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Warning: Don't include these two payments when calculating termination pay - labour law doesn't allow it!

by , 19 March 2014
Calculating termination pay is tricky and many employers get it wrong. As a result, they open the door to endless SARS penalties. Don't make the same mistake. Make sure you exclude these two payments from your employee's termination pay.

In this article, we gave you two payments labour law says you must exclude from termination pay. Now we're going to give you two to exclude so you can avoid penalties.

Labour law requires you to exclude these two payments from termination pay

#1: Entertainment allowances

The Practical Tax Loose Leaf Service says that entertainment allowances are given for employees to entertain clients and potential clients. Because of this, they don't form part of an employee's income in terms of the Basic Conditions of Employment Act (BCEA).


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#2: Public education, schooling allowances, bursaries or scholarships

Basically, if your employee's dependant (for example, his child) is granted a bursary or scholarship, and the award was offered to the public at large, the grant won't form part of the employment package of the employee. But the commitment would remain towards the recipient of the bursary. Keep in mind that general or 'open' bursaries are subject to three requirements:

  • The award must be a bona fide scholarship or bursary. This means that the scholarship must be open to the public at large and not merely to your employees.
  • It must be granted to enable or assist a person to study.
  • And the study must be at a recognised educational or research institution. This must be a college or university, as defined in Section 18A of the Income Tax Act. It can also be a school or any other educational or research institution, which is of a permanent nature, open to the public generally, and offering a range of practical and academic courses.

Bottom line: Exclude these payments when calculating termination pay. Doing so will ensure you're in line with the BCEA and you'll avoid SARS penalties.

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