Long Service Award
A long service award (LSA) can be gifted to an employee as a gesture of appreciation in recognition of the employee’s lengthy service rendered to the company. An LSA can be granted in the form of cash. It can also be granted in non-cash forms, such as assets, free or cheap services, or the right to use an asset. It is regarded by the South African Revenue Service (SARS) as a fringe benefit.
Adding a Long Service Award Item¶
To add a Long Service Award item:
- Go to Employees, and select the relevant employee.
- Click on Add next to Payslip Inputs.
- Click the Long Service Award item under Other.
- Enter the full value of the Cash portion and the Non cash portion.
- Click Save.
Note
The full value of the LSA must be recorded on the payslip for the pay period in which the LSA accrued.
The cash portion of the LSA will increase the employee's income for that period and, therefore, increase their Nett Pay. Anything above the R5 000 cap (see Tax and Reporting below) will also increase the taxable income for the PAYE calculation.
The non-cash portion will not have a direct effect on the income for the period, but anything above the R5 000 cap will increase taxable income and PAYE.
The R5 000 cap is not per cash or non-cash portion, but a cap for the total LSA amount. For example, if you add an LSA with a R4 000 cash and a R7 000 non-cash portion, that is a total LSA of R11 000. Therefore, the first R5 000 will not be taxable, and the remaining R6 000 will be included in taxable income.
Tax and Reporting¶
SimplePay ensures that the Long Service Award item takes into account the correct tax treatment and reporting requirements as directed by SARS. More information can be found on this SARS page.
The first R5 000 of a qualifying LSA (see below) is tax free and will, therefore, not be included in the PAYE calculation. The value of the LSA that exceeds R5 000 will be treated as irregular income and will be included in the PAYE calculation. More information on irregular income can be found below:
Before 1 March 2022, LSAs were recognised only if they were granted in the form of an asset, and they were reported under codes 3801 and 3699.
From 1 March 2022, an LSA is reported under codes 3622/3672 for the cash portion of the award, and 3835/3885 for the non-cash portion of the award. The LSA is also reported under codes 3696 and 3699 where applicable. More on SARS codes below:
Qualifying Criteria¶
For an award to be considered an LSA by SARS – and potentially have a zero value as fringe benefit, the employee must have an initial unbroken period of service of at least 15 years. Thereafter, an LSA may be granted to an employee for any subsequent unbroken period of service of no less than 10 years with the same employer.
If an employee is granted an award in recognition of a shorter period of service than what is stipulated above, then that award will be fully taxable.
Adding a Long Service Award Item in Bulk¶
You will also be able to add this Long Service Award item in bulk. See the following article on Bulk Inputs: