There used to be a stigma attached to those who hop from job to job, raising their salaries and expectations along with their restless move from organisation to organisation. Considered flighty and a risk to the company, job hoppers were perceived as less reliable than those who set down roots and reputation.
 
However, the millennial generation sees job hopping as leaping towards new opportunities, and research is showing that they aren’t “flaky escapees”, but stronger recruits because of this trend. Still, whether flaky and fanciable or building a serious career trajectory, job hoppers of any age should keep their financial future and security top of mind.
 
“Job hopping can be a double-edged sword and it is important to consider factors such as UIF, savings and pension as you move,” advises Arlene Leggat, Director, South African Payroll Association.
 
UIF stands for the Unemployment Insurance Fund and it is an emergency savings account designed to support individuals when they are between jobs and battling to find work. If job hoppers tap into these funds while they look for the next big thing, then they are running the risk of not having a safety net in times of real hardship.
 
“UIF works on a credit basis,” adds Leggat. “The more you contribute, the more credits you build. If you are unemployed you can claim those credits, but ideally you should save them for a real emergency.”
 
A professional stance
It is also worth remembering that many organisations still work on a ‘last in, first out’ policy when times are tough and retrenchments are in the pipeline. Job hoppers are more likely to be in the firing line and their short time at the company will mean a small severance pay and financial risk.
 
“Another consideration is your pension,” says Leggat. “If you take out one third of your pension every time you leave a job, that’s money you are lopping off your retirement package. Many of the younger generation of job hoppers don’t think about this and it is important. Keep that that money sitting there and growing until you hit retirement age rather than spending it on a new car when you change jobs.”
 
To ensure your pension remains stable, never take the funds out when moving company unless you absolutely must. Then open a preservation fund that can move with you – transfer your pension from one company policy to the next, but use the interest gained in the preservation fund to bolster it.
 
Leggat also advises that you have at least six months of salary put aside before job hopping. If you are retrenched with one week’s salary, you will then have something substantial to support you. She also recommends putting a percentage of your salary into a savings fund each month.
 
“It doesn’t have to be a massive amount, around 7-10% of your gross income,” she concludes. “You then have a nest egg to keep you going when times get tough. Rather follow this strategy than tap into your pension or UIF as those funds are vital for your long-term financial security.”
 
ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, [email protected], www.atthatpoint.co.za  
 
For more information on SAPA please visit:
Website: http://www.sapayroll.co.za/
Twitter: @SAPayroll
LinkedIn: The South African Payroll Association

When changing jobs or retiring, it is very important to ensure that the correct tax treatment is applied—or both employer and employee could find themselves at risk.
 
Author: Lavine Haripersad, Vice Chairman, South African Payroll Association
 
When employees leave a company, whether to move to another job or to retire, it is important to ensure that the payroll department applies the correct tax treatment.
 
Typically, the reason for the employee leaving determines the way the final payments are treated by the taxman. Failure to apply the correct principles could make the company vulnerable to penalties from SARS, and the employee could find him- or herself having to make arrangements to pay back some money to SARS on assessment
 
Reasons for leaving
If one looks at the most common reasons for people leaving their current employer, it becomes easier to understand the type of tax regime that should be applied. Employees should make it their business to understand the broad principles and raise any queries, in order to avoid having to make unexpected repayments later. Reasons for departure include:
 
•          Resignation. When an employee resigns, his or her final payment will typically include a pay-out for any untaken leave, pro rata bonuses and notice pay, if applicable. These payments are subject to normal income tax, and the payroll department does not need to obtain a tax directive.
 
•          Operational requirements. This covers both retrenchment and redundancy, both of which result from the operating conditions in which the company finds itself. In the case of redundancy and retrenchment, HR has to apply the rules prescribed in the Labour Relations Act, 66 of 1995, which requires the employer to make a severance payment of (a minimum of) one week’s pay for every completed year of service.
 
For tax purposes, this redundancy lump sum payment must be treated as a retirement lump sum payment. A portion of this lump sum is free of tax (although this will be affected by any previous lump sum benefits obtained). In order to obtain this highly desirable benefit, the employer must first obtain a tax directive from SARS.
 
The tax regime in respect of these severance pay-outs is that the first R500 000 is not subject to tax, the next R200 000 is taxed at 18 percent, the subsequent R350 000 at 27 percent, and all amounts above R1 050 000 at 36 percent. As already noted, these figures have to take into account any previous benefits claimed during prior redundancies.
 
Most importantly, it must be remembered that notice pay, leave pay and pro rata bonuses that are also paid at the time of termination are not part of the severance benefit, and are subject to normal tax.
 
•          Mutually agreed separation. When the relationship between employer and employee breaks down, the parties might agree to an amicable parting of the ways to avoid legal disputes. In such cases, a gratuity or final settlement payment is usually made. It will usually be determined following the guidelines for retrenchment packages in Section 41 of the Basic Conditions of Employment Act.
 
The critical point to note here is that because this payment is not made on the basis of operational requirements, it does not constitute a severance benefit. Thus, a portion of this payment may not be treated as a tax-free pay-out, as in the case of a severance for operational requirements.
 
This means that the mutual separation gratuity will be treated as part of the employee’s normal remuneration, and will thus be taxed as such.
 
What can you do?
In conclusion, let us stress two points. The first is the one already made, namely that the reason for the termination of the employment relationship will determine how the final payment will be taxed. While the onus is on the employer to ensure that the correct tax regime is followed, if the employee has insufficient tax deducted, he or she will still be liable for the unpaid tax to be paid to SARS—even if the discrepancy only comes to light after some time has elapsed.
 
If employees are unsure, they should first discuss the matter with the payroll department and, if necessary, consult an independent tax practitioner.
 
The second point to emphasise is that to prevent mistakes happening, the traditional communications gap between HR and Payroll needs to be closed. Both parties should make active efforts to improve this situation because if HR makes the reasons for the termination absolutely clear, it is easier for Payroll to apply the correct tax regime. In the end, everybody will benefit, including the employees.
 
ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, [email protected], www.atthatpoint.co.za  
 
For more information on SAPA please visit:
Website: http://www.sapayroll.co.za/
Twitter: @SAPayroll
LinkedIn: The South African Payroll Association

 There is a name given to those who have spent their working years bringing up their children while caring for their ageing parents – the sandwich generation. This generation is juggling enormous personal responsibility alongside concerns about retirement and the fear that they have not saved enough. As they now approach retirement age and face the challenges around finances, it is the time to make solid plans for the future and to take advantage of recent government tax reforms in order to save and be secure.
 
“The sandwich generation includes those who are close to 50 and who are only starting to save now because earlier in life they had to take care of kids and ageing parents,” says Nicolette Nicholson, director at the South African Payroll Association (SAPA). “It will require immense self-discipline for them to prepare for their retirement effectively while they are still working. They need to be aware of how their retirement plans are structured and how to read their payslips so they can be more money savvy.”
 
Recent changes to retirement taxation came into effect on 01 March 2016. The impact of these amends has yet to be felt by employees and many are unsure as to what they are, how they can benefit from them or what they mean in the long term. The reform has changed the deduction limit for retirement fund contributions to 27.5% of taxable income limited to R350,000.00 per annum. The original limit was 7.5% for pension contributions and 15% for retirement annuities and did not take both individual and business contributions into consideration. The new limit does and the impact on payslip and person can potentially change the way they save.
 
Analysing the payslip
 
Employees need an active retirement annuity (RA) to benefit from the reform and this makes today the ideal time to take advantage of the change and start saving. 
 
“For example, a person earning R20,000 per month can now get an RA for approximately R775 per month and the nett salary will be more or less the same pre and post the March reform date if the full 15% (pre March 2016) were not utilised,” says Nicholson. “Those who have an existing RA should assess whether it is more or less than 15% (pre March 2016) of their income and, if less, should now change it to be the balance of 27.5% of taxable income less the total retirement fund contribution % in order to experience the benefits.”
 
Knowing how to read and assess your payslip will also provide clear insight into the impact of the reform. If nett pay remains the same between February 2016 and March 2016, then it has made a positive contribution, if not, it is worth speaking with a professional who can provide insight into how the payslip is structured.
 
“Anyone who received an increase in March or who needs clearer insight into their payslip should speak with a payroll professional,” says Nicholson. “Their role is to assist and provide you with accurate information on the payslip.  Payroll professionals ultimately affects the pocket of the man on the street ensuring ‘bread’ on their table. Understanding your payslip will assist you in making sound decisions when it comes to your retirement planning. The payroll professional may however not provide financial advice as they are not a registered Financial Advisor.”
 
Tax amendments have also extended into a change in tax bracket. This has resulted in more tax for those still earning the same salary and may not see any extra money on the payslip. However, with the advice of a professional, you can use the reform to structure your salary more efficiently, allocating a larger percentage to your RA and thereby saving on tax and preparing for the future. The sandwich generation should not bank on the younger generation as their retirement plan, they need to set aside today for a secure tomorrow.
 
“Our first instinct is to provide, but there is a need to understand that the most important person is you and you can only help others if you have provided for yourself,” concludes Nicholson. “To retire comfortably, the average person requires R10 million so those who are over 50 and who did not make provision, need to save around R9, 000 a month for a period of approximately 10 years. Don’t buy that car, instead show the younger generation how it’s done. Make a plan, set dates and stay on top of reform, legislation and payslip so you are always getting the most from your money.”
 
Photo credit: AAG.com
 
ENDS
 
MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, [email protected], www.atthatpoint.co.za  
 
For more information on SAPA please visit:
Website: http://www.sapayroll.co.za/
Twitter: @SAPayroll
LinkedIn: The South African Payroll Association