Tax questions answered

POST-BUDGET: HOW PAYROLL IS AFFECTED FOLLOWING MINISTER’S SPEECH

There are some important changes for 2018/19.

The Budget Speech for 2018/19 and this year’s Tax Law amendments rang in some important changes. Here are common questions we’re hearing about how new regulations and developments will affect payroll:

1. Is National Minimum Wage (NMW) here to stay?

The National Minimum Wage Bill will soon become law, with a proposed effective date of May 1 2018. NMW sets the minimum hourly wage rate at: R18 for farm workers, R15 for domestic workers, R11 for workers employed on an extended public works programme, and R20 for the rest of the workers.

These rates set a new floor for compensation—an employer may not pay an employee less per hour, irrespective of whether they’re paid weekly wages or a monthly salary. NMW will override other wage-regulating mechanisms where their minimum wages are set at a lower rate.

Bargain council agreements, sectoral determinations and wage regulating measures in general, can, however, set higher minimum wages.

Employers won’t be allowed to unilaterally reduce workers’ hours to reduce the cost of wages. Businesses that can’t afford the minimum wage can apply for an exemption for up to 12 months.

2. What are the travel allowance changes?

With effect from March 1, the portion of a travel reimbursement above the ‘prescribed’ rate of R3.61 (was R3.55 for 2017/2018 tax year) per business kilometre is included in remuneration.

The latest “fixed rate per kilometre” regulation issued by Sars, will encourage employers to use a reimbursement rate per kilometre which isn’t greater than the “prescribed” rate.

3. What effect will NHI have on medical scheme fees tax credits?

Many were bracing ourselves for the small tax credit that taxpayers receive for their medical aid payments to be done away with, to raise more funding for the National Health Insurance (NHI) plan. Good news: it’ll stay in place; bad news: the tax credits will be increased below inflation over the next three years to fund NHI expenditure.

This is evident in the small increases to the fees tax credits for 2018/2019.

4. What are the major changes to retirement funds?

The removal of the provision that employees must join a new pension or provident fund within 12 months of its establishment. Employees are now allowed to join their employer’s fund at any time if the fund’s rules allow it. An employee is allowed a tax deduction on retirement fund contributions (employee and deemed employee contribution) up to the lessor of 27.5% of remuneration and R350 000 a year. From March 2018, the legislation spreads the R350 000 cap across the year. Any unused portion will be considered on assessment. The postponement of compulsory annuitisation requirement of provident funds for another year, from March 2018 to March 2019. Rob Cooper is a tax expert and director of legislation at Sage