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In a special ruling released by SARS it was found that tips paid to employees through the payroll were not taxable. (Download full SARS ruling here) 

Background:

The applicant customers used cash as their main form and payment and this was seen as a security risk. So much so that employees were not allowed to report for duty with cash on them unless this had been declared to management.

  • All tips received were declared by the employees and paid over to the company. This was to ensure the security of the staff. Staff found with undeclared tips could be disciplined.
  • The tips were recorded and paid into the employees bank account at month end with their salary payment

Special conditions

  • Tips do not form part of their conditions of employment or salary but are seen as reward by the clients for good service delivered.
  • The tips would not form of the remuneration calculation for the purpose of UIF or skills
  • The tips would not form part of the calculation for pension or medical benefit calculations
  • Should the employee leave all outstanding tips would be paid to him with his final salary
  • All tips would be paid out. No tips would be retained by the company

The tips should be paid out through your payroll system. Nothing was said about the tips being part of the IRP 5 certificate. I would keep a record just in case..

My other thought was about tips paid directly to employee - I am assuming that these are nontaxable as well.

 

Ian Hurst

Owner

cell 082 8985006

www.paymaster.co.za

since 1999