The decision of the Johannesburg Labour Court in Naidoo v The Careways Group (Pty) Ltd  ZALCJHB 96, in which judgment was handed down on 29 May 2013, affirms a clear principle – the obligation of an employer to deduct employees’ tax in respect of remuneration cannot be varied by an agreement between these two parties.
The rationale is beyond doubt – the obligation to deduct tax is laid down in the Income Tax Act (the Act) and overrides any contract to the contrary.
Thus, even where an employee is entitled to an order of specific performance, obliging the employer to pay an agreed salary or wage, there is still an obligation on the employer to deduct the requisite amount of employees’ tax. In Barnard v Shellard Media (Pty) Ltd  ZALC 57 the Labour Court regarded this obligation as being in the nature of an implied contractual term, but this is unconvincing. If the obligation were merely contractual, then the parties would be at liberty to contract out of it.
The obligation to deduct employees’ tax is a statutory obligation, and for this reason, it cannot be varied by agreement between the parties.
The court in Naidoo v The Careways Group was thus correct in holding (at para ) that the duty to deduct employees’ tax –
“arises ex lege and therefore any provisions in an agreement between the parties relating to non-deduction of tax from the applicants salary is irrelevant and of no force and effect.”
Does the amount in question constitute “remuneration”?
Of course, it may be in dispute between the employer and the taxpayer as to whether the amount in question is indeed remuneration, in other words, a quid pro quo for services. And further complexity is introduced where what the employee is claiming is not the contracted remuneration, but damages in lieu of remuneration, as for example where the employee elects to cancel the contract because of the breach of the obligation to pay the contracted amount.
The damages that are then claimable may, indeed, be of a revenue nature and thus liable to income tax, but they are not remuneration for the purposes of the Fourth Schedule to the Act, from which the employer is obliged to deduct employees’ tax – the juristic (and fiscal) nature of the amount has changed, even if the monetary quantum is the same.
In the present case, the court held that –
“The employer has a duty to make deductions from the employee’s salary in terms of the Income Tax Act. There are however limits to the amount which may be deducted from the employee’s salary. A deduction from an employee’s salary is governed by section 34(1) and (2) of the Basic Conditions of Employment Act. An employer is not permitted to deduct an amount exceeding one quarter of the total salary of the employee, in terms of section 34 (2)(d) of the BCEA.”
The proposition, articulated in this passage, that the quantum of employees’ tax that is required to be deducted by an employer from an employee’s remuneration in terms of the Act is subject to a ceiling imposed by the Basic Conditions of Employment Act is, with respect, wrong.
Statutory deductions may be made without the consent of the employee in terms of section 34(1)(b) of the Basic Conditions of Employment Act, and these deductions are not subject to the limitation set out in section 34(2)(d).