January URGENT announcement

I trust you had a well deserved break and here’s wishing you a happy, peaceful and prosperous New Year

There are two issues that need to be brought to your attention for immediate action:

  1. The current Tax year is almost over and January is a good time to do a mini audit to ensure that the current setup is correct, the 2016 Calendar has been setup for non Classic systems and that medical aid premiums and any other annual increases that happen in January are correctly captured. Remember too that 2016 is a Leap Year and if your tax year end date is incorrect it will cause incorrect tax calculations at the end of February so please check that your tax year end date for this current tax year is correct before you process another pay run.
  2. Retirement reform legislation effective 1 March 2016 – Payroll Implications

The retirement reform proposals that have been refined over the last few years, initially set for March 2015 implementation and then postponed to March 2016 has now been formally legislated.

There are no surprises from the proposals made over the last few years and now is the time to prepare for the changes to your payroll and retirement fund administration. Please do not wait till March – gather information needed now from your fund administrators and have a clear plan of what has to change and how and book a support consultant to assist you if you need it.

There are MAJOR implications on how your payroll software is setup and these changes need to be done after doing the tax year end and processing the first run in the new tax year i.e. first pay run in March, in addition to loading the new tax tables that will be released

Your retirement fund administrators will communicate exactly how your fund will change and the implications for withdrawals, benefits, restructuring etc, and I leave the non payroll implications and queries to the experts. Bearing in mind that the current rules will remain on the amounts contributed already and that the new rules will effect only contributions made from 1 March. In simple terms, fund members will now have two benefits – one prior to March 2016 and one thereafter. On resignation or retirement the old rules will apply to the old accumulated fund and the new rules will apply according to what funds have accumulated thereafter. If anyone is over 55 the new rules do not apply. The new legislation has a slow long term effect as funds for new rules start accumulating from 1 March 2016 and the true benefits will be felt by the next generation.

The good news is that there is a great tax incentive to contribute to retirement from 1 March – up to 27.5% of either taxable income or gross income can be tax deductible and if implemented correctly the net result of taxing Employer contributions and applying the allowable deduction, should result in less tax being paid and more funds invested in retirement. I strongly suggest that staff are directed to financial advisors in order to take maximum benefit of the new legislation.

SARS are in the process of finalising Employer instructions on how funds will be taxed and how they need to be coded and reported on for the 2017 tax year. (Period 1 March 2016 to 28 February 2017). There will be new SARS codes and IRP5 coding tables will change and software will be released accordingly.

A brief synopsis of how this legislation will effect the payroll is as follows: Please check with your retirement fund administrator with changes that are specific to your fund. This is my interpretation of the changes. From the new tax year starting 1 March 2016:

  • It is suggested that salary sacrificing of the employer portion of Provident fund is stopped, i.e. added back to salary, as this reduces the gross remuneration and the subsequent percentage claimable for the new provident fund. This will increase the tax deduction and avoid fringe benefit tax for the sacrificed portion.
  • Show Group Life and Disability portions of the employer contribution separate and not included in one value for the employer contribution. The employee then does not claim these as part of the contribution as a tax deduction.
  • Income to calculate contributions are no longer based on retirement funding or non retirement funding income but rather on the greater of taxable income or gross income. Remember that taxable income may include sources outside the payroll – such as rental income.
  • Employer contributions to Pension or Provident funds are now fully taxable. Employer contributions to RA’s are already taxable for a while now. A Fringe benefit is to be setup to ensure the employer contribution is added to taxable income in the payroll.
  • Employee deductions to Pension, Provident and RA funds are tax deductible up to 27.5 % of either taxable income or gross remuneration, whichever is higher, and to a limit of R 350,000 p.a.This limit is for all combinations of RA and Pension or Provident funds where an employee contributes to both and includes the cost of risk cover. Only employees may claim contributions, both in respect of the employer and employee contributions.
  • Confirm the current tax year end date for the leap year by checking the date in the Company Setup section of the software, check medical aid premiums and tax credits are correct and updated and history is accurate in preparation for the last tax calculations in the current tax year. Any queries to please be directed to our Solutions Centre. Contact your Retirement fund administrators and confirm the fund rules regarding payroll changes as highlighted above. The fund administrators will probably send out notifications to all members and have procedures to deal with staff queries.
  • Contact your Retirement fund administrators and confirm the fund rules regarding payroll changes as highlighted above. The fund administrators will probably send out notifications to all members and have procedures to deal with staff queries.
  • Print out your Pay Categories in the payroll and determine how they will be changed in the first week of March and then write down those changes and consider implications to tax and effective take home pay and communicate these changes to staff in preparation of March payroll processing. Then in March, make the changes to the pay categories and check and double check the results are correct before releasing March payroll.
  • Contact our Solutions Centre to book a consultant to assist you, if needed. March is very busy with roll overs and we are committed to assist everyone during this period by having extra staff available and extending our business hours. Appointments are made on a first come first serve basis and we endeavour to accommodate everyone, even if it means we assist after hours or on weekends.
  • Telephonic support is not available to make changes to pay categories. Our consultants can gladly email instructions or assist via TeamViewer only. If verbal instructions are not executed or misunderstood the implications are enormous. We can only guarantee our work done either on site or via TeamViewer and therefore do not do any pay category changes telephonically.
  • Clients that would like to convert from the Classic version to Payslip/Paypower can take advantage of the automated Medical Aid and Retirement Fund administration as well as fully automated SARS submissions that is standard in the Payslip/Paypower system. We are currently including a free upgrade to the full HR module as an incentive to convert. Please contact us for more information.
  • I trust that these changes will be implemented timeously and we are here to provide advice and assistance wherever you require it, please contact us.
    Finally I would like to take this opportunity to welcome Edith, Michelle and Divan as trainees to the Payslip Team. These are special people that have commenced an intensive internal training course and I’m confident that they will soon be available to assist you. The senior consultants are mentoring and overseeing the training to ensure our level of service exceeds your expectations.If you have any comments or suggestions on how we can improve our products and services please let me know.

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