How can you give your staff incentives without being taxed
Hailed as one of the most progressive taxation systems in the world, the last thing that South African employers want to do is get caught with their pants on their knees… That’s why it’s so important for companies to understand which benefits and incentives they can rightfully offer their employees, without throwing their employees in the deep end when it comes to paying tax.
Why would employees be thrown in the deep end when they are given benefits or awarded incentives, you ask?
Well, South Africa’s tax legislation stipulates that employees be taxed appropriately for some benefits or incentives that an employee enjoys. Plus, paying additional tax as a result of being on the receiving end of a benefit, incentive or even an award can prove cumbersome for many employees.
So, how can you incentivise your employees without leaving them with tax nightmares as a result?
Firstly, don’t do any of these, as they are taxable:
- Do not give your employee an asset for free, or for a price significantly lower than its market value
- Do not let your employee use assets that the company owns
- Do not give your employee a company car that he or she can employ for private use
- Do not give your employee free meals, refreshments or vouchers
- Do not give your employee free accommodation
- Do not provide free or extremely cheap services to your employee
- Do not give the employee low interest or interest free loans
- Do not pay debt on your employee’s behalf
- Do not offer your employee any subsidies
- Do not pay medical aid contributions on behalf of your employee (although many companies offer this as a benefit, since the tax deductions on this is negligible to most)
- Do not pay medical expenses on behalf of your employee either
- Do not give your employee’s relatives any of the above mentioned perks
So what incentives can employees get…
We know, this list seems to go on forever. But it’s not as bad as it looks… There are a variety of incentives or benefits that an employer can offer that will not result in any additional tax payable.
- Giving your employee access to the use of a company asset every once in a blue moon (instead of on a regular basis)
- Giving your employee access to the use of a company asset for recreational purposes
- Giving your employee access to assets which he or she uses for work anyway (like a laptop) and allowing the personal use thereof every once in a while (like allowing that the laptop be used for personal online payments once a month)
- Giving your employee assets like books, recordings or works of art
- Giving your employee access to equipment (like a computers or a cell phone) that the employee uses mainly for the benefit of your organisation
While it does appear tricky to give employees something as a benefit or incentive, a little bit of creativity can go a long way in creating incentives that will still be deemed valuable by your employees without breaking the bank as a result of the tax element.