Payroll Considerations Managing New Employee Costs

1. Background Information

A client has contracted a new employee with a total monthly cost of employment (TCOE) of R20 000. However, the contract did not specify whether the company contributions to UIF and SDL are included in the TCOE.

2. The Problem / Facts

May the employer contributions to UIF and SDL be deducted from the R20 000?

3. Applicable Law 

Basic Conditions of Employment Act (BCEA) 75 of 1997

4. Application of the Law to the Facts

The BCEA defines “remuneration” as any payment in money or in kind, or both, made or owing to any person in return for work performed, including the State. This includes allowances and fringe benefits provided by the employer but excludes the employer's statutory obligations such as UIF and SDL.

Since UIF and SDL are statutory obligations of the employer, they are not considered compensation for the employee's work and cannot be passed on to the employee.

The concept of "cost to the company" enables employees to optimize their tax affairs independently and relieves employers from obligations related to medical aid and pension funds.The statutory obligations of UIF and SDL remain the responsibility of the employer and should be accounted for separately from the employee’s remuneration.

5. Conclusion

The R20 000 monthly cost to the company should not include the company’s contributions to UIF and SDL. These contributions should be paid in addition to the R20 000 to comply with legal requirements and maintain transparency in payroll management. The employee’s UIF contribution will be deducted from the R20 000.

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