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Overtime, commission, and bonuses: what you need to know

Article by Inge Barry (contributing freelance writer for Sage)

Setting up a payroll structure is a critical component of the payroll function to ensure that your employees are paid the correct salary in addition to overtime, commissions, and bonuses.

Payroll managers must understand the fundamental principles of additional compensation to provide informed advice when developing policies and to ensure employees are correctly compensated or rewarded.

This article will walk you through the definitions and ideas of overtime, commission, and bonuses, including:

  • Calculating overtime
  • Calculating bonuses
  • Calculating commission
  • The impact of overtime, commissions, and bonuses on tax codes

Calculating overtime

Overtime pay is money earned outside regular working hours or during hours other than the standard shift.

South Africa’s Basic Conditions of Employment Act limits overtime to 10 hours a week. Employees earning less than the threshold must be paid 1.5 times their standard wage rate for overtime worked, except on Sundays, which must be paid at twice the standard rate. Alternatively, you could offer paid time off for overtime worked.

The conditions and amount of overtime compensation must be stipulated in your employees’ contracts, together with the specifics of their salary or wage earnings.

Overtime compensation should be controlled and calculated correctly, in addition to other remuneration. It is best practice to pay overtime compensation at the same time as normal employee salaries and wages.

Earnings for overtime hours, as well as the amount of overtime hours, must clearly be indicated on the employee payslip for easy identification.

Calculating bonuses

Although not all companies offer bonuses, it is a proven motivator in the workplace.

The criteria for earning a bonus must be established ahead of time as part of the employment contract and/or based on company policy.

Because bonuses are considered as remuneration, the company must subtract employee tax from the bonus payment and pay it over to SARS.

The bonus must be declared to SARS. If an employer provides another type of benefit to the employee, instead of a cash bonus, the employer is still obligated to report the benefit on the employee tax certificate.

These could include:

  • Vouchers
    If a voucher is granted to the employee, it is fully taxable (subject to certain exceptions).
  • Other non-cash benefits
    The tax reporting regulations for benefits depend on what the benefit is.

SARS provides a helpful set of guidelines on fringe benefits and calculating their worth.

Calculating commission

A commission-based income is permissible only if the employment contract stipulates the applicable minimum wage. The terms for paying commission, such as how much and how often commission is earned, should also be included.

Employees must pay, deduct, and record commission compensation in the same way as they would salary or hourly payments.

The impact of overtime, commissions, and bonuses on tax codes

Overtime, commissions, and bonuses are all taxed. They affect how much income tax an employee must pay and are factored into remuneration.

Managing these numbers is time-consuming, even for a small team and especially if you use spreadsheets to keep track of everything. Manual payroll management may have worked in the past, but it isn’t good enough today.

The automation incorporated into cloud payroll software handles the heavy lifting for you, reducing mistakes and ensuring payroll runs on time. Cloud payroll software can help you in a variety of ways, including:

Ensuring data accuracy

Automation lets you calculate your employees’ salaries and deductions quickly. A thorough validation procedure reveals any errors or inaccurate information.

Configure your software to pay your employees the correct amount based on the minimum wage band to which they belong.

Payroll data reporting to SARS

You can submit payroll information to SARS easily during the mid-year and annual employer reconciliation period.

Generate and manage payslips

You can either print or email payslips directly from the software and re-print them for individual employees when necessary. You can also opt for online payslips.

Stay compliant

The software automatically updates legislative changes, which helps you stay compliant.

Accurately handling overtime, commissions, and bonuses is crucial, but it doesn’t have to be complicated.

A payroll software solution provides payroll administrators with 24/7 access to payroll data, allowing them to detect issues, make adjustments, and provide help as needed.

Sage is a proud Partner of the NSBC