A contribution is an amount paid into a fund, such as a retirement or medical scheme, in respect of an employee. It can come from the employee's pay, from the employer, or be split between them.
What it means
Contributions are treated differently from ordinary deductions because of their tax effects. An employee's retirement contribution reduces the income PAYE is calculated on, up to the Section 11F cap. An employer's contribution to a retirement or medical fund is a taxable fringe benefit in the employee's hands, even though the employer pays it directly.
Where it fits in
The employee's share is a deduction from gross remuneration; the employer's share is a cost that forms part of cost to company and, where taxable, is added as a fringe benefit before PAYE is worked out. Both shares are paid across to the fund, and the relevant amounts are reported on the IRP5.
Key rules
- Can be employee-funded, employer-funded, or both.
- Employee retirement contributions reduce the PAYE base up to the Section 11F cap.
- Employer retirement and medical contributions are taxable fringe benefits to the employee.
- Both shares are paid to the fund and reflected on the IRP5 under their source codes.
