Employment: 4 tax questions from Budget 2018


Cape Town - Budget 2018 and tax law amendments rang in some important changes, according to Rob Cooper, tax expert and director of legislation at Sage.

He answers some of the common questions from employers and employees about how new regulations and developments will affect the payroll:

Is the national minimum wage here to stay?

The National Minimum Wage Bill will soon become law, with a proposed effective date of 1 May 2018. The new law aims to address wage inequality in SA, which is among the highest in the world.

The minimum wage has been set at a conservative level, with the goal of benefitting an estimated four to six million workers living below the poverty line without dampening job creation and economic growth.

The national minimum wage 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 he or she is paid weekly wages or a monthly salary. The national minimum wage will override other wage regulating mechanisms - such as the minimum wages set by bargaining councils - 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 for their sectors.

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

"We will hopefully see an amendment to the Employment Tax Incentive Act to align it with the national minimum wage. It currently states that an employee must be paid at least a monthly minimum wage of R2 000 if there is no other wage regulating measure for the industry. This would simplify administration of the incentive," said Cooper.  

What are the changes to the reimbursive travel allowance?

Reimbursements to employees for business travel using a private vehicle has long been a pain point for employers. With effect from 1 March 2018, the portion of a travel reimbursement above the "prescribed" rate of R3.61 (it was R3.55 for 2017/2018 tax year) per business kilometre is included in remuneration. In the past, this was more complex.

The latest "fixed rate per kilometre" regulation issued by the SA Revenue Service (SARS) and effective from 1 March 2018 will encourage employers to use a reimbursement rate per kilometre which is not greater than the "prescribed" rate.

This will allow them to avoid a situation where skills development levies and UIF contributions are added to something that should be considered as an operational cost rather than a payroll cost—which had the result of lifting their costs of employment.  

What effect will national health insurance have on medical scheme fees tax credits?

"Many of us were bracing ourselves for the finance minister to do away with the small tax credit taxpayers receive for their medical aid payments in order to raise more funding for the National Health Insurance (NHI) plan," said Cooper.

"The good news is that it will stay in place. The bad news is that the tax credits will be increased below inflation over the next three years to fund expenditure for the NHI."

A National Treasury analysis shows that 56% of the total credits claimed in 2014 to 2015 accrued to around 1.9 million taxpayers with a taxable income below R300 000.

"Until we have a viable NHI in place, the medical aid credit will play an important role in making decent healthcare more affordable to millions of low-income earners. Getting rid of it would be a regressive move," said Cooper.

What are the major changes to retirement funds for 2018?

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 - or someone deemed to be an employee - is allowed a tax deduction on retirement fund contributions 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. This will prevent employees from receiving more than a R350 000 benefit should they work at more than one employer during a tax year and exceed the R350 000 cap at one of these employers, or from experiencing a sudden drop in net pay when the R350 000 cap is reached.
Another major change is the postponement of the compulsory annuitisation requirement of provident funds for another year, from March 2018 to March 2019.

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