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Taxing benefits
Fringe benefits are nonmonetary benefits offered by an employer and attract taxation. You need to understand the tax implications of the following benefits:
- Right to use a motor vehicle for private or domestic purposes
- Free or discounted meals, refreshments and meal and refreshment vouchers
- Residential accommodation either for free or for less than the rental value of the accommodation
- Free or cheap services at the expense of the employer
- Low interest or interest-free loans – although this excludes loans for buying shares in the company.
- Subsidies in respect of loans
- Medical scheme contributions paid by an employer
- Payment by an employer to an insurer for the benefit of the employee or his or her spouse, child, dependent or nominee
Cost to company
Most employment contracts are done on a “cost to company” basis, which is the total cost of the employee to the company. This would include things such as medical aid and retirement fund contributions, cost of parking and a travel allowance. Depending on the types of benefits offered by the company and the taxation of those benefits, the same cost to company offer from two different employers may result in very different levels of take-home pay. You may, for example, leave an existing employer for a bigger “package” only to find out that your take-home pay remains the same.
One also has to look at the benefits offered and the real effect on your cost of living. For example, one job offer may result in take-home pay of R25 000, while another may leave you with R22 000.
It may seem that it makes sense to take the higher take-home salary, but in the first scenario, the company has no retirement fund or medical aid benefits, while in the second, the company contributes towards a retirement fund as well as comprehensive risk cover for death and disability. If you had to provide for retirement and life cover from your R25 000 take-home pay, you may find that the lower take-home pay scenario is actually more beneficial.
Richer employee benefits
Apart from direct financial benefits such as retirement contributions, a company may offer richer employee benefits such as study leave, paid maternity leave or a subsidised cafeteria.
How a package is structured, as well as other company benefits, has financial consequences, so you really need to take your time to understand the benefits being offered, especially if you are planning to leave your current employer.
How to compare:
- Ask for a mock payslip – this will give you a good indication of what you will be getting in your pocket. This will also help you understand the tax implications of any fringe benefits.
- Try to quantify what the benefits offered by the new employer mean. This could range from a preferential mortgage rate, discounts on products, lower insurance premiums and buying at cost price to no or low banking charges.
- Remember that with preferential mortgage rates, you may need to move your bond to the new employer, which will cost you. You would also
need to give your existing bank three months’ notice to avoid penalty costs. - If you are offered a 13th cheque, make sure you understand exactly how this works. It may come out of your cost to company package, which means that your annual salary is divided into 13 pay cheques.
- Once you start with a new company, make sure that you double-check your first payslip. Is everything as it should be? If you do not understand an item on your payslip, ask the HR department to explain it.
