This article will discuss the scenario where an employee was terminated in a previous tax year and receives money in the current tax year and how to deal with this on the payroll

Depending on what income type of pay-out it is, the SARS guide for employers iro employees tax stipulates that variable remuneration will be taxed when paid to the employee (thus at the current tax year)

If you are paying an employee overtime in March 2020 and they were terminated in January 2020 you will not complete the year of assessment on the Statutory Details tab of the terminated record. You will need to create a new payroll record with an IRP5 start and end date within the current tax year. Since the employee is not employed by the employer anymore, you are not able to use Statutory Tables tax status to calculate tax (no actual days worked) and
must use the Temporary tax status (taxed at 25%).

The IRP5 start and end date can be in line within the payment month, the date can be the same, since the days worked will not be affected (since no annualisation of remuneration is done).

In other words: Remuneration should be taxed when it is paid to the employee or when it is accrued (whichever happens first). This principle sometimes causes problems as a payment can be accrued in a tax year but only be quantified and paid in the next tax year.

From 1 March 2013, variable remuneration should be taxed in the month that it is paid to the employee and not when it
accrues. This was quite a significant change and relieves the administrative burden of managing these payments.

Variable remuneration is defined as: Overtime, bonuses, commission, travel allowance and leave paid out.
It is thus important to review each situation where income for a previous year is paid to an employee in the current tax year, to ensure the correct process is followed.