Revealed: The accounting and PAYE implications of paying a 13th cheque

43984, 27 Nov. 2014

Tags: paye, accounting and paye implications of paying a 13th cheque, paying a 13th cheque and paye, pay as you earn

Paying a 13th check to your employees has consequences when it comes to accounting and Pay As You Earn (PAYE). And you must do this right.
This is an important part of payroll management. Getting it right also means your employees won’t pay more PAYE than necessary.
Keep reading as we reveal the accounting and PAYE implications of paying a 13th cheque.
Here are the accounting and PAYE implications of paying a 13th cheque
Many South African businesses pay a 13th cheque as part of their bonus system.
The result is that employees pay more taxes during the financial year. And when they get to the 12th month, they get a “bonus” cheque or payment that equals their gross monthly salary without paying additional taxes.
So, if your employee’s contract states he’ll get an 13th check, you must set this up from day one on your payroll system.
This will ensure your system calculates the additional tax monthly. If you don’t set up the system this way, the 13th payment or bonus won’t be tax-free.
You must set up your payroll system in a manner that says the gross yearly remuneration includes the 13th cheque and PAYE should be calculated accordingly.
This means you’ll divide his total annual package into 13 payments instead of 12. This has a significant impact on what your employee will get on a monthly basis.
Sound confusing?
Here’s an example that illustrates the accounting and PAYE implications of paying a 13th cheque perfectly
CCD People (PTY) Ltd appoints Jonty. His employment contract says he’ll receive a 13th cheque.
His gross annual package is R500 000 per year and he started his job on 1 March 2014. This means his employer will divide his R500 000 gross yearly salary over 13 months of payment but calculate his PAYE over 12 months.
It’s also important to tell your employees about these consequences
If you pay your staff a 13th cheque, tell them that the payroll system is set to calculate the PAYE correctly on this additional payment to ensure they don’t pay more PAYE than necessary.
Remember, a lot of disputes arise when it comes to bonuses or 13th cheques. So it’s best to be upfront with your employees.
Understanding the accounting and PAYE implications of paying a 13th cheque is an important part of payroll management. Get it right so your employees don’t pay more PAYE than necessary.

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