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:
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.
The Employment Tax Incentive Act can help you:
#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
Exclude these two payments from remuneration when calculating termination pay. Doing so will help ensure you comply with the BCEA.