Tax Directives & Final Settlements

Lump-sum payments — severance, retirement lump sums, and some leave payouts — are taxed under a separate SARS regime and usually require a Tax Directive. za_local supports this through the Tax Directive DocType and a structured final-settlement process.

When a Tax Directive is needed

A SARS tax directive is required for lump-sum amounts such as severance/retrenchment benefits and retirement fund lump sums, and for certain other once-off payments. The directive tells you the exact tax to withhold, and its directive number must appear on the employee's IRP5.

1. Capture the Tax Directive

Apply for the directive on SARS eFiling, then record it in za_local:

1. Go to Tax Directive → New.
2. Set the Employee, Company and directive type (Severance, Leave Payout, Retirement Lump Sum, or Combination).
3. Enter the directive number and date issued by SARS.
4. Capture the directive amounts and the tax SARS specified.

2. Process the final settlement

When an employee leaves:

1. Use Employee Separation to drive the final-settlement salary slip where available.
2. The final pay is processed on a salary slip with the components separated: Notice Pay, Leave Payout, Severance Benefit, and Tax on Lump Sum.
3. Lump-sum tax is calculated using the lump-sum benefit tax table from the statutory rate pack (with the cumulative exemption applied). The severance component is treated per its SA payroll treatment (e.g. excluded from UIF/SDL).
4. The Tax Directive number is referenced so it carries through to the IRP5.

Without a referenced Tax Directive, the EMP501 readiness checks will flag employees who received lump sums. Capture the directive before finalising year-end.

3. Leave encashment

For leave paid out outside a full termination, za_local provides a Leave Encashment SA process. Use it to process the leave payout with correct SA tax treatment, separate from the final-settlement flow.

4. Verify on the certificate

On the employee's IRP5, confirm the lump-sum income appears under the correct SARS code, the directive number is shown, and the tax matches the directive. Then include the certificate in the EMP501.

Checklist for a leaver

• Tax Directive obtained from SARS and captured.
• Final salary slip with separated notice pay / leave payout / severance / lump-sum tax.
• Lump-sum tax matches the directive.
• Employee status updated; last working day recorded.
• IRP5 generated with the directive number.

Section complete

That completes the full-suite payroll lifecycle. Continue with the SA Labour and SA COIDA modules, or the Reference & Operations section.