Retrenchment is a swear word in any language and no matter how well the human resource department followed the procedures and how nicely they explained the process and the package there will always be anger and sadness from the employees being retrenched. As the payroll administrator it is our job to make sure that the money side (yes that is what the employee really cares about) is correct. Let’s not aggravate the situation by not paying the retrenched employee properly.
SO The following needs to be paid
· 1 week for each completed year
· Notice pay as per contract
· Leave pay outstanding
The R30 000 exemption that previously applied to retrenchment gratuity lump sums has been repealed with effect from 1 March 2011. “Severance benefit” payments will now be taxable in terms of the retirement fund lump sum benefits tax rates with effect from 1 March 2011.
In terms of the new regulations the first 300 000 in an employee’s lifetime will be seen as tax Exempt. This amount includes all retrenchments payouts over the employees lifetime as well as payments made when retiring. Thereafter a sliding scale of taxation is introduced.
It is our strong that you apply for a tax directive ((how to apply click here) before finalizing the payment.
An employer is required to apply for a tax directive if this type of remuneration is paid to an employee – the exemption shall be determined by SARS with the processing of the tax directive application. The gross amount of the severance benefit must be reflected under code 3901 on the IRP5/IT3(a) tax certificate and the employees’ tax withheld in terms of the directive,
under code 4115. This is applicable to severance benefits payable to employees from 1 March 2011.
No UIF is to be deducted for the tax free portion. It is a great idea to get a tax directive for each retrenched employee