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How does the new IRP5 tax directive affect your payroll?

A tax directive, which was released in December 2013, has created quite a stir in the payroll industry, with many payroll practitioners throwing their hands up in despair as they don't know how to interpret the document, says Sonika van Wyk: legislation business consultant at CRS Technologies. The 2015 Employers Guide has helped to clear up some of the confusion, especially around whether or not leave pay should be included on the directive application.

If you pay one of your employees a lump sum, e.g. a service bonus, treat it as an annual payment. However, if you voluntarily give one of your employees a gratuitous payment, i.e. leave pay that he or she is not entitled to, when employment is terminated, on your payroll calculate the tax on this sum with reference to leave days. Alternatively, you could include these monies in the severance benefit amount.

Use code 3901 for gratuities that you pay your employee and they will get the tax - which they pay on that amount - back.

How would you treat normal leave pay?

Treat normal leave pay as an annual bonus when you calculate your employee's tax.

Remember, says Van Wyk, you need to calculate your employees' tax on their leave differently when you've paid them in advance versus when they decide to encash accrued leave. "Whenever an employee takes leave you pay an advance for that leave period, treat that advance as an advance on their salaries," says Van Wyk.

Tax accrued leave, which is encashed, is treated just like a bonus. Ensure that you reflect this leave under code 3605 even if it's been cashed in because the employee resigned.

Does this mean that you don't include leave pay on the IRP3 if there's a mutual agreement?

Leave pay is taxed under the usual schedule however severance packages are subject to directives.