'It is a sad fact that bonuses
often are the cause of more dissatisfaction than satisfaction, more dis-incentivisation than incentivisation,' says an article on Accountancy SA's website.
And one of the reasons for this is that tax
eats so much of your employees' bonuses
up. Sometimes, if the bonus
isn't very big, it could even mean that your employee takes home less pay because their bonus
pushes them into a higher tax
How you pay your employees' bonuses affects how much they'll be taxed
There are two choices you have when it comes to deciding how your employees' bonuses
will be tax
ed. Here they are, as outlined by the Practical Tax Loose Leaf Service:
Option 1: Tax payable in the month in which you receive your bonus
This is the most common type of bonus – in this case, you pay tax on your bonus
when you receive it.
In this case, 'the bonus
amount is added to the employee's remuneration for the applicable year, and taxed
as an annual payment according to that year's statutory tax
tables, unless the employee is not in standard employment, when the bonus is taxed
at 25%,' explains Accountancy SA.
Option 2: Tax on your bonus is spread over the year
'You may elect to spread the tax
on your annual bonus
over the full tax
year. By choosing this option you don't exactly receive your annual bonus tax
-free as some may think. All that you're doing is paying the tax on your bonus
in instalments so that when your bonus
is paid, you receive the gross bonus 'without' deductions', says tax
specialist Andre van Staden in the Practical Tax Loose Leaf Service:
'How is the tax
spread over the year?' you ask.
According to van Staden, 'the tax
on the bonus
must be calculated:
At the beginning of the tax year, or
When you commence employment, or
As soon as you opt to use this scheme.'
payable on the bonus
is spread over the remainder of the tax
periods in the specific tax
year – in either 12 payments (if your employee receives a monthly salary) or in 52 installments (if your employee earns a weekly wage).
Regardless of how you choose to pay your employees' bonuses
, you need to ensure the full amount of tax on your bonus
is paid by the end of the year of assessment. As long as you do that, it's up to you how you choose to pay employee bonuses.
For more information on the tax implications
for employee bonuses
get your hands on the Practical Tax Loose Leaf
. In the Practical Tax Loose Leaf
we've got a dedicated chapter on employee bonuses
helping you to stay on the right side of SARS
. In this chapter you'll discover:
Are salary advances taxable?
Did you know that you can decide how your bonus is taxed?
Are loyalty programme benefits taxable?
All you need to know about the taxation of retrenchment
The employees' tax treatment of retirement annuities explained
Get your Practical Tax Loose Leaf here