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CONTENTS (1)

CONTENTS (1)

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CONTENTS (1)

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  1. CONTENTS (1) • Abbreviations • Introduction • Current remuneration system • What is an inclusive remuneration package system ? • Advantages of an inclusive flexible remuneration package system • What does this new dispensation entail? • Who is affected? • Composition of the remuneration scale

  2. CONTENTS (2) • Structure of the package • Members admitted to GEPF • Members not admitted to GEPF • Effect of difference in pensionable salary on typical GEPF benefits • Allowances/benefits to structure the flexible portion • Tax implications on allowances • Rules for structuring allowances/benefits • When can the flexible portion be re-structured (changed)?

  3. CONTENTS (3) • Part-time/contract/other members • Allowances/benefits still payable/applicable • Allowances/benefits not payable/applicable • Calculation of allowances/payments • Incentive Policy Framework • State guarantee scheme for housing/future adjustments • Translation to new dispensation • Revised remuneration scales and packages per level

  4. CONTENTS (4) • Case studies on tax implications on a car allowance • Assistance to members to structure the package • Demonstration of DPSA MMS Model A (Excel spreadsheet)

  5. MPSA DPSA GEPF EA SMTS PSA DA PA Minister for Public Service & Administration Department for Public Service & Adm Government Employees Pension Fund Executing Authority Subsidised Motor Transport Scheme Public Service Act, 1994 Defence Act, 2002 Police Act, 1995 ABBREVIATIONS (1)

  6. CSA MJCD JE HOA PSR Correctional Services Act, 1998 Minister for Justice and Constitutional Dev. Job evaluation Homeowners allowance Public Service Regulations ABBREVIATIONS (2)

  7. OUTCOMES TO BE ACHIEVED WITH PRESENTATION • To equip HR management and personnel practitioners in the NPA to advise/guide MMS members and to implement the dispensation efficiently. • To inform MMS members on the new dispensation and to sensitize them on the important choices to be exercised, and the implications thereof

  8. INTRODUCTION • MPSA implemented new dispensation for PSA and DCS members – effective from 1 July 2005 • Ministers of Safety and Security, Defence and Education made similar determinations in respect of members in their respective sectors • MJCD also made similar determination for MMS cadre (Levels D2 & D3) in NPA • DPSA assisted NPA in developing the revised dispensation

  9. CURRENT REMUNERATION SYSTEM (1) • Current system comprises of the following main elements: • Basic salary (notch) • Service bonus • Employer’s contribution to GEPF • Employer’s contribution to registered medical aid scheme • HOA

  10. CURRENT REMUNERATIONSYSTEM (2) • Other allowances such as Danger allowance, employees working in EAs offices, acting allowance, Scarce Skills and Rural allowances in the Health sector - payable depending on certain criteria • Participation in the SMTS (A- and B- scheme)

  11. WHAT IS AN INCLUSIVEREMUNERATION PACKAGE SYSTEM? • Part of ongoing transformation of conditions of service in Public Service • Single package • Consists of two broad components • Pension related (basic salary and Employer contribution to GEPF) • Non-pensionable component (Flexible portion)

  12. ADVANTAGES OF AN INCLUSIVEREMUNERATION PACKAGE SYSTEM (1) • Allows member to decide on the following component mix of the package • Choice must be exercised on the basic (pensionable) salary (within certain parameters) • Flexible portion may either be- • An all cash flexible portion; or • An all “benefit” portion; or • A combination of both • Allows member, therefore, to personalize the package

  13. ADVANTAGES OF AN INCLUSIVEREMUNERATION PACKAGE SYSTEM (2) • Facilitates transparent budgeting and planning • Allows greater flexibility in remunerating members with scarce skills • Realizing principle of “EQUAL PAY FOR WORK OF EQUAL VALUE”

  14. WHAT DOES THIS NEW DISPENSATION ENTAIL? (1) Transforming of the current remuneration system into an inclusive flexible remuneration package system by including the salary and all existing macro (financial) benefits into a package, which provides members flexibility to structure the package within certain parameters

  15. WHAT DOES THE NEW DISPENSATION ENTAIL? (2) • Conversion of salary (notch) and following main benefits/allowance into a total package: • Salary notch (Levels D2 & D3) • Employer’s contribution to GEPF – 15% (last offer in PSCBC iro PSA members) • Service bonus • Employer’s maximum contribution to medical aid (R12 168 pa – annual amount) • HOA (R8 508 pa) – last offer in PSCBC iro PSA members

  16. WHAT DOES THE NEW DISPENSATION ENTAIL? (3)

  17. WHAT DOES THE NEW DISPENSATION ENTAIL? (4) • Maximum amounts for GEPF and HOA – amounts contained in the employer’s last proposal tabled in PSCBC iro PSA members • Provides a choice to set the pensionable basic salary in package at certain levels (within certain parameters) – 2 options per level • Employer contribution to GEPF calculated at 13% of basic salary • Provides to structure package for certain allowances and/or benefits (within certain parameters)

  18. WHO IS AFFECTED? (1) • New dispensation applicable with effect from 1 July 2005 – decision by MJCD • Apply to all members on Levels D2 and D3 in service on 30 June 2005 as well as all new appointees (including promotion) to these levels on 1 July 2005 and thereafter • Details contained in Government Notice (gazetted)

  19. WHO IS AFFECTED? (2) • Members are not negatively affected on transition (translation) to the new dispensation – will be possible to structure package for same items (with at least same monetary values) that prevailed in pre-revised dispensation • All members are translated, irrespective of performance agreements and/or performance

  20. COMPOSITION OF THEREMUNERATION SCALE • Dispensation consists of different remuneration scales for • NPA Level D2 • NPA Level D3 • Each remuneration band consists of 16 remuneration packages • Existing JE weights linked to these levels remain • Only remuneration packages contained in the remuneration scale may be utilised

  21. STRUCTURE OF THE PACKAGE (1) • Package for a member admittedto the GEPF consists of: • Basic salary (pensionable) • Employer’s contribution to pension fund (pension related) • Flexible portion (non-pensionable)

  22. STRUCTURE OF THE PACKAGE (2)(Basic salary) • Two sets of basic salary apply • NPA Level D2 • SET 1 – 76.5% of total package • SET 2 - 70% of total package • NPA Level D3 • SET 1 – 77.5% of total package • SET 2 - 70% of total package • Member has once-off choice between sets of basic salary

  23. STRUCTURE OF THE PACKAGE (3) (Basic salary) • Implications of different Sets within each level • Set 1 (76.5% & 77.5% respectively) • Allows member to set the basic salary, on which the employer’s and member’s contributions to the GEPF are calculated, at least on the level than what have prevailed before translation to this package dispensation – therefore the pensionable income is not reduced on translation.

  24. STRUCTURE OF THE PACKAGE (4) (Basic salary) • This “limits” the flexible portion of the package which may be used for structuring certain remunerative allowances/benefits such as an employer’s contributions to a registered medical aid scheme, motor vehicle allowance etc. within the current provisions of the Income Tax Act, 196

  25. STRUCTURE OF THE PACKAGE (5) (Basic salary) • Set 2 (70% for both levels) • Allows member to set the basic salary, on which the employer’s and your contributions to the GEPF are calculated, at a level lower than what have prevailed before translation to this package dispensation – therefore a reduction in pensionable income on translation • Reduction in basic salary of 9.3% for level D2 • Reduction in basic salary of 10.7% for level D3 • Affects future GEPF benefits with same ratio

  26. STRUCTURE OF THE PACKAGE (6) (Basic salary) • This “increases” the flexible portion which may be used for structuring certain remunerative allowances/benefits such as an employer’s contribution to a registered medical aid scheme, motor vehicle allowance etc. within the current provisions of the Income Tax Act, 1962

  27. STRUCTURE OF THE PACKAGE (7) (Basic salary) • Members must exercise the choice either to be awarded Set 1 or 2 on translation • Members may exercise the choice only once - it may not be changed in any way or at any time - not even with promotion from Level D2 to D3 or with the awarding of a higher package - while the member is remunerated in terms of the MMS dispensation

  28. STRUCTURE OF THE PACKAGE (8) (Basic salary) • Extremely important choice as it affects members’ pensionable position in future (effect on retirement and resignation benefits). • If member fails to exercise choice within period specified – SET 1 will be awarded as default • Due to implications and to ensure a smooth transition, a transitional provision (grace period) applies for 6 months, commencing on a date determined by the NPA, to change from Set 2 to Set 1 - therefore to “undo” initial choice to set the basic salary at Set 2

  29. STRUCTURE OF THE PACKAGE (9) (Basic salary) • Exercising this choice during the grace period is subject to the following: • Only applies if member was in service on salary Level D2 or D3 on the date determined by the NPA • Reverting from Set 2 to Set 1 will be effective from 1 July 2005 – or date of appointment/promotion to one of these levels - therefore with retrospective effect

  30. STRUCTURE OF THE PACKAGE (10) (Basic salary) • Member (through the NPA) obliged to fund the GEPF the difference in the Employer’s contribution to the GEPF and member’s contribution, which accumulated since 1 July 2005 • Application to revert from Set 2 to Set 1 must be received by HR component before the expiry of the grace period – no late applications will be entertained • Grace period does not apply to members who wish to revert from Set 1 to Set 2

  31. STRUCTURE OF THE PACKAGE (11) (Basic salary) • Members should consult HR Component for guidance if they are uncertain when exercising this important initial choice on implementation and during the grace period • NPA should communicate these implications of the choice to members

  32. EXAMPLE – EFFECT OF SET 1 AND 2 ON LEVEL D2

  33. EXAMPLE – EFFECT OF SET 1 AND 2 ON LEVEL D3

  34. EFFECT OF SET 1 VS. SET 2 ON GEPF BENEFITS AND TAX (1) • This means that retirement/resignation benefits would be substantially less in respect of Set 2, compared to what it would have been in terms of Set 1 (i.e. 9.3% and 10.7% less for these levels respectively) • Euphoria to have more non-pensionable funds available for, amongst others, a (higher) car allowance must been seen in this context of lower retirement /resignation benefits

  35. EFFECT OF SET 1 VS. SET 2 ON GEPF BENEFITS AND TAX (2) • Employer and member contribution to GEPF is not taxable – reducing these contributions by opting for Set 2 would increase the member’s tax liability • This “saving” can at best be “invested” in a partially taxable benefit such as a car allowance • REMEMBER - This important choice is to be exercised by taking these implications into account - it is an once-off (and therefore final) decision

  36. STRUCTURE OF THE PACKAGE (12) • Employer’s contribution to the GEPF • Calculated as 13% on the basic salary - % changed wef 1 April 2005 • Works on a “salary sacrifice basis” • Member sacrifices this amount in package – in return employer contributes the same amount as an employer’s contribution to the GEPF • Reason – to secure the tax benefit

  37. STRUCTURE OF THE PACKAGE (13) • Flexible portion • Remaining portion of the package • Member afforded the opportunity to structure this portion • Structuring may not accede amount available in the flexible portion

  38. STRUCTURE OF THE PACKAGE (14) • Members not admittedto GEPF • Package does not consists of these components • Total package may be structured - normal structuring rules apply

  39. ALLOWANCES/BENEFITS TO STRUCTURE • Car allowance (max 25% of package) • 13th Cheque (1/12 of basic salary) (excluding members not admitted to the GEPF) • Medical assistance (employer’s contribution to medical aid scheme) • Housing allowance (amount to be decided by member) • Non-pensionable cash allowance (any remaining portion of the flexible portion)

  40. TAX IMPLICATIONS ON ALLOWANCES/BENEFITS (1) • Motor car allowance • Only 60% of allowance is initially taxed – used to be 50% in previous tax years • Tax on remainder of allowance is set off against the member’s claim against the allowance at his/her tax assessment • SARS will annually adjust fixed cost, fuel and maintenance table to allow for depreciation of the vehicle • If a log sheet is not maintained - following implications:

  41. TAX IMPLICATIONS ON ALLOWANCES/BENEFITS (2) • First 18 000 kilometres deemed as private (no claim) – used to be 16 000 km in previous tax year • 18 001 to 32 000 kilometres deemed as official (may claim) • Above 32 000 kilometres - deemed as private (no claim) • If a log sheet is maintained – actual expenses for official journeys • Value of vehicle capped at R340 000 for tax purpose

  42. TAX IMPLICATIONS ON ALLOWANCES/BENEFITS (3) • Employer’s contribution to GEPF • Non-taxable - salary sacrifice principle • 13th Cheque • Fully taxable – choice to spread tax over year or once-off in month of payment • Medical assistance • 2005/06 tax year • Employer’s contribution to maximum of 2/3rd of total membership fee is not taxable

  43. TAX IMPLICATIONS ON ALLOWANCES/BENEFITS (4) • If member does not structure for employer contribution – no tax benefits for PAYE purposes (monthly basis) • 2006/07 (current) tax year • Employer’s contribution based on membership profile (number of dependants) is not taxable

  44. TAX IMPLICATIONS ON ALLOWANCES/BENEFITS (5) • If employer contribution less than the SARS capped amount, based on the member’s membership profile - difference is deductible from the member’s income for PAYE purposes • This means that if member does not structure for medical – he/she will still receive tax benefit • Housing and cash allowance • Fully taxable

  45. RULES FOR STRUCTURING ALLOWANCES/BENEFITS (1) • Motor car allowance • If a motor vehicle allowances is structured - obliged to maintain a reliable private vehicle for official journeys - vehicle (or substitute) must be available at all times for official journeys • If a motor vehicle allowances is not structured - no obligation to utilise own (private) vehicle for official purposes • May purchase/lease new or reliable pre-owned (pre-loved) vehicle

  46. RULES FOR STRUCTURING ALLOWANCES/BENEFITS (2) • May structure for allowance, irrespective whether vehicle is leased/under hire-purchase/paid-off etc. • No time frames exist when a vehicle should be replaced • Members may continue to participate in SMTS (A- and B- schemes) if they comply with SMTS criteria • Members who participate in A-scheme - not allowed to structure a motor vehicle allowance

  47. RULES FOR STRUCTURING ALLOWANCES/BENEFITS (3) • Members who participate in B-scheme are allowed to structure a motor vehicle allowance • Must maintain comprehensive insurance on the private vehicle • Member is fully responsible for all running costs (i.e. maintenance, registration and licensing) • Head of NPA must decide whether a member must utilise own vehicle for official journeys - taking into account practical implications, cost effectiveness, road conditions etc – preferably contained in a policy

  48. RULES FOR STRUCTURING ALLOWANCES/BENEFITS (4) • Members must secure own financing of loans • Employer to reimburse toll fees • Member responsible for parking fees (if levied) at place of work - no obligation on employer to provide parking facilities at member’s usual place of work • Travel between home and usual place of work - private journey

  49. RULES FOR STRUCTURING ALLOWANCES/BENEFITS (5) • Provide free transport to passengers to same destination on official journey – taking into account practical implications • Claims for official kilometres - tariffs for privately owned vehicles (as determined by National Dept. of Transport on a monthly basis)

  50. RULES FOR STRUCTURING ALLOWANCES/BENEFITS (6) • 13th Cheque • Members not admitted to GEPF - may not structure for 13th Cheque • Annual payment in birthday month • 1/12th of basic salary • Members are not obliged to structure for a 13th Cheque