COVID-19 TERS: Practical considerations for payroll

It is important to keep in mind that it is the employee, and not the employer, who becomes entitled to the payment of TERS benefits. Accordingly, in those instances where the employer receives the TERS benefits from the Unemployment Insurance Fund (UIF) in order to pay to employees, the employer is merely processing the payment on behalf of the Unemployment Insurance Fund.

TERS benefits does not constitute remuneration paid by the employer and are payable in terms of the Unemployment Insurance Act and thus exempt from income tax in terms of section 10(1)(mB) of the Income Tax Act.

What is critical is that these TERS benefits are not classified as income or remuneration within the payroll, which means that these amounts are excluded from all employment-related tax calculations.

The employer can still pay the TERS payment through the payroll for reporting, payslip and payment purposes, but critical not to report this income anywhere on the IRP5, there is no tax certificate reporting code available and you should be careful not to use any employment codes for these TERS payments.

Employers should thus not reflect TERS payments as remuneration on their pay-as-you-earn (PAYE) reporting to SARS which will include the EMP501 and IRP5. The IRP 5’s should exclude all TERS amounts. There is no obligation to withhold PAYE from TERS payments paid to employees on behalf of the Unemployment Insurance Fund and UIF contributions are only payable on remuneration received from the employer and not on the receipt of any TERS benefit…

In principle, accounting for the receipt and payment of the TERS benefit by the employer should not impact its profit or loss or payroll in any way as its merely the role of intermediary between the employee and the Department of Labour.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).