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Before you pay your employee termination pay - check this!

by , 02 July 2013
According to the Practical Tax Loose Leaf, knowing what you must pay employees when you terminate their services can be confusing and complicated. This doesn't have to be the case in your company. Here's what you must check to make sure you're withholding the correct amount of employees' tax when making these payments.

According to the Practical Tax Loose Leaf, termination pay is payment legally due to your employee when he leaves your company.

This means you'll need to calculate and pay termination pay to your employee when:

  • He resigns, retires or dies.
  • You retrench him.
  • You dismiss him for misconduct.
  • You dismiss him for poor performance.
  • You dismiss him because of illness or disability.
  • He deserts or absconds.
  • He leaves by agreement with you.

But to ensure this process runs smoothly and your calculations for termination pay are accurate, you need to check the following:

Six things to consider before you pay your employee termination pay

#1: Establish whether or not your employee is entitled to termination pay and, if so, what types:

  • Have you agreed with your employee not to give notice pay, or alternatively have you calculated the correct amount of notice pay due to him?
  • If the employee isn't a 'casual', have you calculated the amount of leave pay owed to him?
  • If the employee isn't a 'casual' and has been retrenched, have you calculated the amount of severance pay owed to him?

#2: Calculate the employee's total remuneration taking into account factors like commission, pension contribution and free accommodation.

#3: Make sure you know accurately how much notice pay (refer to the employment contract or the BCEA), leave pay (how many days he has accrued) and severance pay (how much service he has) the employee has due to him.

#4: Then work out the actual amount of notice, severance or leave pay that you must pay based on his total remuneration.

#5: Add up the notice, severance and leave pay figures to arrive at the total termination pay figure.

#6: Prepare and submit an application for a tax directive to SARS in terms of the form IRP 3(b).

Make sure to check these factors to ensure you're withholding the correct amount of employees' tax when paying your employee termination pay.



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