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Many employees must travel as part of their job—Some more than others, some domestically and some internationally. For these employees the phrase “subsistence allowance” is something they should understand. The same is also true for payroll and HR managers. However, as much as some employers offer an “allowance” for those who travel, and while employees often seem fine with what they get, how it is calculated and applied might not be correct.
As Ian Hurst, Managing Director of Paymaster People Solutions prepares for a series of seminars on subsistence allowances and how they impact salary structuring, a brief overview of subsistence allowances was deemed necessary. In this brief article, we touch upon what subsistence allowances are, how they should be calculated, what the rates are, as well as provide a little head’s up on how they impact salary structuring.
What are Subsistence allowances?
In layman’s terms a subsistence allowance is an amount an employer may pay a travelling employee to cover accommodation and meals while out of town and away from home on business. The amount paid has been set by South African Revenue Service (SARS) and covers meals and incidental costs for local or domestic travel per night spent away from home. SARS has also set daily amounts for travel overseas on a country by country basis. The subsistence allowance rates are adjusted every year and the current rates can be found on the SARS website.
How much is the deemed Subsistence Allowance?
Employees will always think they deserve more than any set amount when travelling—What is considered enough is never really enough. For this reason, SARS has set the deemed rates for subsistence allowance for employees that travel. These are clearly shown on the SARS website.
The rates currently stand as follows for domestic subsistence allowances (for 2019):
- Meals and incidental costs – R416
- Incidental costs only – R128
International Subsistence Allowances very per country. (See more here — downloadable PDF file)
How is a subsistence allowance paid?
It is relatively straightforward to pay a subsistence allowance, but two things must firstly be noted:
- While a subsistence allowance will be noted in a contract of employment, it is not part of a salary package, nor is it really a perk.
- A subsistence allowance must be paid over and above any remuneration, and is treated as an operational cost if you like (one which cannot be taxed).
There are two methods of paying a subsistence allowance.
- Firstly, if an employer has agreed to pay the amount deemed necessary by SARS, then the amount can be added to the salary payment and no slips or receipts are necessary. If the amount paid is in excess of the SARS amount, tax will be paid on the excess balance.
- The second way to pay a subsistence allowance is to pay according to expense slips and pay accordingly. There may be cases where extraordinary costs accumulate such as taking clients out for lunch or dinner, or additional transport requirements (and these can be reimbursed).
In terms of a company’s own policies, it is entitled to determine its own rates for employees that travel. All subsistence allowances paid need to be noted on an employee’s IRP5 and SARS will make the necessary adjustment.
In terms of payroll administration, the processing of subsistence allowances is simple. When processing the following payslip codes be used:
- When the deemed (claimable rate) is exceeded, make use of code 3704 (local) and code 3715 (international)
- Where the deemed (claimable rate) is not exceeded, make use of code 3705 (local) and code 3716 (international)
When it comes to subsistence allowances, there are some factors that can confuse an employer. The terms used—relevant to how expenses are covered—can lead to confusion and allowances, advances and reimbursements are discussed in this previous article by Ian Hurst.
Subsistence allowances need to be factored in for employees who travel frequently as part of their work. For employees who travel infrequently a simple claiming of expenses is often most appropriate. While a subsistence allowance is—for all intents and purposes—a tax-free allowance (over and above an employee’s base salary) it should be noted and clarified in the contact of employment.
Furthermore, employees should be made aware of company policy with regards to subsistence allowances and what the process is for claiming them. Failing to account for subsistence allowances can result in employees paying excess tax on something that is tax free in terms of legislation.
Full details surrounding subsistence allowances and salary structuring will be explained in two information sessions:
- The first in Pretoria on 13th February, and
- The second on Cape Town on 20th February.
As always, where there is any confusion or concern about tax, payroll and remuneration professional advice can always be sought.
Paymaster People Solutions has a team of experts on hand that can assist you with and advise you on the best way to pay and manage subsistence allowances in your company.
Alternatively, you are welcome to email Ian Hurst, for more information.