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SARS will audit your company if your employment contracts don't contain these three important requirements

by , 04 December 2014
You know you have to deal with your employees' PAYE and fringe benefit tax. But do you know how to deal with these requirements in your employment contracts?

If you don't, when SARS casually checks one employee's contract it could turn into a full fledged audit.

The result? SARS will go through every single document in your company to look for errors and even signs of tax evasion.

If SARS finds anything wrong, it could hand you a crippling 200% penalty.

To avoid this fate, I'm going to show the three legal SARS requirements all your employment contracts must contain...

 
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Include these three legal requirements in all your employment contracts

 
1. The cash amounts due to the employee: 
 
Salary and allowances. Cover allowances thoroughly! For example, if your employee uses his own car, laptop, cell phone or home office for business reasons and he covers these costs himself, you must reimburse him or give him an allowance.
Fully describe the remuneration structure.
Describe all fringe benefits and attach a rand value to these (and make sure you stick to the values approved in the Income Tax Act). 
 
You need to include clear clauses in your contracts to outline how your treat any reimbursement and fringe benefits. Here's an example of one you can use if, for example, you give your employee a laptop:
 
'The Employee is required to have a computer to perform the prescribed services and the employer undertakes to provide a personal computer facility and to bear all costs, losses and wear and tear arising from the use of a personal computer facility in accordance with this agreement.'
 
2. If either you or the employee contribute to a benefit fund (e.g. medical aid, pension or provident fund) you must specify who contributes what. 
 
These contributions must be in line with the rules of the schemes concerned. When SARS does a PAYE audit, the auditors will cross-check between actual payments, payslips, employment contracts and scheme rules to ensure everything's in order. 
 
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3. If your employee uses his own tools for his job (e.g. his own car), you must detail who's responsible for the costs.
 
If you give your employee an allowance for his cell phone or home office, he'll pay tax on the allowance and can't deduct his actual expenses (Section 23(m) of the Income Tax Act). In this case, it's better for him if you reimburse actual expenses, rather than giving him an allowance. 
 
But, if these amounts are of a capital nature (e.g. a computer, office furniture), your employee can claim a wear and tear allowance for the value of the item he uses for business (Section 11(e) of the Income Tax Act).
 
This doesn't apply to employees who receive more than 50% of their income as commission.
 
Either way, be sure to clearly explain your process in your employment contract.
 
Include these three legally required elements in your employment contracts to ensure they're SARS-proof so it doesn't audit your company. For more about the legal tax requirements your employment contracts must fulfil, check out the Practical Tax Loose Leaf Service.
 


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