Rewards are classified as a fringe benefit, i this means that when employees redeem points for vouchers, that amount is taxable. On a monthly basis, redemption's will be taxed on the payslip of the employee. Workpoints offers monthly redemption reports that can simply be sent to HR to run through payroll.
As a company you have two options to deal with the tax:
- Cover the tax implication on behalf of your employees.
- Inform employees that they will be required to carry the tax implication.
When opting to cover the tax on behalf of employees, we typically recommend the following approach to simplify the process.
- When setting up the budget, use an average tax rate (for example, 30%) to allow for the tax implication.
- When employees redeem, the redeemed voucher will be grossed up by 30% as an line item on the payslip.
- Employees are taxed on their individual tax rate.
- The redeemed amount is then deducted from the payslip because the benefit was already received in the form of the voucher.
Here are two examples:
i Scenario 1: Tax covered by the company
Sarah and John have both earned i 1000 points (R100) and have decided to buy Takealot vouchers with their hard earned points. Once they have redeemed the vouchers via the Workpoints reward store i, the transactions will show on a redemption report which will be sent to payroll on a monthly basis.
i Their company has generously decided to cover the tax implication on behalf of their employees. They have budgeted on an average tax rate of 30%.
Sarah’s actual tax bracket is 35%, and John’s is 25%. Their individual payslips will look as follows:
i John will ‘win’ slightly as his tax bracket is lower than the budgeted tax rate.
i Sarah will ‘lose’ slightly as her tax bracket is higher than the budgeted tax rate.
i Scenario 2: Tax covered by the employee
Jake has earned i 1000 points (R100) and has decided to buy a Takealot voucher with his hard earned points. Once he has redeemed the voucher via the Workpoints reward store i, the transaction will show on a redemption report which will be sent to payroll on a monthly basis.
i Jake's company has opted that employees will cover the tax implication of their rewards.
Jake’s tax bracket is 25%. His payslips will look at follows:
i Jake’s actual reward is therefore 100 – 25% = R75