An allowance is an amount an employer pays an employee toward a particular kind of cost, given as a set figure rather than as a reimbursement of actual spend. Travel, subsistence, cellphone and tool allowances are common examples.
What it means
How much of an allowance is taxed depends on the type. A travel allowance is only partly included for PAYE because part is assumed to be spent on business travel; a general taxable allowance is fully taxed. The label matters because SARS sets a specific inclusion rule and source code for each kind.
Where it fits in
Allowances are earnings components that add to gross remuneration, but each is brought into the PAYE calculation at its own inclusion rate. They are distinct from reimbursements, which repay an actual expense, and they are reported under their own IRP5 source codes.
Key rules
- A fixed amount toward an expense category, not a reimbursement of actual cost.
- Inclusion for PAYE varies by type - a travel allowance is only partly included.
- Each allowance type has its own SARS source code and treatment.
- Distinct from reimbursive payments, which repay a specific, proven expense.
