The South Payroll Association (SAPA) says it has been inundated with queries regarding their expected annual bonuses in December.<\/p>\n
Jethro Malapane, executive committee member of SAPA, said that many of the enquiries stem from employees who don\u2019t know if their bonus constitutes a thirteenth cheque or a performance bonus.<\/p>\n
\u201cA thirteenth cheque is essentially an additional monthly salary paid, or 8.33% of the employee\u2019s annual salary, that gets paid to the employee\u00a0 – normally in December or any other month depending on the employer\u2019s contract.<\/p>\n
“A performance bonus, however, is based on an employee\u2019s individual performance and it is subject to the employer\u2019s conditions as stipulated in your employment contract,” said Malapane.<\/p>\n
Tax provisions and considerations<\/strong><\/p>\n A bonus amount becomes part of your total taxable income for the year, which may impact your tax bracket and tax provisions should be made.<\/p>\n Malapane said that if your contract stipulates that you will receive a thirteenth cheque, then monthly contributions can be made as part of your salary deductions to offset the tax implications of the bonus.<\/p>\n \u201cA thirteenth cheque is a guaranteed extra amount that you need to make tax provisions for. Speak to your payroll department to adjust your monthly contributions so that you contribute towards tax each month.<\/p>\n “Doing this allows you to enjoy your bonus in full in December. If you haven\u2019t done this for 2020, then speak to your payroll professional so that it is in place for next year.\u201d<\/p>\n Malapane added that it isn\u2019t possible to make tax provisions for performance bonuses.<\/p>\n \u201cWith performance bonuses being discretionary, it\u2019s not possible to know how much money you must set aside for tax.<\/p>\n “The payment of performance bonuses is seldom guaranteed, and employees shouldn\u2019t rely on the payment of these discretionary bonuses simply because they received the bonus over the past few years.”<\/p>\n A shift to rewarding performance<\/strong><\/p>\n Malapane said that many South African companies now offer employees performance bonuses instead of thirteenth cheques.<\/p>\n Not only are performance bonuses seen as more motivating for employees, but these bonuses can be determined based on influencing factors such as how the company performed in the past financial year, he said.<\/p>\n \u201cCompanies have come to believe that offering employees a thirteenth cheque as part of their salary package creates a sense of entitlement surrounding bonuses.<\/p>\n “A performance bonus, however, allows companies to take stock of its financial performance before the money is divided on a departmental or individual level.<\/p>\n “High performers often find that they receive a salary increase as well as a performance bonus in December, which is obviously welcome news before the holidays.”<\/p>\n Malapane said that companies should create awareness about the types of bonuses \u2013 if any \u2013 they are offering employees.<\/p>\n \u201cEmployees need more certainty on the type of bonuses they will receive as well as the tax implications of these bonuses.<\/p>\n “Employees should carefully read their employment contract so that they fully understand their remuneration at the end of each year and can make the necessary tax provisions.\u201d<\/p>\n
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