6 Ways To Motivate Employees by Using Little to No Money At All

Keeping your employees happy and motivated is a key ingredient to running your small business.

Did you know that 13% of employee separations are voluntary—and it’s usually the best and brightest ones who move on the fastest.

However, you know that your small business enterprise doesn’t have the means to pay premium salaries or fund the benefits of a Fortune 500 company, so how can you event beging to foster loyalty amongst your prized employess, whilst also retaining your top workers?

Consider the following six examples from small business owners across the country:

Drum Up Win-Wins.

When Matt Hudgins needs to cut costs at his Atlanta-based financial advisory firm, Mosaic Wealth Management LLC, he asks employees for their input. “Who better to know where to cut the fat than the employees?” he says. To motivate them, he offers 10% of the savings that are realized. (The same idea could work with business expansion proposals.)

Fulfill Their Dreams.

Bettina Hein, CEO of the Boston-based video production company Pixability, asked her three employees to list as many of their lifelong dreams as they could during a 20-minute meeting. She then pledged to fulfill one of these dreams within 90 days of the New Year. One employee wanted to witness a shuttle launch, so Hein sent him to Cape Canaveral for $350. “You wouldn’t believe how happy this made them all, and it cost me very, very little money and a bit of effort,” she says.

Get Personal.

When an employee of Rex Direct Net Inc., an Internet marketing firm in Cherry Hill, N.J., reaches a work-related goal or goes through a significant life event, the CEO acknowledges it with a handwritten, personal note. “Making the time to communicate your satisfaction can motivate employees who thrive on recognition and attention from the boss,” says Jennine Rexon, CEO. It’s a small step that can yield loyalty from your employees.

Sweat the Small Stuff.

Mike Lieberman of Square 2 Marketing in Warrington, Pa., says a handful of small, but important things motivate his employees. Every quarter, he hires a limo to take his team into nearby Philadelphia for dinner and an event. On Fridays at 3 p.m., employees enjoy an in-office happy hour thanks to a stocked office bar. And he regularly holds video game tournaments—in the office—to “help the team blow off some steam.”

Do What the Big Guys Can’t.

Owning a small business means you can be more flexible with employees’ personal needs than a large corporation. Kathleen Henson, who owns Henson Consulting Inc. in Wheaton, Ill., allowed one of her employees to set up a portable crib and bouncy seat in her office during the months after her maternity leave. “Traditional work environments can be taxing on families, so creating a work setting that puts family first is the cornerstone of my business,” Henson says.

Appeal to the ego.

Not all rewards are tangible. Public praise is often a powerful motivator. When employees make successful choices, let everyone know. Recognize and share behavior that results in money-saving ideas attracting the most new customers, or even healthy behavior. Flattery can also be contagious. An “Employee of the Month” designation, for example, can get employees’ competitive juices flowing and motivate them to make work harder.

If these examples don’t spark any ideas for your company, consider going back to the basics.

Your employees will always take much delight in being treated with respect, says Jim Gellas of Pictopia: “It’s funny how often this can be taken for granted, but yelling at, insulting and demonstrating a lack of appreciation can be strong de-motivators,” says Gellas. “Said differently, employees really respond when they feel appreciated, their feedback is considered and their efforts valued.”

Paymaster Payroll Solutions News Release

 

Cape Town. Paymaster has announced  a brand new employee claims module that will automate the employee claims procedure.

Employees can submit various expense claims for re-imbursement relating to, amongst others, travel, cellular calls, entertainment or even capture details relating to overtime worked. Specific detail can be recorded for each claim such as date, client, km’s travelled and rate per km for re-imbursive travel.

Depending on the role of an employee, workflow rules can be configured to move through a different number of approval steps i.e. a team manager may require an expense claim to move through 3 approval steps whereas a general manager may only require claims to be approved by 2 people. Employees are also able to attach documentation relating to the claim.

The capturing of expense claims by the payroll department is usually a tedious task that involves sifting through huge amounts of paperwork, spreadsheets and emails which poses a huge security risk in terms of unsecure data flying around the company. Furthermore, the information usually needs to be manually consolidated and imported via a batch facility to reflect on an employee’s payslip.

Karen Morrison, managing Partner says that “the most exciting thing about the new claim system is that we can customise what is part of the claim and then customise what needs an attachment and what does not.”

At a click of a button the monthly claim is summarised on one report. Once the claim has been approved by the immediate line manager it is work flowed into the payroll.

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South Africa: 20-Year Youth Employment Review Released

Pretoria — Statistician-General Pali Lehohla says while the number of black youth in employment has grown over the last 20 years, the acquisition of skills has not grown at the same rate within this group.

Lehohla was presenting a 20-year review on employment dynamics among the youth of the country by population group, from 1994, to date.

He said the total workforce amongst black people almost doubled from 1994 to 2014, having increased by 95%. Lehohla revealed that employment amongst black people grew from 5.6 million workers to 10.9 million.

Employment in the Indian/Asian youth population grew by 47%, 45% for coloureds and 9% for whites.

Lehohla said despite the increase in the workforce over the past 20 years, the black population recorded the lowest increase in skilled employment when compared to other population groups.

Lehohla said the proportion of skilled employment decreased amongst the age group of 24 to 34 years old black African population between 1994 and 2014.

“The lowest increase took place within the black African population by 2.9%.

“The highest increase occurred within the Indian/Asian population, which recorded 25.5%, followed by 19.3% within the white population and 10.9% within the coloured population,” said Lehohla.

Youth unemployment stands at 36.1%, with jobless youth making up 75% of the country’s unemployed.

Generally, Lehohla said the number of skilled workers in the country has increased from 1.8 million to 3.8 million between 1994 and 2014, recording a percentage growth of 108%, whilst semi-skilled workers have increased by 66% and low-skilled by 49%.

Report welcomed

The Deputy Minister in The Presidency, Buti Manamela, welcomed Lehohla’s report, saying while gains have been made in the area of job creation, it was not enough to tackle the challenge of joblessness, poverty and inequality.

“The population in South Africa increased by 42% from 38 million in 1994 to 54 million in 2014… The rate of employment creation during this period exceeded the rate of population growth,” said Deputy Minister Manamela.

He said the report showed that democracy can be seen to have begun addressing the plight, particularly of black Africans.

“The coloured population also made major gains in absolute numbers and had a proportionate share of their population by increasing by about 500 000.” He said the Indian population also grew 157 000.

The report also showed that the white population had the lowest rate of change of only 8% and grew by 162 000, which is less than the population’s proportionate share of about 9% in the population.

“Whites obviously did not have any backlogs to deal with, and it is thus not surprising that the growth in employment affected largely all those who are not white,” said the Deputy Minister.

Meanwhile, Deputy Minister Manamela said figures amongst the black African youth, aged between 20 and 34 years old, told a disturbing story.

“[The report] suggests that there is a generation of black Africans who, through the period of 20 years, lost out on acquiring skills, while their white and Indian counterparts made major inroads in skills acquisition,” said the Deputy Minister.

He said amongst black Africans, skills decreased by 3%, while it grew well above 24% amongst white and Indians.

The Deputy Minister said young people who are currently in school, aged between seven and 19 years old, should be encouraged to take science and technology subjects to acquire the much needed skills in the country.

Source: http://allafrica.com/stories/201409160316.html

“… This should be the case, especially amongst the black population,” said Deputy Minister Manamela.

Government’s R9bn jobs fund has new management

THE management of the government’s R9bn jobs fund, which is aimed at supporting job creation, will now be transferred to the newly established Government Technical Advisory Centre from the Development Bank of Southern Africa (DBSA), the Treasury announced on Friday.

The fund — established by the government in 2011 — awards grants to organisations through a competitive process and aims to create 150,000 permanent new jobs.

The advisory centre is an advisory and project management agency of the Treasury, and incorporates the former Public Private Partnership Unit and the Technical Assistance Unit.

“The transfer will facilitate the Government Technical Advisory Centre’s support for the jobs fund, while allowing the DBSA to focus on its core lending and development finance responsibilities,” the Treasury said.

The fund has to date approved funding for 91 projects, totalling R4.96bn, to facilitate the creation of more than 160,000 jobs over the programme’s life span.

Finance Minister Nhlanhla Nene said they took the challenge of unemployment very seriously, particularly for young people.

South Africa has an unemployment rate of 25.5% — indicating that almost 5.2-million people are jobless.

The Treasury said that the next phase in the implementation of the fund would see a shift towards partnerships with larger intermediaries to enable it to scale up its activities.

“A fourth funding round will be announced towards the end of this year,” the Treasury said.

The fund creates jobs by supporting initiatives that generate employment in innovative ways.

It offers one-off grants in the areas of enterprise development, infrastructure, support for work seekers and institutional capacity building.

The State of Youth Unemployment in South Africa

Youth unemployment has been inordinately high for many years in South Africa and is one of the country’s major socio-economic challenges.[1] Cross-country comparisons regularly affirm that South Africa’s unemployment rates are among the highest in the world. In 2013, the youth unemployment rate was 63 percent of the youth labor force (3.2 million individuals) according to the expanded definition of unemployment, which includes as unemployed those who are not actively looking for a job (i.e., the non-searching unemployed, or “discouraged work-seekers”). Youth unemployment is high, even in comparison with South Africa’s very high average unemployment rate of 34 percent. (By international comparison, while the ratio of youth to adult unemployment is fairly similar for other countries that are economically comparable to South Africa, the overall unemployment rate is far higher than in other emerging markets.)[2] Of the 10.2 million individuals aged between 15 to 24 years, one-third are not in employment,[3] education or training (and are often referred to as “NEETs”). Roughly 30 percent of male youth and 36 percent of female youth are NEETs, disconnected from both the labor market and opportunities that promote future employability.

Unemployed youth are characterized by their lack of employability resulting from a range of socio-economic factors. They often have low levels of education, have dropped out of school and invariably do not have the literacy, numeracy and communication skills needed in the labor market. They also have little work experience, which is a particularly undesirable characteristic for employers. These young people lack strong networks or social capital that allow them to source job opportunities, and tend not to have sufficient financial resources to enable mobility to areas where there is demand for labor. Of those who do have resources available as a result of their family support or network, they often have unrealistically high reservation wages, thereby resulting in relatively long periods of unsuccessful searching (Mlatsheni, 2007; Von Fintel and Black, 2007; Rankin and Roberts, 2011; Roberts, 2011). These socio-economic factors have resulted in a gap between productivity and entry-level wages for young workers, which is a constraint on job creation.

Persistently high unemployment suggests a lack of effective policy interventions. To date, policies that have been implemented have largely been supply-side initiatives aimed at the structural causes of youth unemployment. These include targeting the formal education system, post-school training, public employment and deployment programs, entrepreneurship interventions and an attempt at job placement programs. From the demand side, an employment subsidy has been recently proposed by the National Treasury to incentivize employers to hire young people.

Supply-Side Policies Targeting Unemployed Youth

Challenges within the South African education system are key structural issues underlying youth unemployment. In short, school-leavers do not exit the system with the requisite skillsdemanded by the labor market. For this reason, a number of funding and policy interventions are aimed at improving the education system such that it would raise youth employment prospects. In the National Treasury’s budget for the 2013/14 fiscal year, education spending increased to 232.5 billion rand (R) ($21.8 billion), targeting infrastructure, services and the backlog in numeracy and literacy skills. However, there are large cohorts of young people that have already been impacted by weaknesses in the education system. This group of early school-leavers, dropouts and unemployed high school diploma-holders requires interventions tailored to their particular needs and characteristics if they are to be fully able to participate in the economy.

A number of skills and training programs have been set up through various publicly funded technical and vocational education and training (TVET) institutions with the aim of facilitating entry into the labor market. These institutions—known in South Africa as further education and training colleges (FET)—have been unable to ramp up capacity and provide the types of training required by the economy. TVET institutions primarily provide vocational education programs, but these do not necessarily meet the skills—such as completing a school qualification or training in a particular non-vocational skill—demanded by youth. TVET institutions are also not always easily accessible in terms of location or financing, as there seems to be less financial support than is available for tertiary education. Furthermore,partnerships between TVET institutions (and other educational institutions) and employers are weak, demonstrated by the falling number of apprenticeships[4] offered in recent years after graduation.

The trajectory of labor demand in the South African economy favors skilled workers and, in light of the limited job opportunities available for low skilled workers, the government has implemented publicly funded programs that offer (i) employment in the provision of essential basic services to vulnerable South Africans; and (ii) deployment in programs that can provide income while additional skills are developed, thereby improving future employability.

The Community Works Program (CWP) was rolled out in 2008 and is designed as an employment safety net whereby a person’s existing livelihood is supplemented by offering a basic level of income through work. The program is a direct replica model of India’s Mahatma Ghandi National Rural Employment Guarantee Act (NREGA) program. This program has been used in the poorest communities and complements the social grant system. Communities play a central role in determining the types of work created through this program by deciding what activities would benefit them most. This program was extended to the Extended Public Works Program (EPWP). While these programs are not geared directly to youth employment, the EPWP reported that 57 percent of CWP participants in 2010/11 were under the age of 35 years (Department of Cooperative Governance, 2011:2).[5] However, these programs have been found to be less attractive to youth because they are not tailored to youth aspirations. Further, this type of work experience, which includes repairing community or school infrastructure, creating food gardens or home-based care, often does not lead to better paying jobs in the labor market, particularly those in urban areas.

Public deployment programs have only been implemented in South Africa to a limited extent through the National Youth Development Agency (NYDA), which targets unemployed youth and the unskilled. The NYDA ran a 12-month program that trained young people, providing them with qualification credits in fields, such as construction or enterprise development, where labor demand was stronger. While the NYDA annual report presents evidence of meeting their targets for the 2012/13 financial year, these targets were set particularly low: For example, they set a target of 800 job placements (just over 3,000 were actually created).

The National Rural Youth Service Corps, targeting rural youth, was implemented in September 2010. The intervention comprised a comprehensive two-year skills and incubation program after which participants would be involved in community development projects and be paid by government for their services. Training was conducted in numeracy, literacy, construction and entrepreneurship skills relevant to community development. This, it was hoped, would stimulate the rural economy. While this project was seen to be somewhat successful, there was an oversight on the part of the program coordinators who underestimated the amount of training required for youth to actually take on the community projects. The project will, however, continue to run into its second phase in the near future. Future iterations of this program should work toward scaling up the training that facilitated employment in the previous round.  

There have also been policy attempts at targeting youth entrepreneurship. The NYDA in particular plays a role in funding and facilitating youth cooperatives and provides training and support to youth entrepreneurs. These services are, however, not well targeted with very few young people accessing the services offered. Often interventions such as these are not pitched at the correct level or are offered to a community that does not demand these skills.

Apart from programs targeted specifically at young people, unemployed youth also benefit from general programs, given that they constitute the majority of the unemployed. One such example is the system of sector education and training authorities (SETA), which play a pivotal role in skills development in South Africa. Of particular relevance to young people is the learnership program, which allows the achievement of a nationally recognized qualification through a combination of structured learning and practical work experience. Learnerships involve individuals being placed within workplaces and are open to both students and the unemployed. Another example of a general program that benefits youth employment is the Department of Trade and Industry’s small business support programs.

The Department of Labor also aims to create an enabling environment for job creation through regulation. The Employment Services Act was passed in April 2014. The purpose of this legislation is essentially to promote employment, to improve the prospects of those looking for work by training and to facilitate job matching. In terms of youth, it aims to provide specialized services to access work with government requiring registration of job seekers as well as job vacancies and other placement opportunities and acting as an intermediary. Given very high cellular telephony penetration rates in the South African market, there seems to be extensive scope to explore available technologies to improve the accessibility—and, indeed, the evaluation—of such services.

South Africa’s Jobs Fund represents a significant intervention aimed at reducing unemployment generally. Launched in mid-2011 by the South African minister of finance in response to the loss of more than one million jobs in the wake of the global recession, this is the world’s largest challenge fund, with projects selected for funding through competitive processes with particular criteria relating to eligibility and impact. The fund provides public funding in four areas: enterprise development, infrastructure investment, support for job seekers and institutional capacity. The fund has created nearly 100,000 jobs at a cost of R63,000 (roughly $6,300) per job.

Demand-Side Policies Targeting Employers

In 2011, the National Treasury suggested that the high rate of youth unemployment was a result of insufficient demand within the labor market to meet the rising number of young job seekers entering each year. It is within this context of weak labor demand that the option of ayouth employment subsidy has been proposed. Employment subsidies are appealing because they target job creation instead of indirectly incentivizing the absorption of youth into the labor market. They also offset the cost of employment and training of new workers for employers. Treasury is in favor of an employment subsidy as it operates through the tax system and can rapidly reach a scale that cannot necessarily be achieved through employment or deployment programs such as those discussed above. In terms of the proposal, employers who employ youth will be subsidized for two years, with a larger proportion of wages being subsidized in the first year.

Piloting of this type of initiative has yielded favorable results. Commissioned by National Treasury, the African Microeconomic Research Umbrella at the University of the Witwatersrand ran a pilot study with 4,000 participants from three provinces (Gauteng, Kwazulu-Natal and Limpopo). In terms of the experiment, half of the sample was given vouchers to cover up to 50 percent of their wage for six months and the rest of the sample group was given nothing. The key finding was that job seekers that had received vouchers showed a higher inclination to stay in a job, even after two years, thereby showing the positive impact of the voucher even after it had lapsed.

Unemployed youth differ widely in terms of demographic, locational and educational attainment characteristics, and it is a concern that the subsidy may not be inclusive in terms of targeting the youth (Yu, 2011: 16). Broadly, though, there are two key youth subgroups: First, those who are better off, have more work experience and are normally actively looking for a job; and, second, those who are located in poorer provinces, are less mobile, are more likely to have a lower level of education and who have no work experience. The latter group includes normally discouraged work seekers. There is concern as to whether the subsidy will actually encourage discouraged work seekers to actively look for a job and, furthermore, and whether this group would become any more attractive to employers. This policy will obviously have to work in conjunction with sector employment projects, training institutions and financial support for further education programs to have a wider scope in terms of the youth that will be targeted.

Conclusion

The South African government has implemented a number of initiatives aimed at creating jobs and reducing unemployment, as well as ameliorating the impact of high unemployment on individuals and their households. The past 20 years has seen a significant expansion of the existing social grants system that, while not specifically targeting the unemployed, has helped reduce poverty among households impacted by unemployment. Thus, by mid-2013, nearly 16.2 million social grants of various types were being paid by government on a monthly basis, equivalent to over 30 percent of the country’s population. Further, there is some evidence thatsocial grants have helped facilitate job search among unemployed household members.

There is general recognition, though, that government alone cannot resolve the unemployment crisis. As a result, there are now a significant number of ongoing interventions spearheaded by organizations in the non-governmental and non-profit spheres. These interventions range from small business support, to youth training, to the provision of bursaries for education and training, to facilitating the matching process between job seekers and employers.

In summary, there are certainly concerns around South Africa’s youth unemployment policy interventions in terms of design, targeting and ability to adequately address the needs of young labor market entrants as well as employers. Perhaps the key constraint in generating impact has been scalability, as many interventions have been too small or too localized to impact aggregate unemployment rates. An important lesson is that supply-side initiatives addressing structural issues are insufficient on their own to generate sufficient new jobs. Instead, these interventions should interface closely with demand-side incentive programs. There are, also, political economy constraints that need to be resolved. For example, the generalized lack of jobs results in resistance to certain interventions on the part of those who view them as a zero-sum game between the youth and older workers.

Note: Morné Oosthuizen is the deputy director of the Development Policy Research Unit (DPRU) at the University of Cape Town. DPRU is one of the Brookings Africa Growth Initiative’s six local think tank partners based in Africa. This blog reflects the views of the author only and does not reflect the views of the Africa Growth Initiative.



[1] Youth are defined by the International Labor Organization as individuals between the ages of 15 to 24 years. It is important to note, however, that South Africa utilizes a broader definition, covering individuals between the ages of 15 and 34 years, and its youth-targeting policies focus on this broader age group. However, for the sake of comparison, we use the international definition unless otherwise stated.

[2] The National Treasury (2011) used the ILO and QLFS 2010 to make this assertion for the 18-29 age cohort. The ratio of youth to adult unemployment in Africa is about 2.5 (i.e., the youth unemployment rate is two and half times larger than the adult unemployment rate), and cross-country comparisons indicate that this is broadly in line with other emerging markets such as Morocco, Mexico and Chile. South Africa was an outlier in terms of the magnitude of the unemployment rate. It was just under 40 percent while other emerging markets varied between 10 percent and 30 percent.

[3] Youths “not in employment” are not considered members of the youth labor force because they are not economically active.

[4] Between 2008 and 2009, the number of apprentices declined 25 percent from 1,000 to 9,000 placements (Janse et al. 2012:45).

[5] Department of Cooperative Governance (2011). Communities at Work: Community Work Program 2010/2011. Pretoria: Department of Cooperative Governance.

South Africa: Payroll Fraud Impacting on SA SMEs

Pretoria — EXPERTS in the information and communication sector said payroll fraud was growing at an alarming rate among small and medium enterprises in South Africa as such companies neglected investing on payroll.

Yolande Schoultz, Risk & Fraud Management Division Manager at Sage VIP Payroll & HR, said payroll fraud hurt the bottom-line at many South African businesses, with SMEs suffering the most from this form of white-collar crime.

“Payroll fraud happens most to businesses with less than 100 employees, and it can seriously hurt their ongoing sustainability.

“It usually takes 18 months to detect payroll fraud, and it is usually uncovered by accident. By that time, a business could have lost a vast amount of money,” she said

“Yet we don’t have accurate statistics because so few businesses prosecute employees for this crime.”

Anton van Heerden, managing director for Sage VIP and Sage Pastel Payroll & HR. said companies should as such put in place measures to address the scourge.

“Payroll fraud is one of the most common white-collar crimes in the business world. For that reason, every managing and financial director must put in place sound policies and processes to address this growing risk,” van Heerden said.

According to research conducted by Alexander Forbes in 2011, payroll fraud costs South African business more than cash-in-transit heists.

Only 13% of South Africans employed full time: study

Only 13% of the South African working population is employed full time, according the to the Gallup Global Employment tracker.

Gallup, a global performance-management consulting company, found that about one in four (26%) – or 1.3 billion – people in the world worked full-time for an employer in 2013.

This Payroll to Population (P2P) rate, which reports the percentage of the total adult population that works at least 30 hours per week for an employer, has not grown since 2012, the group said.

Unsurprisingly, countries with the highest P2P rates are some of the wealthiest, or those with the higher GDP per capita.

The UAE was listed as the country with the highest rate of full-time employment with a P2P rate of 59%, followed by Iceland (54%), Bahrain and Sweden (53%) and Russia (51%).

Highest P2P rates

# Country Rate
1 United Arab Emirates 59%
2 Iceland 54%
3 Bahrain 53%
3 Sweden 53%
5 Russia 51%
6 Kuwait 49%
7 Belarus 47%
7 Israel 47%
9 Latvia 44%
10 United States 43%

Countries with the lowest rates of permanent employment were poorer nations, such as Burkina Faso (5%), Haiti, Malawi and Niger (6%).

“Countries with the lowest P2P scores tend to have large informal economies with high self-employment, which at the global level has a negative relationship with GDP per capita,” Gallup said.

Lowest P2P rates

# Country Rate
1 Burkina Faso 5%
2 Haiti 6%
2 Malawi 6%
2 Niger 6%
5 Ethiopia 7%
5 Sierra Leone 7%
7 Guinea 8%
7 Liberia 8%
7 Mali 8%
8 Chad 9%
8 Nepal 9%
8 Tanzania 9%

The figures are based on more than 136,000 interviews across 136 countries in 2013 (around 1,000 per country), in which adults were asked a battery of employment questions modeled on the International Labour Organization’s standards.

Adults who are self-employed, working part time, unemployed, or out of the workforce as payroll-employed in the P2P metric, were not included, and the numbers are not seasonally adjusted.

Regionally, Northern America (43%) and countries in the former Soviet Union (42%) had the highest P2P rates in 2013.

Sub-Saharan Africa had the lowest regional employment rate at 11% – down 1% from 2012. South Africa’s rate was listed at 13% – representing about 2.6 million people.

South Africa has a working population of close to 20.4 million people.

According to Stats SA, South Africa’s unemployment figure has climbed to reach 25.5%, with 5.2 million people currently unemployed, while some 15.1 million people in the South African work force are employed in both the formal and informal sector.

SA-p2p-rate

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Official Rate of Interest Change – August 2014

The “official rate of interest” for calculating fringe benefits will increase by 0.25% with effect from 1 August 2014.

 

Where a loan is obtained by an employee from his employer and either no interest is payable or the interest payable is less than the “official rate of interest”, the difference between the amounts calculated at the official rate of interest, and the amount calculated at the interest rate applied by the employer, is a taxable fringe benefit. The fringe benefit value must be processed in the payroll and reported on the tax certificate against the general code 3801.

 

Effective from 1 March 2011, the “official rate of interest” is defined in the Seventh Schedule as the rate of interest that is equal to the RSA repurchase rate (“Repo rate”) plus 100 basis points (1%). The official rate of interest changes from the first day of the month following the date on which the Repo rate change comes into effect.

 

The Repo rate was increased by 0.25% to 5.75% on 17th July 2014 and the Official Rate of Interest is therefore 6.75% effective from 1 August 2014.

RETIREMENT FUND REFORMS

Government encourages South Africans to save for their retirement through tax incentives when making these contributions.  The aim of these tax incentives is therefore to encourage income–earners to save for their retirement so as to reduce their financial vulnerability in their old age.

Currently the deduction for income tax purposes is determined as follows:

Pension fund contributions:

  • Current contributions: Limited to the greater of:

a)      R1,750; or

b)      7.5% of pensionable remuneration

  • Arrear contributions: R1,800

Retirement annuity fund contributions

  • Current contributions: Limited to the greatest of:

a)      15% of net income, excluding income used to determine pension and provident fund contributions;

b)      R3,500 less deductible current pension contributions; or

c)      R1,750

Note provident fund contributions made by an individual employee are not deductible.

 

As can be seen from the above there are different rules pertaining to the deductibility of contributions for the different funds which may not produce an equitable result.  A consistent treatment, regardless of the type of retirement fund, is therefore preferred, which has led to the following changes.

 

Amendment effective from 1/3/2015 (2016 tax year)

The basis will be the same for determining the deduction for income tax purposes for contributions to all types of retirement funds.  The annual deduction for income tax purposes will be limited to

  • the lesser of

o   R350,000; or

o   27.5% of the higher of

  • Remuneration (excluding lump sums); or
  • Taxable income (excluding lump sums) before this deduction.

Any excess contributions may be carried forward to the following year of assessment where they may rank for deduction.  Employer contributions will be included as a fringe benefit in the taxable income of the employee and will be deemed to have been made by the employee for the purpose of determining the deduction for income tax purposes.

 

The above contribution limits will include the risk benefit and administration cost component of the contributions.

 

Remuneration is comprised basically of your income earned from employment (albeit salary, commission, bonus, fee etc), 80% of your travelling allowance, 80% of your company car fringe benefit plus all other taxable allowances and fringe benefits.

 

Taxable income is comprised of your income after exemptions and allowable deductions.

 

Deduction for employer contributions to retirement annuity, pension or provident funds will be determined in accordance with section 11(l) of the Income Tax Act which provides that any contribution made by an employer to such approved South African retirement fund for the benefit of any employee or former employee or for the dependent or nominee of a deceased employee or former employee made in terms of the rules of that fund will be deductible.

 

However any contributions effected by an employer will be taxed as a fringe benefit in the hands of the member.  The value of the fringe benefit will be depend on whether the contributions are made to a defined benefit fund (being a fund where the benefits are not based on the members contributions effected over the years, but are mostly determined by the final salary at retirement, the years of service and an accrual rate) or a defined contribution fund (being a fund where the contribution can be directly linked to the benefit).

  1. Defined contribution fund – the cash value of the contribution will represent the amount of the taxable fringe benefit.
  2. Defined benefit fund – the value of the fringe benefit will be determined by the use of a formula.

 

Example

Ms Jinx is a member of a provident fund.  Her total cost to company is R276,000 which is comprised of a salary of R180,000, a travelling allowance of R60,000 and her employer provident fund contributions of R36,000.  Her remuneration is R264,000 (being R180,000 plus R60,000 x 80% plus the employer contributions of R36,000 which must be brought into her taxable income as a fringe benefit).  Ms Jinx effects no employee contributions to the provident fund.

In addition she earns rental income.  Her net rental profit for the year was R64,000.  She pays R6,400 independently into a retirement annuity find.  Let us assume a traveling deduction of R50,000 resulting in her taxable income of R290,000 before considering any deduction for her retirement fund contributions.

Ms Jinx’s deduction will be limited to

  • the lesser of

o   R350,000; or

o   27.5% of the higher of

  • Remuneration R264,000 x 27.5% = R72,600 or
  • Taxable income before this deduction R290,000 x 27.5% = R79,750.

Accordingly her full contributions of R42,400 (R36,000 plus R6,400) will be deductible for income tax purposes.