<--- Back to contents

Chapter 6 - Labour Law

Employees and income tax

What is employee’s tax?

Employees’ tax is the tax that employers must deduct from the income of employees (salaries, wages, bonuses, etc.) and pay over to SARS every month..

Employees’ tax consists of two parts, SITE and PAYE.

What is SITE?

SITE stands for Standard Income Tax on Employees. Employees’ tax that is deducted from an employee’s income when it is below a specific threshold is classified as SITE. The threshold for 2007/2008 is R60 000. This means that anyone earning below R60 000 in the 2007/2008 year will pay SITE.

SITE is deducted by the employer from the daily, weekly, or monthly earnings of an employee and paid to SARS every month. Examples of earnings from which SITE is deducted include salaries, wages, bonuses, overtime pay and fringe benefits.

What is PAYE?

PAYE stands for Pay-As-You-Earn. PAYE is the tax that is deducted by an employer from an employee’s income where their income is higher than the SITE threshold, in other words, if the income is higher than R60 000.

When must an employee pay tax?

Every employee who earns more than a certain amount (known as the “threshold”) in a year of assessment must pay income tax. The threshold amount for the 2008 year of assessment is R43 000 if you are under 65 years or R69 000 if you are 65 years and older. In other words, if you are 66 years old you can earn up to R69 000 for the 2008 tax year without having to pay tax; if you are 55 years old and you earn R40 000 for the 2008 tax year, you will also not have to pay tax because you are earning below the tax thresholds. Once you earn more than these amounts, you will be taxed either according to the SITE or PAYE tax tables on what you earn.

A year of assessment for an individual consists of twelve months starting on 1 March and ending on the last day of February of the following year. The 2009 year of assessment therefore starts on 1 March 2008 and ends on 29 February 2009.

How much tax do you pay?

This depends on:

1. How much you earn (including overtime or bonuses, and before deductions).
2. Your age (whether you are under 65 or over 65).
3. Whether you are a member of an officially recognised pension fund or pay towards a retirement annuity fund. The amount you pay into a pension scheme or a retirement annuity fund can be DEDUCTED from your wage before tax is calculated. This means you will pay less tax, because the tax is worked out on a lower income. Under SITE only contributions to a pension fund or a retirement annuity fund can be deducted from the wage. Contributions to a Provident Fund cannot be deducted.

After the deduction for pension or a retirement annuity fund, the rest of your wage is taxed according to different rates. The rate you pay depends on how much you earn, and is calculated from tax tables issued by the South African Revenue Services (SARS).

The tax tables will determine what rate of tax you will have to pay.

What information must you give to employers?

When you become employed you must fill in an IRP2 form. The tax deducted depends on the information that you fill in on this form.

If you are over 65 years old you must notify your employer. Also tell the employer if you pay towards a retirement annuity fund, because you will then pay less tax.
If you do not fill in an IRP2 form at all, the employer will tax you at the highest possible rate.

Rebates

A rebate is an amount of money taken off the tax after your tax rate has been worked out. This means the tax you pay is lower. You can get different types of rebates. There is a primary rebate and an age rebate (if you are over 65 years).

Tax on bonus pay and retrenchment pay

Bonus pay is always added to the wage and then the whole amount is taxed. So the income that is taxed is higher than the normal wage, and the tax you pay will also be higher.

Part-time work and casual work

PAYE must be deducted at a rate of 25% in respect of all employees who:

-Work for an employer for less than 22 hours per week - OR-
-Work for an employer for an unspecified period.

Examples include:

- A person employed on a daily basis, who is paid daily and who gets paid more than R75 per day;
- Casual commissions paid, for example, spotters fees;
- Casual payments to casual workers for irregular/occasional services;
- Honoraria paid to office bearers of organisations / clubs

The following people are exempt from this:

- If an employee works regularly for less than 22 hours per week and provides the employer with a written undertaking that he or she does not work for anyone else, then they will be regarded as being in standard employment and tax must be deducted according to the normal weekly or monthly tables.
- An employee who is in standard employment (in other words, who works for one employer for at least 22 hours per week).

Tax Assessments

Once a year, your employer must issue you with an IRP5 tax certificate that shows the total wages that you earned and the total tax that was deducted.

If you earn less than R60 000 a year, you will not have to submit a tax return.

If you earn more than R60 000 a year the SARS does an assessment of your earnings when you fill in a 'tax return'. You fill in a tax return form and send it with the IRP5 to the SARS.

Assessment means checking up on the tax you pay to make sure you haven't paid too much or too little tax.