Leave Payout Tax Calculator
According to BCEA, an employee is entitled to a different number of leave days for sickness, maternity, family responsibility, absence, adoption, and more. All these leave days payments are added to the employee’s final salary and taxed at the gross rate, decided by the Labor Department. Apart from this, the employee is entitled to a lump sum of leave payout at the end of their employment contract.
But how to calculate the tax for the unused leaves during the employee’s time? No worries, here is a leave payout tax calculator in South Africa.
Leave Tax Calculator for Termination of Contract
The only instance under BCEA where the employer is permissible to make a lump sum payment of annual leaves is on the termination of the employment contract. In such cases, the reason for leaving largely determines the payout tax. Here, I have tried to explain how.
Resignation
When an employee resigns on their own will, the final payments are made in the form of pro-rata bonuses with a pay-out package and notice pay. All these packages are subjected to normal income tax and no special tax. Let’s understand this with an example.
If an employee works five days a week, they are entitled to 20 days of annual leave. Their gross payment is R15,800 and around 16.85 leave days. In this case, the leave payment will be added to the final salary, as R12.325 (R15,800 x 21.6 x 1685), which is anywhere around R9120 per leave day.
Operational Requirements
When an employee’s contract ends because of an employer’s operational requirements (technical, economic, and structural needs), the employer is subject to pay severance money. Here, the Labor Relation Act of 1995 applies that allocates tax directives from SARS over the severance payment of each completed year of service.
Mutually Agreed Separations
When an employee ends his/ her contract in mutual agreement with the employer, a gratuity is made. It aligns with Section 41 of the BCEA. According to this, a portion of the money is paid to the employee, which is usually a tax-free payout and treated as the employee’s normal remuneration.
Lump Sum Leave Payment Tax Calculator
Upon the end of the employee’s contract, the employer is subjected to pay a lump sum as a severance benefit. As of March 2023, if the amount of this payout package is less than R550,000, the employee is not subjected to pay any tax. However, as soon as the amount exceeds this threshold, South African Revenue Services or SARS allocates current tax rates on the payout.
| Taxable Income | Tax Rate |
|---|---|
| R1 to R550,000 | No Tax |
| R550,001 to R770,000 | 18% + 18% of the taxable income above R550,001 |
| R770,001 to R1,155,000 | R39,600 + 27% of the taxable income above R770,001 |
| R1,155,001 and above | R143,550 + 36% of the taxable income above R1,155,001 |
The current tax rates, as described by SARS, will remain effective until March 2025.
Final Words
Finally, apart from the used leaves added to the final package, an employee receives a payout package at the end of employment. Certain taxes are applied to this payout as directed by SARS. I hope this guide has helped you calculate the leave payout tax.