Non-compliance may lead to abuse in the NPO sector
More than half of 140,513 NPOs in South Africa were non-compliant with the act. NPOs are required to file annual reports with the Department of Social Development. In addition to the NPO act, these organizations - although tax exempt - are also required to file tax returns with SARS.
However we realise that volunteers manage most NPOs, with a passion for helping the poor. Under dire and difficult circumstances these volunteers allocate all their time to helping people in need. It is therefore perhaps understandable that compliance ma fall by the way.
Various pieces of legislation imposed hefty regulatory requirements on the NPO sector.It will be a sad dayif NPOs do not receive quality professional support to remain operational. The end result will be that donot funds may not reach the intended recipients.
Disorganised NPOs might not deliver on their legal obligation, which would in turn lead to the sector being accused of a lack of accountability and transparency.
For the review of the accounting process for NPOs' auditors were milking organisations dry to the detriment of the poor. NPOs could save up to R25,000 if they used independent reviewers in the form of accountants to account for their spending instead of using auditing services.
EFFECT OF SICK LEAVE ON OVERTIME PAY
EFFECT OF SICK LEAVE ON OVERTIME PAY
Question: How does an employee’s absence due to illness affect overtime pay?
Answer: The basis on which an employee is remunerated may be affected if the employee’s actual working hours are reduced as a result of sick leave.
Brief explanation: In terms of the Basic Conditions of Employment Act an employee is entitled to pay at the overtime rate of one and one-half times the normal rate if the employee works for more than 45 hours per week (While it also applies where the normal daily hours are exceeded, it is unnecessary for the purposes of this discussion). The BCEA is silent on whether paid time for sick leave should be taken into account when calculating overtime pay. If the employee is absent due to illness during a particular week, such hours of absence therefore do not have to be taken into account for the purposes of calculating overtime pay. It would be in order to pay the employee at the overtime rate only to the extent that the employee actually worked in excess of 45 hours in that week.
The following is an example: An employee normally works six days per week, which include 8 hours per day from Monday to Friday, and 5 hours on a Saturday (i.e. 45 hours per week). In a particular week the employer asks the employee to work an additional 3 hours on the Saturday, which would normally amount to ‘overtime’ and remunerated at the overtime rate. However, in that week the employee takes paid sick leave on the Wednesday. As a consequence, the employee only worked 40 hours. This means that, in addition to being paid a full day’s pay for the day on the employee was sick, the employee will be paid for the 40 hours at the normal rate. In other words, the additional 3 hours for work on the Saturday would not be at the overtime rate but at the normal rate of pay.
The above could be applied as a general rule, but is subject to the wording of the contract of employment that may contain more favourable provisions with regard to what will be regarded as ‘overtime’.
Further comments: The same principle will apply in other cases where the employee is absent, but still entitled to payment, e.g. annual leave, family responsibility leave, or a public holiday.
Article written by Jan Truter of Labourwise
Why to conver CC`s to Private Company`s
Why Convert CC`s to Private Company`s
Amendments to the Employment Equity Act
Amendments to the Employment Equity Act
The Employment Equity Amendments Bill published on 19 October 2012 (‘the Bill’) signifies the first amendments to the Employment Equity Act (‘the EEA’) since it came into operation in 1998. The Bill seeks to rectify anomalies and clarify uncertainties that have arisen out from the interpretation of the EEA in the past decade. We will also see the expansion of the powers of the Labour Inspectorate and the jurisdiction of the CCMA.
The following amendments proposed by the Bill are worth taking note of:
Discriminatory grounds expanded: The grounds for discrimination will no longer be limited to those listed in section 6 of the EEA (race, gender, sex, pregnancy, etc), but will also include discrimination “on any other arbitrary ground”. This change would create consistency with the terminology used in section 187(1)(f) of the Labour Relations Act, 1995 (Act No. 66 of 1995), that prohibits discriminatory dismissals.
Psychometric tests: Currently psychological tests may be used on employees (including prospective employees) if they have been shown to be scientifically valid and reliable, can be applied fairly to all employees and is not biased against any employee or group. The Bill introduces an additional requirement that only psychometric tests that have been certified by the Health Professions Council of South Africa, or another body which is authorised to certify such tests, may be used.
CCMA to have jurisdiction: At present, all unfair discrimination claims fall within the exclusive jurisdiction of the Labour Court. According to the Bill an employee would also be able to refer the dispute to the CCMA for arbitration if the employee complains about sexual harassment (as a form of discrimination). Any other discrimination claims may be referred to the CCMA for arbitration by lower-paid employees (those earning less than the earnings threshold prescribed under section 6(3) of the BCEA, which is currently at R183008 per year). In the case discrimination claims by higher earning employees, the parties may consent to the referral of a discrimination dispute to the CCMA for arbitration. However, the maximum award that the CCMA can make in respect of damages will be an amount equal to the earnings threshold referred to above. A person affected by an arbitrator’s award in a discrimination case will be entitled to appeal to the Labour Court.
Burden of proof: There will be some changes relating to the onus of proof in discrimination claims. In the case where an employee alleges one of the listed discriminatory grounds (race, gender, sex, pregnancy, etc), the onus will be on the employer to prove that discrimination did not take place as alleged, or is rational and not unfair, or is otherwise justifiable. In the case of an allegation of unfair discrimination “based on any other arbitrary ground” the onus will be entirely on the employee.
Work of equal value: A new section is introduced in order to deal explicitly with unfair discrimination by an employer in respect of wages and other terms and conditions of employment of employees doing the same or similar work or work of equal value. A differentiation based on a ground envisaged by the EEA will amount to unfair discrimination unless the employer can show that differences in wages or other conditions of employment are in fact based on fair criteria such as experience, skill, responsibility, etc. The Minister of Labour will be empowered to publish a code of good practice dealing with criteria and methodologies for assessing work of equal value.
Only apartheid victims to benefit: The definition of ‘designated groups’ is amended to ensure that beneficiaries of affirmative action are limited to persons who were citizens of South Africa before the democratic era, or would have been entitled to citizenship, but for the policies of apartheid, and their descendants. As a result the employment of persons who are foreign nationals or who have become citizens after April 1994, will not assist employers to meet their affirmative action targets.
Occupational categories excluded: In order to avoid confusion and simplify the procedures relating to affirmative action, reference will only be made to ‘occupational levels’ in the workforce. Reference to ‘occupational categories’ will be removed.
Threshold for ‘designated employers’: The total annual turnover thresholds set for employers in various industries (in order to be classified as a ‘designated employers’ for the purposes of the affirmative action provisions of the EEA), will be increased to three times the current amount. This means that some employers that were obliged to comply by virtue of their turnover will no longer have to do so. Employers that employ 50 or more employees will still be regarded as ‘designated employers’ irrespective of their turnover.
Annual reports: All designated employers, including those with 150 and less employees, will have to submit their EE reports annually.
Enforcement procedures: Enforcement procedures will be truncated to promote more effective and efficient enforcement. For example, a labour inspector would be able to issue a compliance order without first having to obtain a written undertaking from an employer. The opportunity to object to a compliance order has been removed, but a decision may still be challenged at an appropriate juncture.
Assessment of compliance: The factors that may be taken into account in determining whether an employer is implementing employment equity in compliance with the EEA have been revised. The Minister will be empowered to make regulations dealing with the assessment of compliance, including specifying the circumstances under which an employer’s compliance should be assessed by reference to the demographic profile of either the national or regional economically active population. An employer may raise any reasonable ground to justify failure to comply with the implementation of employment equity.
Labour brokers: Employees who are placed with a client by a temporary employment service (labour broker) for longer than six months will be deemed to be employees of the client for the purposes of affirmative action.
Increased fines: The maximum fines that may be imposed for contraventions of the EEA will be increased threefold (in order to reflect the change in the value of money since 1998). In addition, an employer’s turnover could be taken into account in determining the maximum fine that may be imposed for substantive failures to comply with the EEA.
This Bill follows extensive consultation between the Department of Labour, organised business and organised labour. It is therefore unlikely that we will see any significant changes before it becomes law.
Jan Truter of www.labourwise.co.za
Directors Duties under New Companies Act
The appointment of directors under the new Companies Act 71 of 2008
The new Companies Act, 71 of 2008 has numerous changes for the appointment, resignation, removal, obligations and duties of directors.
The Act introduces a partial codification of directors’ duties, which includes both a fiduciary duty, and a duty of reasonable care, which operate in addition to existing common law duties
Section 76 of the Act, in particular, requires a director when acting as a director, to act:
- in good faith and for a proper purpose
- in the best interests of the company
with the degree of care, skill and diligence that may reasonably be expected of a person
- carrying out the same functions in relation to the company as those carried out by the director
- having the general knowledge, same skill and experience of that director – a reasonable man/women test.
Number of Directors
Private Company – 1 Director Minimum
Public Company/Non Profit Company – 3 Directors minimum
- Each Incorporator of a company becomes its first directors
- Directors are thereafter appointed by the majority shareholders entitled to vote on their election, for an indefinite term or as the Memorandum of Incorporation (MOI) stipulates
- Any vacancies on the board may be filled temporarily by election of other board members or as the Memorandum of Incorporation provides
Disqualification – of persons to act as a director
- A Court has declared that person delinquent
- A juristic person
- Un-emancipated minor
- Un-rehabilitated insolvent
- Prohibited by Public regulation
- Removed from office of Trust, due to dishonesty
- Convicted of a crime of dishonesty (theft, fraud etc), without option of a fine
- Does not meet qualifications as set out in the Memorandum of Incorporation of the company
Exemption – even though disqualified
- If all shares held by that person alone – 100% Shareholder
- Shares held by disqualified person, and related persons, who have consented in writing to that director acting as such
Termination – on board
- Term of office expires as per Memorandum of Incorporation
- Declared delinquent
- Becomes disqualified
- Removed by a resolution of the shareholders or the Board or court order
Removal – of a director
- Despite anything to the contrary in the Memorandum of Incorporation, or rules, or an agreement – Director may be removed by an ORDINARY resolution of shareholders entitled to vote, or by board meeting (when alleged that director is disqualified, incapacitated or negligent in duties)
- Director must be given opportunity to be heard at meeting before vote on removal
- Removed director has right to apply to court for damages for loss of office
- Board authorised director may call a meeting at any time
- Must call meeting when 25% of directors - when Board has at least 12 members, or two directors in any other case, request a meeting
- Company MUST keep minutes of all board meetings and every resolution taken at meeting
- Each director has one vote and majority vote approves resolution
- Directors may vote on a resolution by round- robining, by written or electronic means – without need for physical meeting
Liability of directors
- Director - includes alternate director, prescribed officer (CEO, MD CFO etc), Audit committee or board committee members.
- Liable for breach of fiduciary duty, or delictual act, acting without authority, party to supplying false or misleading information about company or making of an untrue statement in a prospectus.
- Director must disclose any personal financial interests in any matter before the Company
- The Director may not use the position as director or information gained as a director to make a secret profit or gain advantage for him- or herself or someone else [related person] or to cause harm or detriment to the company.
- Directors or related persons must also disclose to the company any financial interest acquired, after the agreement or other matter has been approved by the company.
A sole Director who does not hold all the beneficial interest of securities or related persons to the director, who discloses a personal financial interest in a company agreement, may acquire approval to enter into that agreement by the passing of a ordinary resolution of the shareholders
In addition, directors could be held liable to shareholders for fraudulent acts or acts of gross negligence or to a third party who has suffered damages due to the acts of the directors.
The Act also includes the “business judgment test” which states that if a director has applied reasonable care, skill and diligence, has no material financial interest and has a basis for believing that the decision made was in the best interest of the company, the director will not be held liable for a breach of duty. This is only if a director did not act in bad faith or for improper purpose.
Indemnification and Insurance
- Company may not indemnify a director for willful misconduct or breach of trust, or for a director acting without proper authority from company or undertaking a prohibited act (reckless or insolvent trading), or for perpetuating a fraudulent act.
- A Company may take indemnity insurance on behalf of its directors in order to aid in any lawsuit against the director as related to the company
- Company may purchase insurance to protect a director against permitted liability
A Company is entitled to claim restitution from a director of a company or of a related company for any money paid directly or indirectly by the company to, or on behalf of that director, for claim
While the Act has removed many of the criminal offences which are found in the current Companies Act, the potential for civil claims against directors in terms of the New Companies Act is far greater.
Important to note is that members of board- and audit committees will have the same liability as directors, even if the members of the board committees are not directors and even though they have no voting rights on matters considered by the board committees.
Tax Scam Alert
Please note that the following email doing the rounds, is a scam:
Tax Refund Notification - After the calculations of your fiscal activity for last year, we have determined that you are eligible to receive a tax refund of R 13,182.52 ZAR. Please download and submit the tax refund request and allow 2-3 days in order to process it. DOWNLOAD to submit your tax refund request Note : A refund can be delayed a variety of reasons, for example submitting invalid records or applying after deadline.
Conversion of medical aid contribution deductions to medical contribution tax credits
South African Revenue Service
CONVERSION OF MEDICAL SCHEME CONTRIBUTION DEDUCTIONS TO MEDICAL SCHEME CONTRIBUTION TAX CREDITS
In an effort to achieve greater equality in the treatment of medical expenses across income groups, the current medical scheme contribution deduction will, for taxpayers aged below 65, be replaced by a medical scheme contribution tax credit. This will be effective from 1 March 2012 as announced by the Minister of Finance, Mr Pravin Gordhan, in the 2011 Budget Speech.
WHAT IS THE PURPOSE OF THE CONVERSION?
The purpose of the conversion is to achieve fairness, as tax relief should be impartial across income groups and fair in proportion to the average direct government spending on health services available to people without medical scheme cover.
WHAT ARE THE CHANGES?
Effective 1 March 2012 the following changes will be introduced:
• A medical scheme contribution tax credit will be available to taxpayers who belong to a medical scheme and are
below the age of 65, set at fixed amounts per month:
• R216 each per month for contributions made in respect of the employee and one dependant, plus
• R144 per month in respect of each additional dependant.
The non–taxable fringe benefit in respect of medical scheme contributions paid by the employer on behalf of an employee who is 65 years and older and who has not retired from that employer has been repealed. This means that the contribution amount paid by an employer on behalf of an employee who is 65 years and older and has not retired from the employer, will now be a taxable fringe benefit. This is aligned to the treatment of all other taxpayers. However, a person 65 years and older is still entitled to the full medical scheme
contribution paid as a deduction. The net effect on such a person’s tax due is therefore nil.
Where an employee has retired from an employer and the employer continues to pay contributions on behalf of the retired employee, the fringe benefit will still be non-taxable.
HOW WILL THIS AFFECT EMPLOYERS?
Employers will be required to:
• Update their payroll systems as from 1 March 2012 in order to ensure the correct calculation and deduction of payroll taxes – Employees’ tax (PAYE), Unemployment Insurance Fund contributions (UIF) and Skills Development Levies (SDL).
• Inform employees of the impact of these changes on their monthly salary received.
Two new source codes have been introduced as indicated in the table below:
CATEGORY SOURCE CODE DESCRIPTION EMPLOYEES’ TAX DEDUCTION AND REASON CODE
4116 Medical scheme fees tax credit taken into account by employer for PAYE
FRINGE BENEFIT CODE
3815 (3865) Non-taxable bursaries and scholarships to employees and their dependents –
Section 10(1)q – Exempt portion only.
The descriptions of the two existing source codes have been modified:
CATEGORY SOURCE CODE DESCRIPTION DEDUCTION CODE
- 4474 Employer’s medical scheme contributions in respect of employees not included
in code 4493. As of 1 March 2012 the contributions paid by an employer on
behalf of an employee 65 years and older and who has not retired from that
employer, should also be reflected under this code.
- 4493 Employer’s medical aid contributions in respect of an employee who qualifies
for the “no value” provisions in the 7th Schedule.
The following previously de-activated source codes have now been re-activated. (This will be provided for in the e@syFile™ Employer software, which will be made available for the August 2012 submission.)
These source codes are valid from:
• 1999 – 2009 year of assessment and from the 2013 year of assessment
• 2002 – 2009 year of assessment and from the 2013 year of assessment for the Foreign Service Income [the source codes denoted in (brackets)].
CATEGORY CODE DESCRIPTION NORMAL INCOME CODES
3603 (3653) Pension (PAYE)
3610 (3660) Annuity from a Retirement Annuity Fund (PAYE)
3805 (3855) Accommodation (PAYE)
FRINGE BENEFIT CODES
3806 (3856) Services (PAYE)
3808 (3858) Employee’s debt (PAYE)
3809 (3859) Taxable bursaries or scholarships (PAYE)
For more information and the explanation of each of these source codes, refer to the Business Requirements Specification:
Medical Scheme Fees Tax Credit available on www.sars.gov.za > Tax Types > Pay-As-You-Earn (PAYE) > What’s New
HOW WILL THIS AFFECT EMPLOYEES (INDIVIDUAL TAXPAYERS)?
Employees may observe an adjusted net take home salary. This adjustment will be due to the medical tax credit which may impact the amount of tax withheld by the employer. Employees may therefore be required to pay more or less employees’ tax on a monthly basis with the implementation of the medical tax credit.
The above changes will become effective from the 2013 year of assessment (1 March 2012 to 28 February 2013) and will effect 2013 Employees Tax Certificates [IRP5/IT3(a)] to be submitted by Employers and 2013 Income Tax Returns (ITR12) to be submitted by taxpayers during the 2013 Personal Income Tax (PIT) Filing Season commencing on 1 July 2013.
For more information on the conversion of medical scheme contribution deductions to medical tax credits, visit the SARS website www.sars.gov.za, call the SARS Contact Centre on 0800 00 SARS (7277), or visit your local SARS branch.
ISSUED ON BEHALF OF THE COMMISSIONER FOR THE SOUTH AFRICAN REVENUE SERVICE
DATE: January 2012