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When you terminate your employee's employment, you have three tax options regarding their notice pay

by , 19 March 2014
Notice pay is money you pay a leaving employee for the period of notice. There are three forms of notice pay to choose from. Read on to find out what they are and what you must do when it comes to employees' tax.

What you need to know about your three options regarding notice pay and your employees' tax

The Practical Tax Loose Leaf Service says when you terminate your employee's employment, you may:

#1: Give him notice of termination in terms of his contract of employment or as provided by the Basic Conditions of Employment Act (BCEA)and require him to work out his notice period, in which case he'll be paid his ordinary remuneration for the notice period;

OR

#2: Tell him that you don't require him to work out his notice. In which case you'll be required to pay him in lieu of his notice period

OR

#3: Agree with your employee that he won't work out his notice period, in which case you can also agree with him whether or not he'll be paid in lieu of notice.

You may, for example, agree to waive the notice period (to allow him to take up another job), but on the basis that he won't be given notice pay.

But here's what you probably didn't realise: When it comes to notice pay option you choose, employees' tax comes into play…

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The Employment Tax Incentive Act can help you:

  • Legally claim a tax incentive when you hire temporary employees
  • Claim a tax incentive on learnerships
  • Manage the risks and penalties involved with the Employment Tax Incentive Act


Click here to find out how.


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You must withhold employees' tax from notice pay.

'Irrespective of the form of notice pay you choose when an employee's services are terminated, you must withhold employees' tax on the pay,' says the Loose Leaf Service.

Now that you know your three options regarding notice pay and employees' tax, make sure you comply. Be sure to check out this article as well. It explains what employee's tax is and when you need to pay it.

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