Author: Ian Hurst — Managing Director, Paymaster People Solutions
In South Africa, where access to affordable education remains a huge challenge for many, progressive companies that facilitate access to education (for its employees and their children) certainly do make a meaningful contribution to the socio-economic development of South African society. Accordingly, did you know that an organisation can directly help its employees and their children to obtain an education. In South Africa, a company may contribute up to R 20,000 (per year) to its employees’ children’s education too. A maximum of R20,000 per individual may be off-set as a tax free benefit to the employee. More on this to follow.
It is worthwhile knowing that within the context of this discussion, a bursary is considered to be money that is paid by the company to a recognised educational institution on behalf of its employees and/or their children. In most cases, a bursary is intended for employees who cannot afford to pay the full fees required by the academic institution.
The rules underlying the granting of a company-sponsored bursary
- In the bursary agreement, there must be a clause which states that if the employee or any of the employee’s children fail to complete their studies or fails their examinations, then the money will be paid back to the company.
- Employees earning less than R600,000 per year are eligible to receive such a bursary.
- For grades R-12 or NQF-levels 1-4, the bursary may not exceed R20,000.
- For NQF-levels 5-10 (which includes university education: NQF 7 and upwards), the bursary may not to exceed R60 000.
- In-house training (and/or on-the-job training) should not be regarded as education to be funded by the employee. In other words, in-house training courses run by the company ought to be provided free of charge. Examples of such courses include:
- Computer courses
- Management and administration courses
- Bookkeeping courses
- Sales courses
Note — Where the bona fide bursary does not qualify for a tax exemption, then the full bursary amount is to be processed as a fully taxable benefit. For example:
- A low-interest or interest-free loan (which has been granted by the employer) is not to be regarded as a bursary. Instead, such education related financial assistance remains a low- or interest-free loan that merely attracts little to no interest.
- In a case where the employee is not required to repay the loan, he/she will have received a taxable benefit. Consequently, employee tax must be deducted and the benefit to be processed as a PAYE annual payment.
- Sometimes an employer may decide to reward an employee for obtaining a qualification on successful completion of his/her studies. Similarly the employer may decide to reimburse the employee for study expenses incurred. In the case where the reward is received, this is treated as taxable remuneration. In the case of the reimbursement of study fees, this is treated as a bursary, of which R20,000 is not taxable.
- Only the taxable portion of a bursary is subject to the deduction of employee tax.
- A bursary that must be repaid by an employee if certain non-fulfilment conditions have been stipulated, will nevertheless be treated as a bona fide bursary until such time that the non-fulfilment conditions of the agreement come into effect.
- An employer grants a bursary of R24,000 to each of the employee’s two children — intended for their school education. The employee earns an annual salary of R390,000, a bonus of R18,000 and a housing subsidy of R8,000. The employer does not operate a bursary scheme that is open to the general public.
- Although the employee’s remuneration does not exceed R600,000 per annum, the bursaries are paid in consequence of services rendered by him.
- The bursaries of R24,000 each exceed the tax-exemption limit of R20,000 per individual. However, only the additional portion (i.e. R4,000 x2) is deemed taxable: in other words, only R8,000 (R48,000 minus R40,000) will be taxed.
- However, if the employee’s remuneration exceeds R600,000 per annum, then the full amount of both bursaries (R48,000) will be taxable.
Paymaster recommendation — relook your company bursary policy and employee contracts
It is in the best interests of the organisation to consider relooking (or newly creating) a bursary policy that incorporates elements from the aforementioned discussion. This will pave the way for many of your well-deserving employees (and their children) to gain access to education (which otherwise, they might never be able to afford). Similarly, relook (and amend) the cost-to-company packages and employment contracts of employees who earn less than R600,000 per year.
Bottom-line: Education is an investment. Facilitating access to education for your employees and their children is an ideal way in which the organisation can invest in its human capital (and by so doing, foster a greater degree of love that employees have for the company that they work for).
Email me, Ian Hurst for more information. I will be happy to entertain any further enquiries that you might have.
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