition that the employee remains employed with the employer for a given number of years, following which clawbacks might need to be processed under codes 3809, 3815, 3820, 3821, 3829, 3830, 3831 or 3832.
It’s not hard to imagine how clawbacks could potentially be processed under any income source code to reduce the YTD value of that code, and in each of those cases the value of the relevant codes reported to SARS in the monthly payroll information records for those employees might need to be negative.
In all those cases however the values of the relevant codes on the employees’ tax certificates will never be less than zero.

 
SARS’s Proposed Solution of a “Clawback Code” [section 11(nA) deduction]
In previous meetings between SARS and stakeholders, SARS indicated that it would introduce a “clawback code” that would in future have to be used to process and report clawbacks in the payroll.
SARS indicated that amounts reported under this “clawback code” would not reduce the value of other remuneration that accrued to the employee in the same pay period as the period in which the clawback is processed.
The clawback code would therefore in essence be an after-tax deduction from an employee’s net pay, if employers and payrolls are not permitted to allow this new deduction code for purposes of calculating PAYE, SDL and UIF contributions, the value of which will then be reported to SARS to be claimed as a deduction against taxable income on assessment.
Note that the value of this “deduction” in the payroll would be the gross value of the amount being clawed back before any PAYE had been deducted from the amount.
Since the value of the clawback code would not reduce the value of taxable remuneration that accrued to the employee in the current pay period, but would reduce the value of the employee’s net pay, an employee who earned R400 000 commission and also had a clawback of R300 000 in the same pay period would therefore be taxed on the full R400 0000 in that pay period, resulting in the PAYE calculated in that pay period possibly exceeding the employee’s “net income after clawback” of R100 000, from which the PAYE on the R400 000 would then still have to be deducted.
With the preceding examples of the current process and the proposed new process in mind:
• Would SARS want clawbacks to be reflected under this code even if sufficient remuneration existed in the relevant pay period against which the clawback could have been offset, or only those clawbacks where there was no remuneration present in the pay period in which the clawback was processed?
• Would it not create a problem for SARS if an employee had multiple income source codes on a tax certificate but only a single “clawback code” which reduces the employee’s taxable income on assessment, as SARS would then have no idea which of the income source codes that are present on the employee’s tax certificate were reduced by the clawback?
• Would SARS be happy with the fact that the totals under the various income source codes on an employee’s tax certificate would now no longer accurately represent the remuneration received by the employee, but would instead represent the value of remuneration that accrued to the employee during the tax year even though some (or all) of that remuneration might have been refunded to the employer?
• Would SARS allow payroll systems to take the value of the “section 11(nA) deduction” represented by the “clawback code” into account on a month-to-month basis to reduce any tax surplus to zero (i.e.: to effectively refund the surplus PAYE to the employee by offsetting the PAYE in subsequent pay periods against the value of the tax deduction represented by the clawback code)?
If employers and payrolls are permitted to allow the new “clawback code” [section 11(nA) deduction] to be considered for purposes of calculating PAYE, SDL and UIF contributions and the clawback code refers to an income source code / amount which is not fully liable to PAYE or is exempt from tax, it will impact the SARS monthly ETV calculations if not linked to the relevant income code!
The ‘Bottom-line’ is that it –
• will result in the overstatement of income under the relevant income source codes and not fix the actual detail contained in the Employee Monthly Record and Employee YTD Certificate,
• may impact the PAYE calculation on an annual payment if it was over-paid and subsequently refunded to the employer,
• may impact on the calculation of the “remuneration proxy”
• may impact the limitation of section 11F Deduction in respect of contributions to Retirement funds, and
• may impact the calculation of the maximum remuneration for purposes of UIF contributions.
There may be more areas impacted not yet thought of!
Recommendation:
To facilitate the processing of Clawbacks [section 11(nA) deductions], it is recommended that the validation rules of the monthly BRS be changed to allow for the value of all income codes to be reported as negative values in the monthly payroll information records, provided that the associated YTD value of the relevant income code may never be less than zero.
No income source code will therefore be reported on an employee’s tax certificate with a value of less than zero.
This change does not preclude the introduction of a clawback code should SARS still wish to do so – it would simply be an information code (if implemented).
It is further recommended that payrolls be allowed to offset any PAYE surplus that may arise because of clawbacks against the PAYE payable in subsequent pay periods in order to achieve a net zero PAYE liability at the end of the tax year, thereby avoiding unnecessary refunds by SARS.
Allowing PAYE to be Reported as a Negative Amount
One of the main advantages of modern payroll systems is that they are self-correcting when it comes to the deduction of PAYE. In each new pay period, the PAYE liability for the year is calculated based on the latest estimate of an employee’s annual taxable income and is then compared to the actual PAYE deducted for the year (YTD).
Any tax surplus or shortfall is then compensated for by adjusting the PAYE payable in the current pay period either up or down. In most instances this results in the actual PAYE deducted for the year of assessment being exactly equal to the final PAYE (Tax) liability at the end of the year, which results in fewer assessments and refunds.
In some instances however, the value of a YTD PAYE surplus might be greater than the value of the PAYE payable in the current pay period resulting in the value of the PAYE payable in the current pay period becoming negative.
NB: It is important to note that this practice should not be equated to a “refund” of PAYE that is due or payable by the employee – it is in essence a recalculation. By offsetting the PAYE payable in the current pay period against a YTD PAYE surplus the payroll is simply reducing the YTD PAYE surplus (i.e.: PAYE that the employee is not liable to pay).
It is not refunding the employee for any amount of PAYE that the employee is liable to pay for the YTD.
Example 1:
Suppose an employee working nightshift receives a basic salary of R 7 000 per month and a nightshift allowance of R 1 000 per month. The employee’s estimated annual income is therefore R 96 000 per annum.
Since this is above the tax threshold, PAYE of R 3.75 per month is deducted from the employee’s income in both March and April. In May the employee moves from nightshift to dayshift and therefore no longer receives the R 1 000 nightshift allowance.
The employee’s estimated annual income therefore changes from R 96 000 to R 86 000. Since the employee’s total annual income is now estimated to be below the tax threshold, it becomes apparent that no PAYE should have been deducted from the employee in March and April.
Instead of waiting 10 months for the employee to be assessed and refunded by SARS, it is common practice in payrolls to correct the over-deduction by adding a negative PAYE deduction (to the value of -R 7.50 in this case) to the employee’s payslip in the current pay period.
The employee’s PAYE deduction in the payroll for May is therefore processed as -R 7.50, which reduces the total PAYE payable to SARS in May by R 7.50 and brings the employee’s YTD total for PAYE to R0.00.
The value of code 4102 reported on the employee’s monthly payroll information record for May would therefore be -R 7.50 (negative), but the value for code 4102 reported on the employee’s tax certificate would be R 0.00 (not negative).

Example 2:
Taking the exact same scenario as in Example 1 above, if the payroll was not allowed to process the negative PAYE amount of -R 7.50 in May there would be no other way to correct the R 7.50 PAYE over-deduction.
Since no PAYE will be deducted in any of the remaining pay periods in the year, there will be no opportunity to offset the PAYE payable in future pay periods against the YTD PAYE surplus, so the R 7.50 PAYE surplus would still be present at the end of the year.
The only way to resolve the PAYE surplus in such a case would then be for SARS to process a refund on assessment.
Example 2
An employee earns a salary of R7 000 per month, which is below the tax threshold. In June, overtime of R5 000 was incorrectly paid to the employee and PAYE of R195 was withheld.
The employer recovers the R5 000 overpayment from the July remuneration. In practice, the employer would correct the overpayment of PAYE (of R195) in July, instead of the employee having to claim a refund on assessment due to a bona fide error.

Recommendation
To facilitate the correction of over-deductions of PAYE in the current processing month it is recommended that the validation rules of the monthly BRS be changed to allow for the value of deduction codes to be reported as negative values in the monthly payroll information records, provided that the associated YTD value of the relevant deduction code may never be less than zero.
No deduction source code will therefore ever be reported on an employee’s tax certificate with a value of less than zero.
Motivation
As mentioned earlier, one of the main advantages of modern payroll systems is that they are self-correcting.
If payrolls are no longer allowed to adjust the YTD PAYE up or down in response to YTD PAYE surpluses or shortfalls, including the processing of negative PAYE amounts where necessary, the result would be tens of thousands of unnecessary assessment and refunds having to be processed by SARS.

In Closing
Once SARS has built up a history of employee monthly record data from the monthly payroll submissions, remuneration and PAYE trends can be analysed and ‘red flags’ can be raised that will enable SARS to audit suspicious transactions.
I trust that the above feedback will be of help to you, and that serious consideration is given to finding a pragmatic solution for all to the problems discussed above.
We are available at any time to clarify points made in this document, and to discuss the matter further.

Comments from Tom Verryn – PAL Solutions – Feedback on BRS for PIT2024 Modernisation Project

Tom Verryn support the comments submitted by Deon.

Tom Verryn’s comments are in addition to Deon’s comments.

Removal of source code identifiers
Tom Verryn want to comment on the removal of source codes from the record layout in several of the record types.
Tom Verryn understand that the administration for the allocation of new source codes is a painful process and involves extra work and resources. However, the benefits of a system with the volume of data that this system has makes it critical to have a source code driven file layout.
The current tax certificate file layout was designed in 1998 and has stood the test of time with major data item additions and deletions during the last 25 years.
With the complexity of different record types in the file the debugging of systems is going to be a nightmare.
Where a simple file layout with limited columns is used it is simple to include a header line defining each column and then importing that file into Excel to be able to check that the detail is recorded in the correct column.
With the proposed record layouts this will be a hair-raising task to identify where a problem is.
The initial release will have problems getting everything working, but the real drama is going to come when extra fields are added, or old fields are removed from the file. The fact that the header record provides for the file version number will assist to know what the file layout should look like but with so many different systems being involved I can see that changes down the line are going to be an issue.
When the original file structure was introduced, I spent many hours with the SARS developers debugging the systems and if it wasn’t for the source codes that process would have been almost impossible to get resolved.
Another point to take into consideration is that it is less confusing to refer to a unique field code when referring to a data item than a description. SARS always refers to Section xx or Schedule yy or paragraph a(b)iii(2) in the Income Tax Act and then there is a certainty to what is being referred to. As that is a standard way of doing those references it makes logical sense to keep the source codes in the BRS.
Another point on this issue is that when data is sent between systems it is accepted practice to do so in an XML, JSON or some other format that identifies each data item with a tag. These tags are usually long descriptions. Therefore using a 4-character source code is a much more efficient method of identifying the data items.

The current BRS specification will only require an additional first column in the tables for the recording of the Source Code and therefore the rest of the document is still effective. References to other fields in the BRS can have the source code included for clarity.

Record Structure
Section 4 on page 9 defines the record structure as:
2 The record structure of the file for employee monthly data is as follows:
o File Header Record
o Employer Demographic Record
o Employer Declaration Record
o Employee Demographic Record
o Employee Monthly Certificate
o Employee Year to Date Certificate
o File Trailer Record

Section 5.4
Checking the record layout detail of the ‘Employee’ records in section 5.4.2 there is a section 5.4.2.2 – Header which is a ‘Fixed’ record layout with 12 fields defined in this section.
This is followed by section 5.4.2.3 – Monthly Financial Information
This is a source code record layout.
The major problem here is that this record has no ‘key’ information present. The data on this record is only financial detail.
Where it is required to submit details for more than one period there will always be a header and financial record present on the file so that the financial data can be allocated to the correct period.
From a processing point of view having a financial record without any ‘key’ details is not good.
It would make much more sense to only have one record with the header and financial data together. This would then conform to the detail specified on page 9.
The same situation applies to the year-to-date record.

Telephone and Cell phone numbers
The length specification in the ‘File Header’ and ‘Employer Demographics’ records for these numbers is 0:0 or 1:15, but the validation rules require a number to be at least 10 characters long where the field is present.

Section 5.4.1
Identity Number (Page 33)
Length is specified as 1:13 but the Validations require this to be a South African Id number which is 13 characters.
Passport number (page 34)
Length is specified as 1:18 but Validations require a minimum of 6 characters.
Date of Birth (page 35)
The format is fixed and validation specifies the format as CCYYMMDD but the length is 1:8, should be 8:8.

Page 44 onwards – Postal Address
As there are different formats of Postal addresses depending on the ‘Postal Address Structure Indicator’ it would be safer to have this as the last section of the record.
If it is accepted that the Source codes are to be retained in the records, then the positioning of the Postal address data fields in the record is not a concern.

Section 5.4.2.1 Page 52
Bullet 4
Why is it not allowed to have a negative value for a ‘New’ transaction BUT when it is an ‘Amended’ transaction a negative is allowed? I thought that with amendments the full transaction must be supplied and not the delta. Therefore with an amendment, a negative can be loaded but not when a new record is supplied.

Section 5.4.3.1 Page 87
Under the General Rules bullet 2 it is stated that the year-to-date certificate must be included ‘in the last month of employment for employees who are no longer employed’.
This is not practical as payrolls are processed in advance of payday and therefore there are generally additional payments in the next month or even two months later.
Many of these payments are for variable payments for example overtime. The payroll system then keeps these employees in a state of termination in suspense so that any late payments can be processed. The user determines how long they want to keep the employee in this suspense state to allow for these late payments to be processed. The employee is then only terminated after the user-defined suspense end date is reached. The termination date recorded for the employee is the actual termination date which can therefore be a few months back. Under these circumstances, if this rule is to be applied there will be a year-to-date record for each month that the employee is in this suspense state. The transaction month will be the month in which the employee was paid for the variable payment BUT the termination date will be before the transaction month.
This is what happens in the payroll world. Will the monthly processing of data cater for this condition?

MONTHLY PAYROLL SUBMISSION (PIT2024 Modernisation Project) – External BRS Review – July 2023

The following points were discussed in the meeting between SARS and the PAGSA in July 2023.

File and Record Structure Principles
• File structure:
• File Header Record
• Employer Demographic Record
• Employer Declaration Record
• Employee Demographic Record
• Employee Monthly Payroll Record
• Employee Year to Date Certificate
• File Trailer Record
• Employee Monthly Record & Employee Year to Date Certificate:
• Header
• Financial Information
• Non-Financial data:
• Fixed position with a separator
• Fields that does not have a value must be indicated by two separators without a space between it, e.g. ||
• Financial Data:
• Code, value pair with a separator

Employer Declaration
• e@syFile and eFiling: The Employer Declaration will be generated by the front-end system
• Direct Channels, including API’s: The Employer must include the Employer Declaration in the submission file
• Request for Correction: For each month that an RFC is included in the submission file, a request must be sent to the SARS’ backend systems to retrieve the latest data, before the Monthly Payroll file is submitted

Unique File Id
• The Unique File Id must be unique for each file that is submitted from the Employer and cannot be re-used for subsequent files
• The response file will be used for direct channel to provide any feedback from SARS
• The file layout for the response file will be added to the BRS when direct channels are supported

Unique Employee Identifier
• The purpose of the field is to link the employee demographics record with the corresponding employee monthly data and, if applicable, the employee year-to-date data in the file
• The field must be system generated and may be in any format
• The same value may be re-used in subsequent files
• The name will be amended to be the same across all record types

Address Fields and Telephone Numbers
• Foreign Employers: Must have a local representative and address
• Structured vs Unstructured address format
• Quality of data
Minimum length of fields
• Postal codes: Type is alphanumeric and length is 10 to make provision for foreign addresses
Type is also alphanumeric to ensure that leading zeros are not dropped
Directive Fields
• Directive information on year-to-date record: Preference to include in the YTD record
• Current validation rules vs new validation rules: The validation as stipulated in the Monthly BRS are the correct validation for the field. The validation in the Filing Season BRS had to be amended because the field was initially introduced to late for payroll to incorporate the field and, subsequently, the preferred validation rule was communicated too late for payrolls to make the change before the commencement of the tax year
• “Fixed Rate” directives: Some employers have historically included fixed rate directives in their submissions

Other Fields
• Certificate Number: The same certificate number must be used for all the employee’s monthly payroll records, including corrections, as well as the YTD data
• Employment Date and Employment Termination Date: My understanding is that most employers that have seasonal workers do not terminate the seasonal workers when the season has concluded
• Rehired employees: The employer can decide whether to use one or a separate monthly payroll record if an employee is rehired in the same month that the employee’s services were terminated
• Retrospective hire: The employer must submit all outstanding monthly payroll records if an employee is hired retrospectively

Employment Tax Incentive – Corrections
Under section 9(2), if an employer does not reduce PAYE in a month while it was available, that amount must be treated as an excess in the next month.
If an employer mistakenly does not claim ETI in a month, it must be claimed in the next month (within the 6 month period).
What we are concerned with, is that the employer may not go back to a previous month and claim the ETI in that month’s EMP201. It must be claimed in the next month. If I refer to “claim”, it is the same as “utilise” in the EMP201s.
I cannot see any issue with them increasing the calculated amount in the month that they became entitled to it. But they should only be allowed to utilise it in the next month.

Monthly Financial Data Corrections
• Negative Amounts
o Based on previous discussions and the principle that all corrections must be restated, my understanding is that all corrections can be declared without using negative amounts
o The example where the employer used the incorrect source code for a non-taxable bursary must be resolved in the same manner. The incorrect source code must be restated with the correct source code in the amended record
• Gross Annual Income
o Not all annual income source codes can be defined. There are some codes that can be either a monthly or an annual income code

General
• User Guide for Employers: A separate guide will be created to cater for the additional fields that were added, to prevent confusion for Employers
• Conceptual design: The conceptual design reflect the end goal for the Monthly Submission process

MONTHLY PAYROLL SUBMISSION (PIT2024 Modernisation Project) – External BRS Review – 14 July 2023

The following points were discussed in the meeting between SARS and the PAGSA on the 14th of July 2023.
Examples received:
• Majority examples relate to corrections to a previous month’s pay slip which is corrected in the current month:
◦ Overpayment of income
◦ Retrospective termination of employment, medical scheme contribution, etc.
• These corrections are processed in the payroll by deducting the recoupment from the current month’s income.
• If the employee did not receive the specific type of income in the current month, a negative value is processed.
• The processing of the correction may also result in a negative PAYE amount.

Corrections – Principles:
• Legislative View
◦ Variable remuneration must be corrected in the month the employee worked to earn that remuneration.
◦ Non-variable remuneration must be corrected in the month the employee was paid, regardless of when the employee worked to earn the remuneration.
◦ Backdated salaries as a result of wage negotiations must be declared in the month the wage negotiations are concluded.
◦ Payment of antedated salaries as a result of a court case must be declared in the month the decision is handed down by the final court.
• Negative PAYE are not allowed.
• Annualisation
◦ Not required to correct months in between.
• SARS must be informed to which month the correction relates.

Conclusion:
• SARS agree we need to find a pragmatic solution for all parties in the interests of the roll-out of a very important and beneficial new era in PAYE administration.

Comments Invited: Proposals regarding the National Minimum Wage Rates
The National Minimum Wage Commission is established by the National Minimum Wage Act and is mandated to every year investigate and measure the impact of the national minimum wage rates against a list of seven economic factors, of which employment (or unemployment) is arguably the most important. Following the annual investigation, the Commission prepares a report that includes a recommendation to either increase, leave unchanged, or reduce, the minimum wage rates for the following year, and submits it to Government for a final decision. The final adjusted national minimum wage rates are usually issued in late January or early February and at the request of the PAGSA at the inception of this process, are made effective from 1st March for the tax year that follows. The Commission has invited us to submit written representations on the effectiveness and impact of the national minimum wage for their consideration, taking into account the following medium-term target:
Please email your comments to [email protected] no later than 8 January 2023. Regards,
Rob Cooper
Chairman Payroll Authors Group of South Africa
All information provided by the PAGSA is subject to our DISCLAIMER.

CODA Notice: Open-Day Meetings to Assist Employers
The Compensation Fund is holding three days of Open Day meetings for employers at the Birchwood Hotel and Conference Center, Boksburg, from 11 October until 13 October 2022 starting at 08h30 and ending each day at 14h30. The intention of the meetings is (and I quote):
“… to assist employers with queries that are not resolved and to make sure that they are finalised on the day. Employers will get an opportunity to directly engage with the processing officials (Specialists). If the Open Day format is well-attended, the Fund will consider holding more of these events in future. COIDA Notice
Compensation Fund (CF) are inviting employers who wish to be assisted with the following services:
EMPLOYER REGISTRATION FUNCTIONS
1. Application for the employer registration (manual and online)
2. Application for re-registration (Manual application)
3. Application for the change of nature of business (manual and online)
4. Application for the Deregistration
5. Trade Name updating
6. Address updating
7. Processing of Employer’s Banking Details
EMPLOYER ASSESSMENT FUNCTIONS
1. Clearing of employers who are flagged for audit
2. Application for the Revision of Assessment
3. Submission of Return of Earnings (To be assisted with the online submission)
EMPLOYER COMPLIANCE
1. Educate on the obligations of the employers
2. Auditing process conducted by the CF to ensure full compliance by the employers
GAUTENG COID PROVINCE
1. Assisting with the Claims
2. Enquiries on Claims
3. Registration on CompEasy system
4. Verification of claims for employers
ICT
1. Online Employer Registration Errors
2. System errors on the submission of the ROEs
CALL CENTRE
1. Application for the Tender Letter
2. Capturing of employer’s email address
3. CompEasy password and User’s Password reset
For further clarity, please call
Mr Tsholanang Moagi (Organising Committee member) at 0780498531 (only during
working hours) or the CF Call Centre at 0800 32 1322 and 086 0105 350
Regards,
Rob Cooper
Chairman Payroll Authors Group of South Africa
All information provided by the PAGSA is subject to our DISCLAIMER.

e@syFile Release version 7.2.6
SARS has release an updated version of the e@syFile software last night. Although version 7.2.5 was not officially released, the changes were included in this latest release. The details of the changes are as follows:
Release Notes: e@syFile™ Employer version 7.2.6
Adjustment to EMP501 submission files to align validation for Tax Directive numbers with the SARS PAYE BRS
Release Notes: e@syFile™ Employer version 7.2.5 (delayed and included in V7.2.6)
Adjustment to PDF rendering to allow OS default application
Clients with 64 bit should be able to print PDF documents from today without reinstalling 32 bit (7.2.5). Numerous complaints were also received from clients when ‘Updating’ after submission and error 1016 was displayed. Due to this error files were unfortunately not processed. Clients who received this error must please resubmit using the full resubmission functionality on the ‘Utilities’ menu from today with the updated e@syFile version. PDF rendering was added. It is ticked by default but if not, employers must please ensure it is ticked to activate. Regards,
Rhona van Taak
Admin Manager Payroll Authors Group of South Africa
All information provided by the PAGSA is subject to our DISCLAIMER

Foreign Employment Income
10(1)(o) any form of remuneration—
(i) as defined in paragraph 1 of the Fourth Schedule, derived by any person as an officer or crew member of a ship engaged—
(aa) in the international transportation for reward of passengers or goods; or
(bb) in the prospecting, exploration or mining (including surveys and other work of a similar nature) for, or production of, any minerals (including natural oils) from the seabed outside the Republic, where such officer or crew member is employed on board such ship solely for purposes of the “passage” of such ship, as defined in the Marine Traffic Act, 1981 (Act No. 2 of 1981),
if such person was outside the Republic for a period or periods exceeding 183 full days in aggregate during the year of assessment;
(iA) as defined in paragraph 1 of the Fourth Schedule, derived by any person as an officer or crew member of a South African ship as defined in section 12Q (1) mainly engaged—
(aa) in international shipping as defined in section 12Q (1); or
(bb) in fishing outside the Republic; or
(ii) to the extent to which that remuneration does not exceed R1,25 million in respect of a year of assessment and is received by or accrues to any employee during any year of assessment by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument or allowance, including any amount referred to in paragraph (i) of the definition of gross income in section 1 or an amount referred to in section 8, 8B or 8C, in respect of services rendered outside the Republic by that employee for or on behalf of any employer, if that employee was outside the Republic—
(aa)
(a) for a period or periods exceeding 183 full days in aggregate during any period of 12 months; or
(b) for a period or periods exceeding 117 full days in aggregate during any period of 12 months in respect of any year of assessment ending on or after 29 February 2020 but on or before 28 February 2021; and
(bb) for a continuous period exceeding 60 full days during that period of 12 months,
and those services were rendered during that period or periods: Provided that—
(A)for purposes of this subparagraph, a person who is in transit through the Republic between two places outside the Republic and who does not formally enter the Republic through a port of entry as contemplated in section 9 (1) of the Immigration Act, 2002 (Act No. 13 of 2002), or at any other place as may be permitted by the Director General of the Department of Home Affairs or the Minister of Home Affairs in terms of that Act, shall be deemed to be outside the Republic;
(B)the provisions of this subparagraph shall not apply in respect of any remuneration—
(AA) derived in respect of the holding of a public office contemplated in section 9 (2) (g); or
(BB) received by or accrued to any person in respect of services rendered or work or labour performed as contemplated in section 9 (2) (h); and
(C)for the purposes of this subparagraph, where remuneration is received by or accrues to any employee during any year of assessment in respect of services rendered by that employee in more than one year of assessment, the remuneration is deemed to have accrued evenly over the period that those services were rendered;
The purpose of this newsflash is to inform on clarification from SARS on some issues relating to Foreign Employment Income. On 28 June 2021, SARS updated the Interpretation Note #16 (Issue 4): Exemption from Foreign Employment Income in terms of section 10(1)(o)(ii). Complying with the “183/60-day” test
When an employer requires an employee to renders services outside the Republic on its behalf, such employer might assume that the ‘183/60-day’ test will be met based on the period relating to the services to be rendered outside RSA. However, employers cannot be sure that this requirement has been met due to the fact that an employee might return to the RSA for a weekend, etc. In such cases, the employer will count the weekend as part of the days outside the RSA. normal income code, increase with 50). Paragraph 11B was repealed by s.

KZN Floods – Tax Relief Measures
As we all know, a National State of Disaster has recently been announced to facilitate the process of repairing the severe damage to infrastructure, and to assist the many thousands of individuals who are experiencing horrendous personal hardship. Extending the state of disaster to the whole country is apparently necessary because the negative impact of the floods, while experienced mostly within KZN, ripples through to the rest of the country. As I am sure we all remember very clearly, the 2020 Covid-19 lockdowns, and the July 2021 Civil unrest, resulted in various forms of tax relief legislation being put in place in a very short space of time to provide financial assistance for both employers and employees. Because this is now a declared national state of disaster, the PAGSA has been asked whether there is a likelihood of another set of tax relief measures being rolled out to assist those that have experienced hardship because of the floods. At this stage, we can report that there is no indication of any changes to the legislation to provide tax relief. Whether or not simpler administrative changes will be introduced to facilitate donations, or any other form of assistance, remains to be seen. If there are any changes to the status of the roll-out of special tax relief provisions, the PAGSA will update you as soon as possible, but to repeat, at this stage this seems to be unlikely. Regards,
Rob Cooper
Chairman Payroll Authors Group of South Africa
All information provided by the PAGSA is subject to our DISCLAIMER.