Finance minister Trevor Manuel`s recently announced budget with new tax rules for medical schemes has offered an opportunity for the more than 400 000 small and medium enterprises (SMEs) in South Africa to help their employees benefit from some additional tax relief. The minister has left more than R13 billion in tax relief on the table.
A problem is that many of the employees are blue-collar workers who can`t afford to wait until the end of the tax year to claim, or don`t know they are entitled to claim or if they do, are unsure of how to go about it.
The previous "two-thirds" rule has been replaced with new legislation that took effect from the beginning of March. The calculation of the fringe benefit where employers pay the contributions of an employee to a medical scheme has been changed. Now a maximum value is applied that also takes into account the number of beneficiaries covered by the employee`s membership of a scheme, and the fringe benefit is determined as the portion of contributions paid by the employer that exceed monthly limits of R500 for the main member, R500 for the first dependant and R300 for every additional dependant.
It is significant, according to Stephen Corrigan, managing director of payroll software solutions provider Softline Pastel Payroll, that the new medical aid legislation now also allows employers who do not pay anything towards their employees` medical aid to claim the deductions for and on behalf of their employees, provided there is proof that employees pay for their own medical benefits.
"In these circumstances every employer has an opportunity to invest in the company`s greatest asset - its employees. Being tax wise on behalf of employees will pay dividends in staff retention and there is surely also a moral obligation to maximise the tax deduction rebate for employees, especially blue-collar workers. They need that additional income every month."
Corrigan adds that claiming the deduction is easy with an automated payroll. The software makes it possible for employers to present their employees with a major boost because they can claim rebates on behalf of employees at negligible cost and with absolutely minimal effort.
"The problem is that just some 35 000 SMEs in South Africa have automated payroll systems. Claiming manually is costly and time-consuming. So, unless more SMEs make the commitment to use electronic technology and automated payroll systems, many employees out there who are paying their own medical aid contributions could lose out one way or another."
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