Author: Ian Hurst — Managing Director, Paymaster Business Solutions

In these tough economic times, where affordable education is out of reach for a growing number of people, your company could make a meaningful contribution by offering bursaries to your employees (and their children). You can directly uplift them this way. A maximum of R20 000 per employee may be off-set as a tax-free benefit to them. In South Africa, a company may contribute R20 000 per year to their employee’s children too.

NOTE: a bursary is money paid by the company, to a recognised educational institution, on behalf of its employees and/or their children. Usually, this is intended for employees who cannot afford to pay the fees required by the academic institution.

Rules for granting a company-sponsored bursary

Bursaries article illustration

  1. In the bursary agreement, there must be a clause that states should the employee (or their child) fail to complete their studies, or fail the exams, the money will be paid back to the company, by the employee.
  2. Employees that earn less than R600 000 per year are eligible to receive a bursary.
  3. For Grades R – 12 or NQF levels 1-4, the bursary may not exceed R20 000.
  4. For NQF levels 5-10 ( this includes a university education) the bursary may not exceed R60 000.

PLEASE NOTE: In -house training (or on-the-job training) run by the company should be offered FREE of charge, and be NOT funded by the employee. Examples of these courses are;

  • computer courses
  • management and administration courses
  • bookkeeping courses
  • sales courses
  • language courses
  • courses on use of technical equipment
NOTE: where the bona-fide bursary does not qualify for tax exemption, the full bursary amount must be processed as a fully taxable benefit. For example;

Details:

  1. A low-interest or interest-free loan granted by the employer is not a bursary. Such educational financial assistance remains a low-or interest-free loan.
  2. Where the employee is not required to repay the loan, it is considered a taxable benefit. Therefore, employee tax must be deducted and the benefit processed as a PAYE annual payment.
  3. If an employer chooses to reward an employee for obtaining a qualification, it will be considered a taxable remuneration. However, if the company reimburses them for study expenses incurred, it is considered a bursary, of which R20 000 is not taxable.
  4. Only the taxable portion of a bursary paid to an employee (or their child), is subject to the deduction of employee tax.
  5. A bursary to be repaid by the employee because of non-fulfillment of stipulated conditions, is considered a bona fide bursary until the non-fulfillment conditions of the agreement are invoked.

Child educationExample

An employer grants a bursary of R24,000 to each of the employee’s two children — intended for their school education. The employee earns an annual salary of R390,000, a bonus of R18,000 and a housing subsidy of R8,000. The employer does not operate a bursary scheme that is open to the general public.

1. Although the employee’s remuneration does not exceed R600,000 per annum, the bursaries are paid in consequence of services rendered by him.

2. The bursaries of R24,000 each exceed the tax-exemption limit of R20,000 per individual. However, only the additional portion (i.e. R4,000 x2) is deemed taxable: in other words, only R8,000 (R48,000 minus R40,000) will be taxed.

However, if the employee’s remuneration exceeds R600,000 per annum, then the full amount of both bursaries (R48,000) will be taxable.

Paymaster recommendation: reconsider your company bursary policy and employee contracts.

GraduationBased on the above points, if you view your company as a progressive employer, consider offering a bursary scheme to your well-deserving staff ( and their children). This will facilitate their access to education they might otherwise never be able to afford.

And relook, and amend, the cost-to-company packages and employment contracts of employees who earn less than R600 000 per year.

Education is an investment into the future. Facilitating access to education for your employees and their children, will foster loyalty to the company, employee well-being and develop your human capital.

Email our helpdesk for more information. We will be happy to assist with any further inquiries that you might have.

References:

[1] http://www.saqa.org.za/docs/brochures/2015/updated%20nqf%20levevl%20descriptors.pdf

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