Bursaries — A way to assist your employees and their children with obtaining an education

Author: Ian Hurst — Managing Director, Paymaster People Solutions

In South Africa, where access to affordable education remains a huge challenge for many, progressive companies that facilitate access to education (for its employees and their children) certainly do make a meaningful contribution to the socio-economic development of South African society. Accordingly, did you know that an organisation can directly help its employees and their children to obtain an education. In South Africa, a company may contribute up to R 20,000 (per year) to its employees’ children’s education too. A maximum of R20,000 per individual may be off-set as a tax free benefit to the employee. More on this to follow.

It is worthwhile knowing that within the context of this discussion, a bursary is considered to be money that is paid by the company to a recognised educational institution on behalf of its employees and/or their children. In most cases, a bursary is intended for employees who cannot afford to pay the full fees required by the academic institution.

Bursaries article illustrationThe rules underlying the granting of a company-sponsored bursary

  1. In the bursary agreement, there must be a clause which states that if the employee or any of the employee’s children fail to complete their studies or fails their examinations, then the money will be paid back to the company.
  2. Employees earning less than R600,000 per year are eligible to receive such a bursary.
  3. For grades R-12 or NQF-levels[1] 1-4, the bursary may not exceed R20,000.
  4. For NQF-levels 5-10 (which includes university education: NQF 7 and upwards), the bursary may not to exceed R60 000.
  5. In-house training (and/or on-the-job training) should not be regarded as education to be funded by the employee. In other words, in-house training courses run by the company ought to be provided free of charge. Examples of such courses include:
    • Computer courses
    • Management and administration courses
    • Bookkeeping courses
    • Sales courses

Note — Where the bona fide bursary does not qualify for a tax exemption, then the full bursary amount is to be processed as a fully taxable benefit. For example:

  1. A low-interest or interest-free loan (which has been granted by the employer) is not to be regarded as a bursary. Instead, such education related financial assistance remains a low- or interest-free loan that merely attracts little to no interest.
  2. In a case where the employee is not required to repay the loan, he/she will have received a taxable benefit. Consequently, employee tax must be deducted and the benefit to be processed as a PAYE annual payment.
  3. Sometimes an employer may decide to reward an employee for obtaining a qualification on successful completion of his/her studies. Similarly the employer may decide to reimburse the employee for study expenses incurred. In the case where the reward is received, this is treated as taxable remuneration. In the case of the reimbursement of study fees, this is treated as a bursary, of which R20,000 is not taxable.
  4. Only the taxable portion of a bursary is subject to the deduction of employee tax.
  5. A bursary that must be repaid by an employee if certain non-fulfilment conditions have been stipulated, will nevertheless be treated as a bona fide bursary until such time that the non-fulfilment conditions of the agreement come into effect.

Bursaries article illustrationExtended example

  1. An employer grants a bursary of R24,000 to each of the employee’s two children — intended for their school education. The employee earns an annual salary of R390,000, a bonus of R18,000 and a housing subsidy of R8,000. The employer does not operate a bursary scheme that is open to the general public.
  2. Although the employee’s remuneration does not exceed R600,000 per annum, the bursaries are paid in consequence of services rendered by him.
  3. The bursaries of R24,000 each exceed the tax-exemption limit of R20,000 per individual. However, only the additional portion (i.e. R4,000 x2) is deemed taxable: in other words, only R8,000 (R48,000 minus R40,000) will be taxed.
  4. However, if the employee’s remuneration exceeds R600,000 per annum, then the full amount of both bursaries (R48,000) will be taxable.

Bursaries article illustrationPaymaster recommendation — relook your company bursary policy and employee contracts

It is in the best interests of the organisation to consider relooking (or newly creating) a bursary policy that incorporates elements from the aforementioned discussion. This will pave the way for many of your well-deserving employees (and their children) to gain access to education (which otherwise, they might never be able to afford). Similarly, relook (and amend) the cost-to-company packages and employment contracts of employees who earn less than R600,000 per year.

Bottom-line: Education is an investment. Facilitating access to education for your employees and their children is an ideal way in which the organisation can invest in its human capital (and by so doing, foster a greater degree of love that employees have for the company that they work for).

Email me, Ian Hurst for more information. I will be happy to entertain any further enquiries that you might have.

References

[1] http://www.saqa.org.za/docs/brochures/2015/updated%20nqf%20levevl%20descriptors.pdf

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19 Comments

  1. Rose August 18, 2017 at 6:41 am - Reply

    Hi
    If you are a business owner & have your own business , can you give bursary to your own children ?

    • Ian Hurst August 25, 2017 at 1:17 pm - Reply

      Yes you can.

  2. Precious November 6, 2017 at 10:16 am - Reply

    Hi

    if as part of your level/grade at work you are requested to do a higher degree and the employer wants to pay for it. Do I still get taxed… remember I didn’t ask for it but its part of my development…

    • Amber Stynes November 29, 2017 at 9:44 am - Reply

      Hi yes you will get taxed on all your earnings. no exemption is allowed for learning

  3. olivia November 10, 2017 at 9:46 am - Reply

    can a company charge interest on the investment if the bursary fails to complete his/her studies when they need to pay the investment back to the ocmpnay

    • Amber Stynes November 29, 2017 at 9:43 am - Reply

      Hi Olivia, that depends on the contract you signed.
      If the amount is larger than R 3500 and is converted into a loan, then interest needs to be charged to avoid you paying a fringe benefit tax.

  4. Hope January 30, 2018 at 10:49 am - Reply

    Hi Ian Hurst

    I just need a brief clarity regarding my situation where by my company is willing to fund my child for 2018 University studies.
    The company stipulate that if a child has obtained a part time or full time bursary from somewhere else, so the company will not fund your child at all if she/he has full bursary but they can only pay for the difference if it is a part bursary.

    Here’s where I need your input on ” During September last year 2017 she applied for NSFAS loan of which was approved for 2018 University studies”. Now the question is ” Does the company ( my employer ) still has to pay for my child university fees or does the company has the right not to pay any such money that will care other needs for my child?”

    • Ian Hurst January 30, 2018 at 12:11 pm - Reply

      Hi Hope

      This is a company decision to assist you or not. I think you need to talk to them because there is a difference between a loan and a bursary. I would suggest that the bursary may be a better option.

      Thanks
      Ian Hurst

  5. Tina von La Chevallerie March 6, 2018 at 6:04 am - Reply

    Hi

    In the case of a family with both parents owning less than R600 000 per year – would both parents qualify for the tax free saving on bursaries – for examply; both parents restructure their salaries in order to make use of the R20 000 tax free bursary, which is then paid over to the relevant school/education facility – and can they claim R20 000 per child in the family?

    • Ian Hurst March 7, 2018 at 1:04 pm - Reply

      as long as you claim per child you will be fine

  6. Ronel March 7, 2018 at 9:48 am - Reply

    Hi Ian,

    Hoping you can help to clarify.

    I have three children, all still in school and I earn less than R600 000.00 per year… does this mean that (should my company agree of coarse) I can qualify for 3 x R20 000.00 per year (R20 000.00 for each child)?

  7. Mark March 15, 2018 at 7:30 am - Reply

    Hi Ian.

    Really helpful stuff, thank you.

    I have a married couple on my staff, married in community of property. One earns above the R600k limit and the other below it. Would we still be able to do the tax free bursary option for their children and structure it as a bursary to the spouse that earns less than the R600k?

    Kind regards

    • Adrian, website editor (for Ian Hurst) March 15, 2018 at 10:50 am - Reply

      Dear Mark
      Thanks for your question.
      In short: Yes you would be able to do that. But, please note that you need to have a bursary policy in place.

      • Mark March 16, 2018 at 9:59 am - Reply

        Great, thanks Adrian.

  8. Ronell Lubbe April 6, 2018 at 8:15 am - Reply

    Mr A. owner, but also employee of company wants to grant a bursary to his daughter – also an employee of the company, but also a part time student at a University in SA. Mr A earns under R 600 000 and his daughter a small salary in the company. Can both, he and his daughter, qualify for the Tax free bursary option of R 60 000? Her study fees per year – R 80 000

    • Adrian Baillie-Stewart April 23, 2018 at 8:42 am - Reply

      Both the gentleman and his daughter can get the bursary.

  9. Sean April 18, 2018 at 4:45 pm - Reply

    Hi.

    Are you allowed to Adjust your Salary e.g. You usually earn R10000 and then Decrease your Salary to R8500 and make the R1500 as a Busary (Re-structure your Salary).

    Is this Practice allowed by SARS.

    Sean

    • Adrian Baillie-Stewart April 25, 2018 at 7:30 am - Reply

      Yes you are allowed.

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