The section provides that the timing of accrual of variable remuneration must be on the payment basis and will only be included in the employee’s income (and be taken into account for employees’ tax purposes) on the date of the actual payment. The same will apply for employers claiming the expenditure for their own income tax purposes.

Currently, “variable remuneration” as defined in the Act includes:

• overtime pay, bonuses or commission (per the definition of “remuneration” in the Fourth Schedule to the Act);
• an allowance or advance paid for transport expenses as contemplated in section 8(1)(b)(ii) or (iii);
• an amount the employee becomes entitled to as a result of unused leave;
• any night shift or standby allowance; or
• any amount paid or granted for a reimbursement as contemplated in section 8(1)(a)(ii).

Expanding the definition

In the 2022 Budget Speech, it was proposed that the “variable remuneration” definition, as contained in section 7B, be expanded on the basis that it still does not adequately cater for some types of variable remuneration. Government has identified that performance-based payments (especially in the informal sector) that form part of an employee’s salary are not adequately catered for in the definition of variable remuneration.

This is because in the formal sector, the inclusion of “commission” caters for performance-based payments that form part of an employee’s salary, but in the informal sector, such payments are more likely to be calculated based on units produced. “Commission” refers to a percentage-based payment and cannot be determined based on units produced, thereby excluding this type of performance-based payment from the ambit of section 7B as it currently exists.

It has therefore been proposed in the 2022 Budget Speech that section 7B be amended to cater for these types of performance-based variable payments. It is important that employers take note of the proposed amendments made to the definition of “variable remuneration” to ensure that employees’ tax is withheld and IRP5 certificates are correctly issued for variable remuneration in the correct tax period.