Many employers relate to the struggle of keeping their employees happy. Let’s face it – in the end, money talks louder than the occasional free lunch.
Unfortunately, massive employee bonuses and increases are often reserved for the real big players in the industry. We get that. So in this blog, we’re thrilled to share with you a simple (yet life-changing) way of helping your employees save tax and earn more in their pockets. We’re talking bursaries and scholarships.
‘Bursaries’ and ‘scholarships’ don’t exactly scream savings, so let’s explain. Certain bursaries and scholarships, called bona fide bursaries/scholarships, are exempt from tax. In simple terms, it means giving an employee financial assistance to make it possible for them (or for one of their relatives) to study at a recognised educational institution.
As expected, certain conditions should apply for this bursary or scholarship to qualify for the exemption. Most importantly, the employee should be required to reimburse the employer for the bursary or scholarship, if they don’t complete their studies.
“The employee should be liable to pay back the bursary if they fail to complete their studies.”
When the bursary is for one of your employee’s children, additional conditions should be met:
Note that the cap on the bursaries applies per relative, per year which is great news.
In practice, this means structuring your employee’s salary smarter. Their gross salary would include a basic salary and a non-taxable bursary or scholarship. The portion for the bursary is reflected under the IRP5 fringe benefit code 3815. The specific bursary amount may include tuition fees, books and accommodation. It will be up to you to decide how the amounts will be included in your employee’s salary. Will you include the amount on their payslip once-off, or will you spread it over a few months?
Let’s look at an example. Peter works at a company called Best Employer Ever. His gross annual salary is R520,000. Peter has a son in his first year of studies at UJ. Best Employer Ever decides to grant Peter a scholarship of R60,000 per year to help pay for his son’s education.
|Basic salary – taxable||520 000.00||460 000.00|
|Bursary – Exempt||60 000.00|
|Gross salary||520 000.00||520 000.00|
|Total employee tax||121 008.00||99 408.00|
|Total savings||21 600.00|
The proof is in the pudding right? Take a few minutes during the next few days to sit down with your employees. Is there someone in your office who you can help with this structure? We like to think that this is probably the simplest, most rewarding investment in our employees of today and tomorrow.
As always, consult with your accountant and tax expert to ensure you comply with all requirements.