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Don’t Get Caught Short When You’re Calculating Employees’ Leave Pay

The guiding principle is that when employees exercise their right to take leave, they should not earn less than when they are at work. They should also not earn more when they are not working.

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Rob Cooper, Tax expert and Director of Legislation at Sage, on correctly calculating your employee’s leave.

In 2003, the Minister of Labour issued a schedule to clarify the requirements of the Basic Conditions of Employment Act (BCEA) for the correct calculation of leave pay, notice pay and severance pay.

Some 13 years later, many employers have yet to catch up – with the result that they don’t make enough provision in their budgets for the cost of paying out an employee’s leave pay when he or she leaves the company or takes a long holiday.

In summary, the BCEA says the calculation of an employee’s leave pay must take into account irregular frequency payments such as performance bonuses, commission and overtime.

The guiding principle is that when employees exercise their right to take leave, they should not earn less than when they are at work. They should also not earn more when they are not working.

Related: 4 Reasons Why Your Best Employees Leave for New Opportunities

Specifically, section 21(1) of the Act states that:

“An employer must pay an employee leave pay at least equivalent to the remuneration that the employee would have received for working for a period equal to the period of annual leave, calculated—

(a) at the employee’s rate of remuneration immediately before the beginning of the period of annual leave; and

(b) in accordance with section 35.”

The Act contains similar provisions for notice pay and severance pay calculations.

Section 35(4) specifies that employers calculate leave, notice and severance pay as follows: “If an employee’s remuneration or wage is calculated, either wholly or in part, on a basis other than time or if an employee’s remuneration or wage fluctuates significantly from period to period, any payment to that employee in terms of this Act must be calculated by reference to the employee’s remuneration or wage during—

(a) the preceding 13 weeks; or

(b) if the employee has been in employment for a shorter period, that period.”

Though the Act specifies the averaging period as 13 weeks, employers can interpret this to be a minimum period. If a fairer overall result for the employer and the employee can be achieved by averaging the remuneration over the entire year, this is also acceptable.  Note that the only deviation from the 13 week averaging period that is acceptable is that of a year.

Also note that this calculation of leave pay applies only to annual leave specified by the BCEA.  Any leave the employer grants in excess of the Act’s minimum of 21 calendar days can be accumulated valued and paid at the discretion of the employer. A savvy employer will clarify this point in its terms of employment and HR policies.

Related: What The Law Says About Employee Leave And Absence

How to calculate leave pay while still employed

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The first scenario where an employer might need to calculate leave pay is when an employee takes annual leave. If the employee earns only fixed amounts such as a salary, there are no fluctuating payments to be averaged and included into the remuneration rate per day. The employee will simply be paid his or her usual remuneration.

If the employee earned overtime, commission or a performance bonus in the 13 weeks before taking leave, these fluctuating payments must be taken into account.

The employer would average them out over the 13 weeks prior to the leave and include this figure into the remuneration rate per day.

If the fluctuation is seasonal (for example, a bonus at the end of the financial year), it makes sense to calculate an average over the year.  

How to calculate leave pay on termination

At first impression it would seem that there should be no difference between how the leave pay is calculated when the employee is terminated and the calculation used when he or she takes annual leave while still employed.

However, the calculation of leave pay, notice pay and severance pay upon termination must include the following categories of payments:

1. Payments in kind (employer contributions and benefits that are remuneration) that the employee no longer enjoys following termination.  If the employee does not receive a payment in kind during the notice period, then the equivalent cash value must be paid as compensation. For example, if housing is normally provided, and a payment is made in lieu of notice, the housing must still be provided, or an equivalent cash payment made.

2. Any untaken annual leave days that must be paid for on termination must be paid for at a rate that includes both the normal remuneration value as well as the average of the variable remuneration value.  The normal remuneration is an additional value included because the employee did not enjoy the benefit of ‘paid’ annual leave while still employed.

3. Non-discretionary bonuses must be pro-rated and included because the employee will no longer be employed at the time when the bonus would have been paid out.

In conclusion, remember the principles: Employees should not earn less while on annual leave than when at work otherwise they would be financially prejudiced by doing so, balanced by the fact that the employer is not expected to pay ‘twice’.

Related: How To Survive When A Key Employee Leaves Your Company

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The Innovator Trust And Citi Are Searching For Black-Owned Smes Who Are Ready For Growth

The Innovator Trust, an enterprise development organisation, and the Cape Innovation and Technology Initiative (CiTi), Africa’s oldest incubator, are calling on Cape Town-based growth-stage ICT entrepreneurs to join the intensive 2-year enterprise development programme.

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The ICT sector has gone from strength to strength and is one of the fastest-growing industries on the African continent. Yet African entrepreneurs are still finding it a difficult business landscape to navigate. That is why The Innovator Trust and CiTi, through exposure, training and mentorship, now aim to equip entrepreneurs and businesses in the sector with tools that will keep them on track, assist them to achieve their goals and create tech leaders of the future.

ICT entrepreneurs in need of mentorship, skills development and business support who have been operating for more than 2 years and are fiercely committed to growing their business, can now apply to the prestigious 2-year Innovator Trust programme, co-developed and run by CiTi at the Woodstock Bandwidth Barn and remotely in Cape Town. Applications close on 22 February and the selected candidates will be announced on 4 March.

The Innovator Trust programme aims to support the: increase annual turnover, equip businesses with the necessary accreditation to remove red tape, as well as increase profitability and number of employees. Get ready to move the dial on your business.

Celebrating its 20th year of supporting entrepreneurs, CiTi currently runs a number of incubation programmes from idea to growth stage. After a very successful first cohort of the programme, completed in 2018, CiTi confirmed a second collaboration with the Innovator Trust to support further Cape Town businesses over the next two years. Applicants need to be in “ICT”, but this has included a broad range of focusses in the past, from IT recruitment, network security to cabling service provider and software solutions.

Related: Watch List: 50 Top SA Black Entrepreneurs To Watch

The programme, designed by CiTi and Innovator Trust, is not to be taken lightly. Monthly training, mentorship sessions with industry experts, and a strong focus on technical improvements means a substantial time and focus commitment by the entrepreneur. But this intensive design enables significant business progression over the two years.

 “Once the entrepreneurs who take part in our Enterprise Development programmes become more established, they turn their focus to growth. This accelerator is especially for entrepreneurs who’ve created businesses with high-growth potential and provides them with the skills to scale at speed and responsibly,” says Tashline Jooste, CEO of the Innovator Trust.

Cape Town was recently confirmed as the Tech Hub of Africa, by an Endeavor Insight Report commissioned by CiTi and partners, presenting growing opportunities for those businesses serious about growth, and with the right support.

“I believe strongly that ICT entrepreneurs are going to be critical to South Africa’s economic growth, which is why we need to focus on equipping these businesses with the skills they need to grow, create jobs and stimulate our economy,” adds Jooste.

In order to be considered for the programme, prospective applicants must meet the following criteria:

  • A company defined in South Africa as an SMME, QSE or EME;
  • Must be operational and trading for two or more years;
  • The business should be at least 51% black-owned;
  • A minimum Level 1 – 4 BBBEE status according to the DTI or ICT Codes;
  • The business must be a registered company with key focus in ICT and be based in Cape Town and surrounding areas.

In addition, applicants will need to supply copies of their company registration, company profile, and annual financial statements along with their BEE certificate and IDs with their applications.

Related: Attention Black Entrepreneurs: Start-Up Funding From Government Grants & Funds

“We had a fantastic experience on the Innovator Trust programme, perhaps most beneficial was the advice and mentorship on our financial management, up-skilling of our team, and establishing a 3-year budget and growth plan for the business. Our advice to entrepreneurs considering the course is “JUST DO IT!!!” The skills and knowledge you gain are invaluable and put us on a serious growth trajectory.” states Jennifer Classen, Founder of Ngaphaya Y2K10, and Participant in the 2015 – 2018 Innovator Trust programme.

Ready to grow your business? Learn more about the programme and submit your application HERE.

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Rocket Challenge Targets Local Coding Skills

The Rocket APT Challenge is open to undergraduate students 18 years of age or older who are currently studying engineering, science, or technology at an accredited college or university.

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Addressing the growing skills gap within software development, local information technology value added distributor, Axiz has sponsored the Rocket APT Challenge and encouraged 39 students to participate in the regional round of the Rocket.Build coding challenge. This comprises 40% of the total numbers of entries received globally. Hosted by Rocket Software and APT Solutions, this annual challenge provides a forum for participants to develop applications on Rocket’s MultiValue platform.

Colleen Becker, Axiz pre-sales engineer, says that the response to the challenge was exceptional and the company is excited to be part of this global initiative: “This is a fantastic innovation challenge that provides students with an opportunity to hone their coding skills on a leading software platform. South Africa is by far the bigger pool of entrants and we are excited to see who is selected for the global Rocket.Build 2019 Hackathon.”

Participants are required to design an app on Rocket’s MultiValue application platform in support of the challenge theme: ‘Improve your Community’. Consisting of three regions: EMEA, Asia-Pacific, and the Americas, three winners from each region will be selected and awarded a cash prize of:

  • $1,000 (USD) – third place
  • $2,500 (USD) – second place
  • $5,000 (USD) – first place

Related: Want To Take Your Coding To The Next Level? Check Out These 7 Productivity Hacks

The nine developers will also be given an all-expenses-paid trip to Massachusetts, USA in June 2019 to participate in Rocket.Build 2019, where they will compete in teams of three to decide the global winner of the Rocket APT Challenge. The winning team will share a grand prize of $24,000 (USD).

Becker says that this is the first year Axiz is participating and the company will definitely register for the 2020 challenge, recruiting of which starts in September 2019: “We are committed to grow the number of young coders on the Rocket platform. There is a global opportunity for students to graduate into a developing industry and support the growing shortage of MultiValue-certified coders. Participants also stand the chance of receiving an internship from participating partners across all industry sectors.”

The Rocket APT Challenge is open to undergraduate students 18 years of age or older who are currently studying engineering, science, or technology at an accredited college or university.

For more information, contact colleen.becker@axiz.com

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SMEs: Have You Completed Your Financial Planning For 2019?

While small to medium enterprise (SME) owners may not have a great deal of control over South Africa’s broader economic issues, they do have control over how they plan and manage their finances, says EasyBiz Technologies Managing Director, Gary Epstein.

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“The failure of many SMEs to make it past the critical 3.5-year mark is more as a result of their inability to get the fundamentals right, rather than being able to deal with issues such as political uncertainty, crime or credit-rating downgrades.

“Several SMEs do not gain an adequate understanding of their markets or the competition they are up against. In addition, failure to manage their finances properly or to access funding and adapt to changes in the marketplace can also be serious hindrances to success.”

Epstein believes without proper financial planning and management, businesses place themselves on the back foot. “Business owners can only make informed decisions when they have a clear view of what is happening with their finances.”

That’s why having the proper financial management tools in place is so important for start-ups and SMEs. “At EasyBiz Technologies, we offer accounting solutions that are aimed at helping businesses manage their finances properly and placing them on a sound financial footing,” adds Epstein.

Tangible outcomes of a good system include increased productivity, reduced monthly expenses, improved accuracy, simplified tax compliance and better financial security. An effective system can also provide critical business insights and allow business owners to make informed and proactive decisions.

Epstein says efficient accounting solutions can help speed up business processes, affording business owners more time to focus on their core processes and growing their operations. “After all, time and money are the most precious resources when it comes to running a small business.

Related: 6 Steps Of Financial Planning

“Our solutions include analysis tools, report making applications and payroll assistance. In addition, income and expense trackers provide valuable information for tax and audit preparations,” he adds.

Epstein urges SMEs to plan for 2019 if they haven’t done so already. “It’s not too late to prepare for the year ahead and, with the financial year end for many businesses looming, now is the time to get a good system in place.”

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