Running a small business comes with its fair share of challenges, and attracting and retaining top talent is often at the top of that list. While salary is a key factor in recruitment, offering the right employee benefits can set your business apart—helping you build a motivated, loyal team without necessarily increasing direct payroll costs.
Beyond being a great way to support your teams’ well-being, certain benefits—like medical aid contributions, cellphone allowances, and car allowances—are also tax-efficient, meaning they can reduce your business’s taxable income while adding significant value for your team. In this article, we’ll explore four popular employee benefits, why they make financial sense, and how they can give your business a competitive edge.
1. Retirement Funds and Pension Schemes
In South Africa, while employers aren’t legally required to contribute to their employees’ retirement funds, offering such benefits can significantly enhance your company’s appeal.
Understanding Retirement Fund Options:
There are three primary types of retirement funds:
Pension and Provident Funds:
Post-2021 regulatory changes have aligned pension and provident funds closely. Key features include:
- Employer-Sponsored: These funds are established by employers, with both employer and employee typically making monthly contributions.
- Tax Benefits: Contributions are tax-deductible, reducing the employee’s taxable income. This deduction is capped at 27.5% of the taxable income, up to a maximum of R350,000 annually.
Retirement Annuity Funds (RA):
RAs share the same tax advantages as pension and provident funds but differ in structure:
- Individually Owned: RAs are personal retirement savings plans, independent of employer sponsorship.
Employer Benefits:
- Demonstrates a commitment to employee welfare, potentially boosting retention and attracting top talent.
Employee Benefits:
- Access to tax-efficient income & retirement savings.
2. Medical Aid Health Benefits and Employee Wellbeing
Businesses are progressively acknowledging the importance of employee well-being.
Employers may offer employees various well-being options, including medical aid schemes, hospital plans, comprehensive medical coverage, gap cover and wellness programs.
Offering medical aid as part of your employee benefits package is more than just a perk—it’s a tax-efficient way to support your team’s well-being while optimizing costs for your business.
Employer Benefits:
- Tax-Deductible Expense – Employer contributions towards employees’ medical aid can be deducted from taxable income, reducing the company’s overall tax liability.
- No Additional Tax Burden (if structured correctly) – If medical aid is built into a cost-to-company (CTC) structure, there are no unexpected fringe benefit tax implications for employees.
Employee Benefits:
- Medical Tax Credit (MTC): Employees receive a monthly tax credit, directly reducing their PAYE tax burden:
- R364 per month for the employee and first dependent.
- R246 per month for each additional dependent.
- Lower PAYE Tax: Since the MTC is deducted from the employee’s tax payable, they take home more net salary while still benefiting from medical cover.
By incorporating medical aid contributions into your employee benefits strategy, you’re helping your team stay healthy while making their salaries work harder for them—a true win-win for both business and employee well-being.
3. Cell Phone Allowances and Reimbursements
A cellphone allowance is a practical way to support employees who need to stay connected for work, whether they’re in sales, client service, or working remotely. When structured correctly, it also offers tax benefits for both employer and employee.
Employer Benefits:
- Tax-Deductible Expense – If the employer provides a cellphone allowance or directly pays for business-related mobile costs, these expenses can be deducted from taxable income.
- Flexible Structuring – Employers can choose between fixed allowances or direct reimbursements, depending on company policy and compliance needs.
Employee Benefits:
- Tax-Free Reimbursements – If an employee submits expense claims for work-related calls and data, these reimbursements are not taxed and do not count as part of their taxable income.
- Allowance Tax Considerations:
- If the employer pays the allowance as part of salary, it is taxable income. However, employees may claim a deduction for the business portion of their cellphone use.
- If the employer owns the contract and pays the bill directly, there is no tax impact on the employee—making it a more tax-efficient option.
- Supports Remote & Client-Facing Roles – This benefit is particularly valuable for remote workers, sales teams, and client-facing professionals, ensuring they stay connected without incurring personal costs.
4. Travel Allowances and Company Vehicles
For employees who travel frequently for work, businesses can offer car allowances or company vehicles—both of which come with tax implications that, when structured correctly, can be cost-efficient for both employer and employee.
Company-Owned Vehicles:
- Taxable Fringe Benefit – If an employee uses a company car for personal and business travel, the taxable value of the vehicle must be added to their remuneration.
- Fringe Benefit Calculation:
- The taxable benefit is based on a percentage (3.5% per month) of the vehicle’s determined value. If there is a car maintenance plan in place, it reduces to 3.25%.
- Tax Efficiency Tip: If the vehicle is used mainly for business travel, employees can reduce the taxable portion by keeping a logbook to prove business usage is at least 80%.
Travel Allowances (Using a Private Vehicle for Work):
- Fixed Monthly Allowance – A travel allowance is a regularly paid amount to compensate employees for using their personal vehicle for business travel.
- Taxable Portion:
80% of the allowance is included in taxable income (PAYE applies), unless proven business mileage justifies a lower taxable portion (e.g., 20% if more than 80% of travel is for work). - Reimbursements for Business Travel:
- Instead of a fixed allowance, employers can reimburse business mileage at SARS-approved rates (currently R4.64 per km for 2024/25, up to 12,000 km per year).
- Reimbursements are tax-free, provided no travel allowance is paid and a valid logbook is maintained.
Best Fit for Different Roles:
- Company Cars: Ideal for employees who travel extensively, such as executives, consultants, or sales reps.
- Travel Allowances: Best suited for employees who use their own cars for work-related travel but don’t require a company vehicle.
By structuring travel benefits correctly, businesses can ensure compliance, tax efficiency, and cost-effectiveness—keeping employees mobile while optimizing tax savings.
Choosing the right employee benefits isn’t just about ticking a box—it’s about maximizing tax efficiency, boosting employee well-being, and ensuring compliance. Whether it’s retirement funds, medical aid, cellphone allowances, or travel benefits, structuring them correctly can make a significant difference to both your business’s bottom line and your employees’ take-home pay.
Not sure which benefits make the most sense for your business? We’re here to help! Get in touch with us to navigate the tax landscape, optimize your benefits strategy, and ensure you’re making the smartest financial decisions for your team and company.
