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  • Salary Sacrifice Arrangements - Back to Basics

Salary Sacrifice Arrangements - Back to Basics

02 March 2016

by Keelen Snyders, Tax Trainee and Ronel de Kock, Senior Manager at BDO

The recent Anglo Platinum case has put salary sacrifice arrangements under the spotlight once more. The validity of a salary sacrifice arrangement was central to the Anglo Platinum case in the sense. The South African Revenue Service (SARS) questioned the validity of the arrangement and Anglo Platinum had to prove that the arrangement was legitimate and carried out in accordance with what was agreed when the arrangement was entered into.


A salary sacrifice is a reduction or substitution of an employee’s cash salary which provides other benefits in its place, for example contributions to benefit funds, medical aid contributions or the granting of travel allowances.

For a salary sacrifice arrangement to be valid, the arrangement must divest the employee of his or her liability to pay any part of the member’s contribution to, for example, a provident fund, and therefore shift the legal payment liability to the employer. This can be achieved by the employee sacrificing an amount of salary equal to the contribution that will no longer be paid by the employee. Unless done in that manner, the amount sacrificed would still accrue to the employee after the sacrifice and the arrangement may come under SARS’ scrutiny as being invalid.

Since changes to an employee’s contract of employment is the most important requirement for a valid salary sacrifice, it is of the utmost importance that such contract is correctly worded to accurately reflect and confirm the composition of the employees’ total remuneration package. The contract must clearly set out the key components, including gross remuneration; detail of the employer’s contributions to medical aid, pension and provident funds; detail of the employee’s leave and bonus entitlements and how they are calculated; and all fringe benefits.


To discharge the onus of proof that a valid salary sacrifice arrangement has been entered into, at least the following information or documentation should be retained. Depending on the specifics of the arrangement, other information or documentation may also be necessary:

  • minutes of directors / members meetings and meetings held with staff regarding the arrangement;
  • confirmation that the change has been discussed and agreed with the union representing the employees, if applicable;
  • remuneration policies and any amendments;
  • information regarding training sessions conducted by management to enable staff to clearly understand the salary sacrifice arrangement;
  • documents signed by the employer and employees evidencing agreement and understanding of the salary sacrifice arrangement;
  • employment contracts and amendments thereto;
  • in the case of fund contributions which are part of the arrangement:
    • the rules of and relevant agreements relating to the fund; and
    • monthly contribution schedules
  • sample payslips which include the pre- and post-implementation results


Employers and employees need to bear in mind that the taxpayer would ultimately bear the onus of proving that the purported salary sacrifice arrangement was valid.

Courts have in the past held that salary sacrifice arrangements are perfectly legal, and that employers and employees are entitled to structure salary packages to achieve tax effectiveness – all within the tax law.