Most job seekers in Uganda dream of getting employed in organizations with benefits that are useful to them aside from the expected monthly salary. Some of the benefits that the un-employed and some employees see their colleagues enjoying include a company car, company house, access to the internet at work, access to the organization’s medical scheme, payment of fees for professional courses like ACCA, allowances, the list of benefits is endless depending on the creativity of the employers and their professional advisors.
The motivations for a payment strategy by an employer include: to attract and retain the best possible employees; to make one an employer of choice by distinguishing one’s business from the crowd; to generally enhance status, not just in the eyes of the employees but also in the eyes of customers and other parties; to drive certain behaviours; for philanthropic reasons; to align shareholder and management interests; because the nature of the business lends itself to certain benefits (e.g. discounted products); because the employer can get better group rates of life cover than those available to individuals; to boost morale; or there is a legal requirement to do so(e.g. the contribution of by employer with more than 5 permanent employees to the National Social Security Fund pension scheme).
What some employees and employers may not know, is that not all allowances and benefits to motivate employees are tax exempt. A list of benefits is added up to get the employee’s gross employment income and taxed each month under part 1 of the third schedule to the Uganda Income Tax Act, which has the individual income tax rates commonly known as Pay As You Earn. Pay As You Earn is the tax paid by the employee from income derived from employment. For the purposes of income tax, the Act defines an employee as an individual engaged in employment, an employer means a person who employs or pays an employee and employment means the position of an individual in the employment of another person or the directorship of a company, a position entitling the holder to a fixed or ascertainable pay or the holding or acting in any public office.
The entire list of benefits to be taxed from the employee’s gross income is enshrined in the definition of employment income below. The Uganda Income Tax Act defines employment income as any income received by an employee from any employment and includes any wages, salary, leave pay, payment in lieu of leave, overtime pay, fees commission, gratuity, bonus, or the amount of any travelling, entertainment, utilities, cost of living, housing, medical or other allowance.
This goes on to include: the value of any benefit granted as under the fifth schedule of the same Act; reimbursement by an employer of expenditure incurred by an employee on the employer’s behalf which does not serve the proper business purposes of the employer; any amount termed as compensation for the termination of an employment contract; any amount paid by a tax exempt employer as a premium for insurance on the life of an employee for the benefit of the employee or her dependants; any amount received as consideration for the employee’s agreement to any conditions of employment or to any changes in his or her conditions of employment; the amount by which the value of shares issued to an employee under an employee share acquisition scheme at the date of issue exceeds the consideration given by the employee for the shares including any amount given as consideration for the grant of a right or option to acquire the shares; the amount of any gain received by an employee on disposal of a right or option to acquire shares under an employee share acquisition scheme.
The duty to calculate an employee’s employment income and remit the subsequent Pay as You Earn tax to the Uganda Revenue Authority lies with the employer. And failure to do so is an offence of which there are penalties.
- 10 Guaranteed Ways to Make Your Employees Unhappy (brighthub.com)