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Do you know what to include when you calculate leave pay?

by , 14 October 2013
Leave is one of those subjects that causes the most employment headaches Sure you know the basics but do you really know the nitty gritty. If you don't you could end up making expensive mistakes. The good news these mistakes are pretty easy to avoid. Read on to discover what include in your leave pay calculation so you can calculate, account for and manage leave correctly and avoid SARS penalties.

According to the provisions governing leave, leave pay must accrue to the employee. This pay must be taxable so you can take advantage of the company tax deduction, says the Practical Tax Loose Leaf Service.

The Basic Conditions of Employment Act (BCEA) looks at how you must structure remuneration and how to calculate leave and notice pay.

Here's a checklist of what to include in your leave pay calculation

Strange as it sounds, the Practical Tax Loose Leaf Service says you must include these cost-to-company items in your leave calculation:

  • Housing, accommodation allowances or subsidies;
  • Housing or accommodation received as a benefit in kind. These are benefits which are in a form that can't be converted into money, such as residential accommodation at a monthly rental amount less than the actual rental value paid to the property owner.
  • Employer contributions to medical aid, pension, provident fund or similar schemes;
  • Employer contributions to funeral or death benefit schemes.

The reason?

These cost-to-company items are crucial when you calculate your employee's remuneration and pay his leave out.

Keep in mind that there are certain allowances and perks that you can exclude when you calculate leave pay.

Here's what to exclude from your leave pay calculation

  1. Any cash payment or payment in kind that you've provided to allow your employee to work. For example, equipment, transport, or paying for transport as an allowance to allow your employee to travel to and from work;
  2. Re-location allowance;
  3. Gratuities, for example, tips received from customers and gifts from you (employer);
  4. Share-incentive schemes;
  5. Discretionary payments that aren't related to your employee's working hours or performance, for instance,  discretionary profit-sharing;
  6. Entertainment allowance;
  7. Education or schooling allowance; and
  8. Allowance paid for property owned by your employee.

Now that you know what include in your leave pay calculation, get it right to avoid SARS penalties.

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