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Two payments labour law says you must EXCLUDE from termination pay

by , 18 March 2014
When you calculate termination pay and look at remuneration, you mustn't only consider the tax consequences for employees' tax purposes. You also have to think about remuneration from a labour perspective. This means you must consider what the Basic Conditions of Employment Act (BCEA) says. So make sure you exclude these two payments from remuneration when you calculate termination pay.

Calculating termination pay? Make sure you exclude these two payments from remuneration for labour law purposes

When calculating termination pay, the BCEA says you must exclude voluntary payments made to your employee to enable him to work. In addition to this, you must also exclude the following two payments.

#1: Cash payments which enable your employee to work

The Practical Tax Loose Leaf Service says cash payments or payments in kind to enable your employee to work. For example:

  • An equipment or tool allowance,
  • The provision of transport or the payment of a transport allowance to enable an employee to travel to and from work; or
  • The provision of a train or bus ticket to allow your employee to get to work.

Here are three examples of cash payments that enable your employee to work:

The company gives Sally, a sales representative, a car allowance to allow her to fund her travel to visit clients.

You issue Koos, your fitter, with a set of tools. You also give him R40 per month to replace any lost or broken tools. As this allowance is for work purposes and not money that he uses for his own purposes, it isn't remuneration.

You move your factory from Germiston to Roodepoort and you pay your employees R10 per day to assist them with their taxi or bus fare to get to the new factory.

All of the three examples above won't be regarded as remuneration for purposes of calculating termination pay.

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#2: Discretionary payments

This is discretionary payment not related to your employee's hours of work or responsibilities, for instance an isolated lump sum payment or a profit share scheme.

Here are two examples of discretionary payments

  1. You may give Reginald, a high flying executive, a profit share on condition that he stays with the company for ten years and brings in R10 000 revenue per month and he leaves your employment for whatever reason before the ten year period. This won't form part of remuneration.
  2. You give Meriam, an employee, a R500 gift towards the cost of her sick child's medical fees. As this is a once-off payment it doesn't form part of the remuneration due to her.

Exclude these two payments from remuneration when calculating termination pay. Doing so will help ensure you comply with the BCEA.

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