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Payroll Considerations Managing New Employee Costs
- 09 July 2024
- Payroll
- The Tax Faculty Tax Specialist
These articles are based on tax law for the year ending 28 February 2025.
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.