Little time left to get ready for payroll changes

1634
0

South African employers must act fast to prepare their payroll systems and processes for the new tax brackets and calculations announced in Finance Minister Nhlanhla Nene’s maiden budget speech.

Madelein van der Watt, Development Manager at Sage Pastel Payroll & HR, says companies have less time than usual to get ready for their first post-budget wage runs.

Given that this is the first year since 1995 that government has hiked income taxes, it is especially important that companies recover the correct amount of tax from employees’ weekly wages, she says.
“This year, Minister Nene did as he warned he would and increased personal income tax to try and plug the growing budget deficit,” Van der Watt says. “The tax hike will effectively decrease the pay packet of nearly everyone who earns more than R15 158 per month, with high income earners set to be hit the hardest.”

Minister Nene lifted the lowest marginal tax rate from 25% to 26% and the highest tax bracket to 41% from 40%. The annual tax rebate for individuals is now set at R13 257 effective, with people older than 65 receiving an additional rebate of R7 407 and those 70 or older getting an additional rebate of R2 466.

Van der Watt says that since the budget was only announced in the last week of February this year, employers have less time than usual to get ready for the changes. Furthermore, where previous tax years saw most employees pay slightly less tax, most will be paying more for the 2015/2016 tax year.

If employers are two or three weeks late with adjusting their payrolls for the new tax rates, they will need to recover what may represent a significant amount of money for weekly wage earners in a single week. “Employers will need to be vigilant this year for the sake of employees who might fall into the brackets subject to higher PAYE contributions,” says Van der Watt.

One piece of good news in a budget that has a gloomy tone is that medical aid tax credits have been increased to give relief to taxpayers contributing towards a medical aid. The credit for the main member and spouse will now total R540 per month, compared to R514 for 2014/2015.

Also positive for workers is Minister Nene’s proposal that UIF contributions will be reduced to 1% of the first R1 000 of an employee’s salary or just R10 for a month. Workers and employers previously paid 1% of the first R14 872 of an employee’s salary.

“We await further details about the implementation date of this change,” says Van der Watt.