Which is better - company car or travel allowance? It’s a question that regularly plagues both employers and employees. “In light of new SARS requirements for travel reimbursements, it needs to be carefully revisited,” says Jerry Botha, Master Reward Specialist and Executive Committee member of the South African Reward Association (SARA).

Important changes
Botha is referring to the removal of the 12,000 km limit that was previously applied to reimbursements. If travel exceeded this distance was reimbursed at a per kilometer rate higher than that prescribed by SARS, or other travel allowance was paid, the total amount needed to be reflected under code 3702. However, reimbursement paid at or below the prescribed rate was declared under code 3703. Either way, PAYE was not deducted from the employee’s income.

From 1st March 2018, if an employer reimburses staff at a per kilometer rate higher than that prescribed by SARS, they have to split any reimbursement into two components. The portion that falls within SARS’ rate must be declared using code 3702 while the portion above that rate must be reflected under a new code, 3722. If the employer also pays a fixed travel allowance, this is declared separately with code 3701 as usual.

Under this new system, the excess reimbursed portion is subject to PAYE just like a fixed travel allowance or fuel, garage and maintenance cards. Reimbursement at or below the prescribed rate is reported using code 3702 as before.

“More important than the new code and method of calculation is the removal of the 12,000 km limit and the introduction of PAYE on the excess portion,” says Botha. “These changes affect the reward dynamics significantly.”

Employers should therefore review the new rule to ensure their workers are enjoying the best tax and cost benefits, especially those who reimburse certain segments of personnel well over the prescribed rate.

It may be that a lower reimbursement rate puts more money into an employee’s pocket, as there is no PAYE thereon and the reimbursement does also not have to be substantiated by a logbook on filing of the employee personal income tax return.  

Either way, the compliance around the new rules makes it important for all employers to enforce compulsory employee logbooks, even where the employee does not claim on a tax return. We know employer PAYE audits is a SARS focus area and employee logbooks is critical for the employer to evidence tax compliance.

Is it time to offer a company car?
In seeking travel compensation that is fair and rewarding to a worker, it is a good opportunity to decide if they would benefit from a company car. “As a rule of thumb,” advises Botha, “if more than 60% to 65% of an employee’s travel is for business purposes, they are losing out by using their personal vehicle.”

Typically, fuel only makes up 50% of the total cost of running a car. Additional expenses, like maintenance and insurance, or depreciation on the vehicle are not covered by travel allowances, reimbursements or fuel cards. A highly mobile employee may also have to bear the early replacement costs of their private car.

The vehicle buying habits of South African employers and employees remain routed in emotion and decisions are not made based on running the numbers. This causes the employer to be burdened with too high fleet costs, whilst the employee is mostly significantly out of pocket, often only realising the mistake when they want to trade in their vehicle.

According to Botha, there remains a sweet spot for travel reimbursement, reimbursement with travel allowance and company vehicles. The employers who care about the cost and staff allows all three, as part of their Total Package approach. Especially for employees on high business travel, the employee is severely disadvantaged where not on a company vehicle. “If an employer does the calculation correctly,” says Botha, “they will see that a company vehicle is the best reward strategy in this case.”

Botha advises organisations to engage their reward specialist to ensure their employees receive the appropriate package for their needs.

ENDS

MEDIA CONTACT: Juanita Vorster, 079 523 8374, [email protected], www.atthatpoint.co.za  

For more information on SARA please visit:
Website: www.sara.co.za  
Twitter: @SA_reward
LinkedIn: South African Reward Association
Facebook: SARA – South African Reward Association

​On 17 March this year, the Labour Minister, Mildred Oliphant, amended the UIF’s Scale of Benefits. The result is that from 1 April 2017, the maximum contributions to the Fund by employers and employees will increase from R148.72 to R177.12. This move will have no effect on lower earners, but it increases the amount payable for higher earners.

In concrete terms, employees whose UIF contributions are greater than the previous threshold of R148.72 will now find themselves paying an extra R28.40 per month, thus effectively reducing their take-home pay by that amount. 

On the face of it, this might not seem worth even raising—but when it is considered in the light of two other factors, some important questions present themselves. 

The first is that the 2017 Budget speech gave lower inflationary adjustments to the tax table than usual. For example, an individual earning R150 000 per year only received a R135 adjustment for the whole year, while somebody earning R250 000 per year only received R285. Both individuals would be liable for the extra UIF contribution of R28.40 per month, a total of R340.80, which effectively wipes out the paltry tax relief granted in the Budget and reduces their take-home pay. 

One might be tempted to argue that this could be simply the result of two government departments failing to connect the dots. But when one remembers a bit of history, one is tempted to speculate a bit more wildly. In his 2015 Budget speech, then-Minister Nhlanhla Nene noted that the UIF had a surplus of R90 billion. He therefore proposed reducing the UIF contribution threshold for the 2015-16 tax year to an effective R10 per month each for employees and employers, “putting R15 billion back into the pockets of workers and businesses”.  

The Treasury later indicated that it would not, after all, implement the proposal. This decision was reportedly based on discussions at NEDLAC to consider increasing benefits to workers and the speeding up of overall reforms to the social security system.   We have not heard anything more about this matter. 

One thing that perturbs me is that R90 billion is a lot of money at the best of times, but particularly now at a time when the fiscus is under tremendous pressure thanks to reduced economic activity. It is also a juicy prize for those intent on looting the state. The coupling of adjustments to the UIF regulations with social security reform also rings some alarm bells in the context of the ongoing social grants debacle, and the strong whiff of corruption that surrounds it. 

At the same time, we should remember the fate of the fuel levy, which was introduced in the 1970s and never ring-fenced. Instead of being applied to the maintenance and expansion of the roads network, as originally envisaged, it was simply absorbed into the fiscus and thus applied to current government priorities. In those days, this meant propping up the apartheid state; today, we are not sure.

I would argue that fact that the UIF contribution has risen despite the existence of such a large surplus, combined with the fact that this raised contribution wipes out already-miniscule tax adjustments, points to a worrying lack of policy cohesiveness. It may also prompt speculation about the possibility that this surplus could in fact be seen as a useful supplement for budget shortfalls, or even present a target for corrupt elements in the polity. It is time for government to make its thinking clear.

​ENDS
 
MEDIA CONTACT: Cathlen Fourie, 082 222 9198, [email protected], www.atthatpoint.co.za 
 
For more information on SARA please visit:
Website: www.sara.co.za 
Twitter: @SA_reward
LinkedIn: South African Reward Association
Facebook: SARA – South African Reward Association