3 Future ‘People’ Trends – Be Prepared

A5“Leadership involves finding a parade and getting in front of it” (John Naisbitt, futurist and author of ‘Megatrends’)

A recent survey identified three major trends for the next five years –

  1. Multinationals get stronger

If one were to take the top 100 economies in the world and include multinationals (MNs), then 69 of the top 100 would be multinationals. Not only are they stronger than some entire nations but also they exert disproportionate power – think of Facebook. We worry about the power of the state but social media could well be a stronger force.

The line between work and personal time will get increasingly blurred as MNs consume more of their employees’ lives – consider Google where sleepers, restaurants and recreation facilities are provided because employees spend the bulk of their days and nights at Google.

  1. Specialisation growth spawns closer networks

Technology has enabled companies to decentralise activities into areas of specialisation – an iPhone is now produced in different geographical locations depending on cost or skills. Competitive forces will make these networks get closer together and more seamless.

People will know more about co-workers thousands of kilometres away than they do about their own neighbours and local communities.

  1. Social networks and the environment will overhaul business

Like-minded people can now instantly link up on social media and they are already forming powerful lobby groups. These groups will force corporates to realign their strategies.

The impact of climate change is happening before our eyes – this will pressure businesses (and people) to conserve vital resources like water and to adopt strategies that will protect the environment. Many of the powerful social media groups are environmental lobby groups.

This will lead to growth in social capital as corporates are obliged to produce goods and services that enhance the greater good of society.

The future looks increasingly interesting!

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Payslips Are Important! A Practical Guide to Getting Them Right

A4Getting payslips correct for your staff carries legal responsibilities for both you and the staff member. Payslips are of course often used in the public domain, such as for getting bank loans, and so they are a public reflection of your business.

What to look for in a payslip

There are many items to verify and check:

  1. The employee’s name and job title (if one is specified). The employer’s name must be the same as the one the employee contracted with.
  2. The salary paid is as per the letter of employment and subsequent annual earnings announcements.
  3. Pay careful attention to deductions, particularly tax deductions. If they are incorrect, SARS will look to employees and employers to make good any shortfalls which could attract penalties.

Good employers will have satisfied themselves that fringe benefits are lawful and will withstand any scrutiny from SARS. Employees should similarly satisfy themselves to avoid paying in extra tax and penalties.

The UIF deduction is small but can help laid off workers, and should be agreed to Department of Labour tables.

Bonuses should be tied up to correspondence with the employer.

  1. Retirement funding – 27.5% of a salary package is tax deductible. If this is incorrect, it can adversely impact retirement amounts (don’t forget the power of compounding over the years). In the event of untimely death, payouts to family members could be affected.
  2. Other deductions, such as repayment of loans should be checked against the loan agreement.
  3. Garnishee orders. Remember that since September 2016, garnishee orders need to be approved by a Magistrate (no longer a Clerk of the Court) who must be satisfied that the order is fair, equitable and affordable. Ensure the order has been approved and the amount deducted on the payslip is as per the garnishee order.

Getting payslips right will save both you and your employee time and frustration – no one wants to get into after-the-fact arguments with SARS or retirement funders. The employer/employee relationship involves trust on both sides and errors on payslips could jeopardise this.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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You Don’t Need a Formal Enquiry to Dismiss an Employee

A3“Normally, the employer should conduct an investigation to determine whether there are grounds for dismissal. This does not need to be a formal enquiry. The employer should notify the employee of the allegations using a form and language that the employee can reasonably understand. The employee should be allowed the opportunity to state a case in response to the allegations. The employee should be entitled to a reasonable time to prepare the response and to the assistance of a trade union representative or fellow employee…) (Extract from the “Code of Good Practice: Dismissal”)

Generally we perceive labour law as being very bureaucratic and time consuming but there are instances where this conventional wisdom does not apply.

What does the law say about dismissal?

It says that there must be fairness in terms of both the rationale for dismissal and the procedure followed. Specifically it says that there doesn’t have to be a formal enquiry provided the employee is informed of the charge/s and is given an opportunity to state his/her views in response to the allegations.

A recent CCMA determination illustrates this. The employee was arrested by SAPS on criminal charges and detained. The employer had already decided to hold disciplinary proceedings against him on different charges. As there was uncertainty as to when the employee would be released and he held an important position (as a law lecturer), the employer decided to institute disciplinary charges. The employee, through his attorney, was asked on two occasions to provide written reasons as to why he was not guilty of the charges. There was no response from the employee or his attorney and he was dismissed.

The case was appealed and the dismissal was upheld as the employer had complied with the “Code of Good Practice: Dismissal” – the employee was given the opportunity to state his position but failed to do so. It couldn’t have helped him that he was both legally represented and legally qualified in his own right.

This doesn’t always apply

If you have company procedures that require a formal hearing or if there is a trade union involved, then you will need to hold a formal hearing. There will also be other circumstances in which a formal hearing is necessary so in any doubt take advice on your particular case! Our labour laws are complex and there are serious consequences for failure to follow them.

Clearly, there are always different circumstances in every case, but this illustrates that if you operate in a fair and impartial manner, you don’t always have to go to endless bureaucratic lengths with disciplinary cases.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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You Need Independent Directors, not Herd Mentality

A2“Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently.” (Steve Jobs when he was reinstated as CEO of Apple) 

The Companies Act tasks directors to apprise themselves of company activities and make up their own minds as to how decisions should be taken. Strong governance structures should also exist in companies. This spirit of independence and good governance should infuse leadership so that the best interests of the company are safeguarded.

Yet when we look around today, we see State Owned Companies floundering and some multinational heavyweights like KPMG, SAP, McKinsey and Bell Pottinger in serious trouble.

“Surely” you ask “why didn’t some of their directors stop these disasters?”

The herd mentality trap

It is human nature to adopt a herd mentality particularly when there is a forceful and strong CEO. That is precisely why the framers of the Companies Act required independent leadership and good governance.

Good governance and leadership consists of demonstrating accountability, honesty, transparency and respect for all staff and stakeholders. You don’t need committees and red tape if your business is a small one – your leadership should demonstrate these characteristics.

It also pays to be a good listener as this trait curtails “leadership cults”. Encourage your managers and staff to challenge you.

Short term thinking often gets a business into trouble. Listen carefully to your independent thinkers. 

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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Running on Empty: Is Our Downgrade to Full Junk Status Coming?

A1To date only our Rand denominated debt (about 10% of our total debt) has been classified as junk.

On the 25th of October, the new Minister of Finance will present the Medium Term Budget Framework (MTBF). Ratings agencies will closely watch this and if the Minister does not satisfy these agencies, the country will probably be downgraded to full junk status.

Our local currency debt was downgraded following the removal of Pravin Gordhan and his deputy from Treasury. Gordhan was respected by the rating agencies and he had convinced business leaders to help him lobby these agencies and other offshore financial institutions. This had gone a long way in keeping the country from being downgraded.

The general consensus seems to be that the new Minister of Finance, Malusi Gigaba, has yet to gain the confidence of business and consequently of ratings agencies.

The problem we face

One of then Finance Minister Gordhan’s key strengths was that he expressed total opposition to corruption and “state capture”. Business leaders have indicated that they are yet to be convinced that Minister Gigaba is as firm on corruption.

In addition, State Owned Companies (SOCs) have sunk further into debt and some like SAA need to be recapitalised (up to R10 billion will be required). Unless strong governance is introduced into these entities, they will continue to be a drag on South Africa’s finances (Government guarantees SOCs’ debt).

Tax revenue has also dropped and potentially will fall R50 billion short of the target set in the February Budget speech.

How will Minister Gigaba fill a R60 billion hole?

Realistically, there are only two options:

  1. Increased tax revenue which can come either from rising economic growth or from increasing taxes. It is well known that economic growth is too low to raise tax revenue – we are just coming out of a recession.

Increasing taxes is equally difficult. At 45% marginal tax rates, pushing the rate up will almost certainly be counter-productive. Then Finance Minister Gordhan said in February that tax morality and compliance were declining, making it more difficult to raise taxes.

Treasury has looked to introduce new taxes such as a wealth tax and taxing individuals who work in tax havens. Neither of these is expected to bring in significant revenue.

Every 1% rise in the VAT rate adds R15 billion to state revenue. Thus, it could raise significant revenue, but this will be seen as a tax on the poor and with elections just over eighteen months away, seems highly unlikely.

  1. Cut government expenditure. Salaries already account for half of expenditure but as with increasing VAT, reducing staff is politically sensitive. The easy cuts in government spend have already been made – travel, conferences etc.

One line Minister Gigaba is pursuing is selling government assets to recapitalise SAA. Another is using the Public Investment Corporation (PIC) which has assets of R1.8 trillion.

Tapping the PIC or selling assets will do the job of covering the R60 billion hole but unless there is serious intent to rein in SOCs, these remedies will have little credibility as we will face the same situation next year.

The day of reckoning

The MTBF looks at government revenue and expenditure over the next three years. This is a comprehensive document of government strategies and assumptions. It sets out in detail where revenue and expenditure will be raised and spent. In effect, the Minister will have to demonstrate to the ratings agencies that South Africa is still committed to a prudent fiscal policy. If the MTBF is not considered credible, we can almost certainly expect swift downgrades to junk status which will leave us all poorer.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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The Password Guru Got it All Wrong!

Password protected to login on the computer screenHow many times have we entered a website and been asked to enter a new password which is at least 8 characters long and contains 1 capital letter, 1 number and 1 symbol like “@”? We end up with a password that is impossible to remember. The temptation is to use an easily-hacked word and/or to record it on a piece of paper stuck to the wall above our computer.

At least we “know” (assuming no one copies it from the wall) that we have a “secure password”.

This type of password was invented by Bill Burr in 2003 and became accepted globally. Mr Burr is now a retired US government computer expert.

The problem is that he admits now this was all a mistake and says it takes less than one minute for sophisticated cyber hackers to crack a password such as “P@55w0rd”.

It can however take up to a trillion years to crack a passphrase such as “mydoghasnonosehowdoeshesmell”. If you take a passphrase you are familiar with, then it will be relatively easy to remember.

Why not see who can come up with the best passphrase for your office or family?  Choose something easy to remember – how about “getlostcybertoffeenosedbothacker”?

Seriously, consider changing your password. There will be confusion as many IT consultants will almost certainly stand by current password methodology; and some sites will continue to insist on symbols and capitals. Speak to an IT consultant you trust if you have any further queries.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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SARS’ Plans to Tax Income Earned Abroad

a3_b99fc474-e856-11e6-93cc-bb55973994dbAs the law currently stands, if a South African tax resident works abroad for 183 days or more (of which 60 days must run consecutively) in a year, that person is not taxed locally on foreign based earnings.

Treasury has however released draft legislation which if adopted will repeal this exemption.

For many South African employers and employees this could have serious consequences, particularly cash flow implications.

The proposed changes

When the ex-Minister of Finance presented his Budget in February 2017, he proposed that residents working abroad should be taxed if the country they worked in charged no income tax. It is inequitable, he argued, that these people should pay no tax at all.

However, the draft new law goes much further than the ex-Minister suggested and proposes taxing any differences between taxes charged abroad and South African tax rates.  If, for example, you work abroad for more than six months and the tax rate in the other country is 25%, you will be liable in South Africa for any difference between that 25% and the rate at which you would be taxed in terms of our law (the maximum tax rate here is 45%).

The new rules are proposed to come into effect from 1 March 2019 (i.e. the 2020 tax year for individuals).

Implications for employers and employees

When employers have staff working abroad, salary packages are designed around the tax free element or reduced tax paid offshore. Employers will thus have to reconsider these packages to ensure that employees receive the same take home income.

In cases when employees work abroad at lower tax rates, they are taxed in the country where they work. They will, based on the proposed changes, also be taxed in South Africa on any difference between the offshore country’s tax rates and local tax rates. The employees will receive a tax credit for the tax they have paid abroad. However, they will only be able to do this at the time when they submit their tax return. Receiving a refund from SARS and getting this credit approved by SARS is likely to be a time consuming process. These employees will thus be penalised on a cash flow basis, which would also increase the employers’ administration workload as they may have to consider bridging loans to employees awaiting their tax credit.

These earnings will usually be subject to Double Tax Agreements (DTAs) which vary by country (we have signed DTAs with 76 countries). Understanding and applying these various DTAs will be onerous for both employers and employees.

Employees’ potential reaction and the danger for our economy

Employees who work abroad are generally speaking highly skilled and globally marketable. They could therefore easily choose to take up tax residency in a low tax jurisdiction. This will mean renouncing South African tax residence status, which will trigger 18% capital gains tax on their assets.

The likelihood is that South Africa will lose a significant number of skilled individuals to offshore countries. We already have a skills shortage in South Africa and to lose more skills will have a further detrimental effect on the economy. Many multinational companies use South Africa as a springboard into Africa and employ staff in countries on the continent. These individuals could decide to re-locate elsewhere, such as Mauritius, which offers low tax rates and sophisticated financial services.

Businesses and employees affected by this potential change to the Income Tax Act should follow the process of the draft laws until they become legislation – probably at year end or early next year. This is because the draft laws have been opposed by sections of the business community and thus there may be changes made when the legislation is finalised. Consider also participating in the process by making your own submissions on this draft legislation – the result may be a better outcome for all involved.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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Your Will: The Master of the High Court Wants Qualified People to Assist “Lay” Executors

judge-writing-shutterstock_342224861Many people nominate either their spouse or children to be the executor/s of their deceased estate.

When the nominated person presents him or herself to the Master of the High Court (“the Master”) to get their Letter of Executorship, they could be in for a shock. They may well be told at the reception desk that only qualified lawyers, accountants or firms that specialise in winding up estates will be given a Letter of Executorship. If the executor does not fit into one of these categories, he or she will be classified as a “lay” person, which means that there are bound to be additional administrative problems in finalising estate matters.

If an executor is indeed told this, it is not accurate in that “lay” persons can be appointed as executors; in which event however, the Master of the High Court will want to see suitably qualified people or organisations appointed as their agents.

This may have implications for you when drafting your will.

Why has this happened?

Winding up an estate is a specialised business and the Master in the past found that executors without the requisite skills floundered, which resulted in delays in winding up the estate. The Master therefore had to frequently and routinely intervene to appoint an adequately skilled executor.

Appointing a qualified agent
 

If the executor does not have the requisite skills, the Master will strongly encourage the executor to appoint an agent to assist. This agent could be from a firm specialising in deceased estates, an attorney or an accountant.

The agent will effectively work for the executor, who can negotiate the agent’s contractual terms and fees. Importantly, if the agent does not fulfil the terms agreed on, the executor may replace the agent.

The agent appointed or replaced by the executor must notify the Master that he or she has the skills to assist with the winding up of the estate.

What to do when drafting your will

When drawing up your will, keep this in mind. Either appoint a professional executor upfront, or, if your nominated executor will need help when winding up your estate, why not suggest (in a separate note to your choice of executor) someone suitably qualified you trust to assist with the winding up? That way you and the executor can negotiate the terms with the agent and know that your estate will be in good hands.

It is better to be proactive when preparing your will to avoid delays and possible extra costs in winding up the estate.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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Directors’ Meeting Minutes: Why Are They so Important?

37750760 - financial director announcing data

The Companies Act (the Act) gives directors the power to run and manage the company’s business. In return it places responsibilities and personal liabilities on directors who do not fulfil their fiduciary duties.

What is required of directors’ meeting minutes?

Meetings of directors are to be kept and must contain at least:

  • All resolutions passed at meetings (these need to be sequentially numbered and dated), and
  • Any declarations of conflicts of interest.

As meetings of directors decide on the strategic direction of the company, the recording of these meetings is critical in reflecting what decisions are taken and how they are arrived at.

The Act also requires that directors understand the issues facing the company and take time to formulate their own, independent views, so they can actively contribute at directors meetings. The minutes should also reflect this.

Adequate control is to be exercised over minutes to ensure they are a fair reflection of the meeting. They should be circulated amongst the directors to prevent any omissions or misleading statements. As illustrated by recent revelations on State Owned Companies, this is a vital point to prevent malfeasance and ensure directors act only in the best interests of the company.

The golden rules of good minutes 

Like a good newspaper article, minutes should follow the 5 Ws:

  • Who? The names of the attendees and who sent apologies;
  • What? What actually happened at the meeting, how the agenda was followed, the decisions that were made and significant events that had a bearing on these decisions. As someone said – it should not be a ball by ball commentary but must contain sufficient information to capture the essence of the meeting.
  • Where? The minutes are kept by the company secretary or one of the directors and secured in a safe place.
  • When? Minutes should be done timeously after meetings and circulated amongst the board whilst the meeting is fresh in the minds of the directors.
  • Why? Directors’ minutes go to the heart of the business. They are the most important recordings of how and why decisions were taken. Take due care in recording them.

Finally, there needs to be a balance between confidentiality and transparency in terms of disclosure to staff and stakeholders. As minutes can be used by statutory bodies (such as SARS, the Competition Board etc), it is best to get a legal opinion as to what to record about contentious issues.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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