The South African Revenue Service defines remuneration as any amount of income which is paid or is payable to any person by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, pension, superannuation allowance, retiring allowance or stipend, whether in cash or otherwise and whether or not in respect of services rendered.
The definition by SARS, however, does not give a clear indication of what is included and excluded in the term “remuneration” in terms of the Basic Conditions of Employment Act 75 of 1997 (BCEA).
The term “remuneration” as defined in the BCEA, as amended and other labour legislation, includes any payment in money or in kind, or both, made or owing to any person in return for working for another person, including the State.
From this definition, it can be seen that for a payment to be included as part of “remuneration”, it must first be in cash (money) or in kind (fringe benefits and employer contributions), and secondly, in return for work done.
BCEA remuneration is used for the calculation of:
- Notice Pay
- Severance Pay
- Leave paid out on termination
- BCEA Leave Pay (a portion of BCEA remuneration when taking annual leave)
When calculating leave pay, severance pay, or notice pay where there has been a fluctuation of income, it becomes essential to understand the term “remuneration” and what is included and excluded by the BCEA.
Should there have been a fluctuation of income, it would seem, at least on the face of it, that section 35(4) of the BCEA should apply. This section provides as follows:
(4) If an employee’s remuneration or wage is calculated, either wholly or in part, on a basis other than time or if an employee’s remuneration or wage fluctuates significantly from period to period, any payment to that employee in terms of this Act must be calculated by reference to the employee’s remuneration or wage during –
(a) the preceding 13 weeks; or
(b) if the employee has been in employment for a shorter period, that period.
A Ministerial Notice published in the Government Gazette on 23 May 2003, in terms of section 35(5) of the BCEA, confirms which payments are included and excluded in an employee’s remuneration for the purposes of calculating pay for annual leave in terms of section 21, payment instead of notice in terms of section 38 and severance pay in terms of section 41; This section came into effect on the 1st of July 2003;
The following payments are included in an employee’s remuneration:
(a) Housing allowance or accommodation received as a benefit in kind,
(b) Car allowance,
(c) Any cash payments made to an employee,
(d) Any other payment in kind received by an employee,
(e) Employer’s contributions to medical aid, pension, provident fund or similar
(f) Employer’s contributions to funeral or death benefit schemes.
Any cash (money) or in kind paid in return for work done, such as wage/salary/cash component, overtime, commission, performance bonus and annual bonus (if guaranteed), are included in the BCEA remuneration.
The following items do not form part of the employee’s remuneration for the purpose of these calculations:
(a) Any cash payment or payment in kind that is provided in order to enable the employee to work,
(b) A relocation allowance,
(c) Gratuities (for example, tips received from customers) and gifts received from the employer,
(d) Share incentive schemes,
(e) Discretionary payments not related to the employee’s hours of work or performance,
(f) An entertainment allowance,
(g) An education or schooling allowance.
If an allowance is paid to enable the employee to work, the payment must be excluded from BCEA remuneration. If it is as a result of work done, it is, however, included.
An employee’s remuneration should also be agreed upon in the employment contract, even though it should be borne in mind that the employee’s basic rate of remuneration may be subject to change.
Collective agreements may also have a direct bearing on the issue of remuneration as well. Even in situations where there is no collective bargaining agreement, the parties usually prefer to deal with the issue of remuneration in an annexure to the main contract.
It is essential to consider all the above factors when calculating an employee’s leave pay, notice pay, or severance pay.
The full Government Gazette, as referred to in this article, can be read here.
Article by: Arlene Jacobs
Dispute Resolution Official – Bloemfontein