Lump sum payments made to employees on termination will need to be added using the built-in Termination Lump Sums item. Click on a header below to go to that section:
- Adding a Once-Off Payslip
- Adding a Termination Lump Sums Item
- Tax Directives
- IRP5 / IT3 (a) Codes
- Leave Encashment
Adding a Once-Off Payslip
We suggest that you issue the employee with a regular payslip for their last month, then create a once-off payslip with the Termination Lump Sums item and all the items that make up part of the lump sum.
Please note: We strongly recommend that the date of the once-off payslip be the same as that of the final regular payslip – in order for the tax calculation on the final regular payslip to be correct.
More about adding a once-off payslip can be found in the following article:
Adding a Termination Lump Sums Item
Once you have created the once-off payslip, you can add the Termination Lump Sums item by:
- Clicking on Add (next to Payslip Inputs).
- Click on Termination Lump Sums under Other.
- Capture the information found on the tax directive into the corresponding fields.
Please note: All items added to the payslip containing the Termination Lump Sums item will be UIF exempt. You should, therefore, not include items on the payslip where those items are not legally UIF exempt.
Please note: The above fields can only be completed once SARS has issued a tax directive.
- Click Save.
In order to pay your employee a termination lump sum, a tax directive from SARS is needed to indicate the amount of tax that will be deducted from the employee’s payslip.
Under certain circumstances, SARS allows part of the final payment to an employee on termination to be tax-exempt, or taxed at a lower rate. SARS automatically takes this into account when issuing a Tax Directive. More information about tax directives, including the various application forms, is available on this SARS page.
The system forces you to enter a directive number to prevent errors during bi-annual filing when you might want to import your tax certificates into e@syFile. More on tax directives can be found in the below article:
IRP5 / IT3 (a) codes
All remuneration, except leave paid out, will reflect under code 3907 or 3901 on the IRP5 depending on the source code you have selected. Leave paid out will reflect on the IRP5 under code 3605.
Depending on the source code selected in the Directive Income Source Code dropdown, the PAYE will be reported under the following source codes:
- Code 3901 will result in PAYE being reported under 4115
- Code 3907 will result in PAYE being reported under 4102
Annual Leave Encashment
You will be able to pay out unutilised annual leave the employee may still have. This can be done by using our built-in Leave Paid Out item on the employee’s last regular payslip. Paying out leave is considered as remuneration in connection with the services rendered by employment, rather than termination i.e. accrued because of work completed, as opposed to termination of employment.
Please note: This built-in item should be added to a regular payslip to ensure that the correct tax calculation is applied. Annual leave encashment is subject to both PAYE and UIF.
More about Leave Paid Out can be found in the below article:
Additional Leave Encashment
Any additional unutilised leave (other than annual leave) that will be paid out to the employee will be treated as a lump sum and will be classified as a Termination Lump Sum. Follow the above-mentioned steps on adding the Termination Lump Sums item.
Please note: When adding a Termination Lump Sums item for additional leave encashment, ensure that you have selected “3907 – Other lump sum” as the Directive Income Source Code.
Please note: This item should only be added once SARS has issued a tax directive for this.