The Income Tax Act requires that you address the following aspects in your employee's employment contract.
Here's are the three things the Income Tax Act says you must address in your employment contracts
You must stipulate:
#1: The cash amounts due to your employee
#2: If either you or your employee will contribute to a benefit fund (medical aid, pension or provident fund) then you must state exactly who contributes what.
Make sure contributions to benefit funds (such as medical aid and retirement fund schemes) by both you and your employee are not only stated in the employment contract, but are also in line with the rules of the schemes concerned, says the Practical Tax Loose Leaf Service.
When SARS does a PAYE audit, the auditors cross-check between actual payments, payslips, employment contracts and scheme rules to ensure everything is in line.
#3: If your employee has to provide any tools for the trade, for example, his own car, you must state clearly who's responsible for the costs.
Remember, if your employee receives an allowance for his computer, cellphone or home office, then he'll be taxed on the allowance without being allowed to deduct his actual expenditure.
So, in this instance, it's better for your employee if you reimburse actual expenditure, rather than giving him an allowance.
There you have it. Addressing these three aspects in your employee's employment contract will ensure you comply with Income Tax Act.