You lost your case at the CCMA and now you have to pay your employee R150 000 for the CCMA judgement.
To make it worse, you have SARS knocking on your door. And it hits your business with penalties for not treating the CCMA awards correctly for the employee's tax purposes.
Here's everything you need to know on the four types of awards the CCMA can give your employees and your tax obligation!
Claim at least R40 000 through the Employment Tax Incentive Act
You'll qualify for these incentives if you're registered for Employee's Tax with SARS. But you must make sure your tax affairs are in order to qualify. If not, SARS will disallow your claims.
Learn more about the Employment Tax Incentive Act
There are four types of awards made to employees you need to tax
1. Unfair dismissals
2. Termination of an employment contract prior to its expiry;
3. Awards linked to 'services rendered'; and
4. Awards that cover more than one purpose.
Let's look at each of these in more detail.
1. Unfair dismissals
In some cases of unfair dismissal, the CCMA or Labour Court will order you to rehire the employee.
The employee may waive his right to come back to work and take the option of a lump sum award instead. This award falls within the scope of gross income and is taxable. But this also means you must deduct tax from the payout.
These amounts form part of the employee's remuneration. So you'll deduct these costs as part of your salaries bill.
2. Termination of an employment contract before its expiry
If you have to pay compensation when you breach a contract of employment by terminating it before its expiry, it will be taxable. This is because the employee receives these amounts as a trade for income they could have earned in the future under a contract of employment.
These amounts are part of 'gross income'.
Amounts you pay to an employee in terms of a contract of employment, for future services, may also be taxable.
You can deduct the payout to the employee for tax purposes. These amounts will form part of the employee's remuneration. So you'll deduct these costs as part of your salaries bill.
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3. Awards linked to 'services rendered'
When you pay an award for services rendered, the amount received is taxable.
This includes any amount for voluntary awards, amounts received or accrued for services rendered.
You can deduct the payout to the employee for tax purposes. These amounts form part of the employee's remuneration.
So you'll deduct these costs as part of your salaries bill.
4. Awards received for different purposes
If an employee receives an amount from the employer for services rendered and for a payout for loss of a position, then you must determine the main reason for the payout. This will help you determine if it's income or capital in nature and if it's taxable or not.
Make sure you deduct the PAYE on all the above correctly; otherwise you may end up under-declaring PAYE and SARS will hit you with penalties and interest.
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