Tax and the End of Employment

Tax and the Ceassation of Employment, Tax and Retrenchment, Tax and Retirement, Tax and Medical Grounds, Tax and Salaries and more on Mywage Zambia

Tax on Cessation of Employment

An employee who stops work may be entitled to the following categories of payments:

  • Payments made on dismissal or resignation
  • Payments made to an employee at the end of a contract
  • Payments made to an employee on redundancy
  • Payments made to an employee on retirement
  • Payments made on termination of employment due to death

Dismissal or Resignation of an Employee:

Where an employee has been dismissed or resigns, he may receive the following payments:

  • Emoluments (i.e. salary, wage, overtime, leave pay, commission, bonus, fee and such like),
  • Cash in lieu of leave (leave days due but not taken),
  •  Salary in lieu of notice
  •  Severance pay

Expiry of Employment Contract

Where employment ceases on the expiry of a contract, the following payments are usually made to the employee:

  • Final Salary
  • Gratuity
  • Leave pay
  • Repatriation pay

These payments are taxed as follows:

Leave pay, repatriation pay and the salary are added and taxed under Pay As You Earn (P.A.Y.E) with respect to the tax table applicable for the month in which payment is made.

Qualifying gratuity paid is taxed as follows:

Qualifying Gratuity Bands Rates

First K12, 000,000 @ 0%

Above K12, 000,000 @ 25%

Non-qualifying gratuity is added to the salary for the month in which it is paid and taxed with reference to the appropriate P.A.Y.E tax.

Redundancy or Retrenchment

The following payments may be made to an employee who has either been declared redundant or has been retrenched:

  • Salary
  • Leave pay
  • Repatriation pay
  • Refund of pension contributions (from an approved pension scheme)
  • Salary in lieu of notice
  • Severance pay
  • Accrued service bonuses
  • Compensation for loss of office

The above payments are taxed as follows:

Salary, Leave pay and Salary in lieu of Notice are taxed under P.A.Y.E in the month in which they are paid.

Accrued service bonuses, repatriation pay, severance pay and compensation for loss of office are added together and taxed as follows:

The first K35 million is exempt from tax and the balance is taxed at 10%

The refund of employee's pension contribution is taxed as a lump sum payment at the rate of 10%

The refunded employer's pension contribution will be subjected to tax under the P.A.Y.E system.

Early or Normal Retirement

Where an employee has been retired early or normally, the following payments may be made:

  • Salary
  • Leave pay
  • Repatriation pay
  • Pension from an approved pension fund
  • Accrued service bonuses
  • Severance pay

The above payments are taxed as follows:

Salary and Leave Pay are taxed under P.A.Y.E in the month in which payment is made.

Repatriation Pay, Severance Pay, Accrued Service Bonuses, and compensation for loss of office are added together and taxed as follows:

Note: The first K35 million is exempt from tax and the balance is taxed at 10%.

Termination of Employment due to to Death

The following payments may be made upon the death of an employee:

  • Salary
  • Leave pay
  • Gratuity
  • Ex-Gratia payment
  • Accrued service bonuses
  • Pension

The above payments are taxed as follows:

The salary up to date of death and leave pay is taxed under P.A.Y.E in the month in which payments are made.

Ex-Gratia payments (a voluntary, non-contractual, non-obligatory payment made by an employer to the spouse, child or dependant of a deceased employee) are exempt from tax.

Accrued service bonus is taxed as follows: The first K35m is exempt from tax and the balance is taxed at 10%.

Lumps Sum Payments made on Medical Grounds

Where the employer, on medical advice, determines that an employee is permanently incapable of discharging his/her duties through infirmity of mind or body, one may terminate the services of an employee.

With effect from April 1, 2011, a lump sum payment made to an employee on termination of employment on medical grounds is exempt from tax.

Tax Treatment of Settling In Allowances

Settling in allowances paid to new employees constitute emoluments and should be subjected to tax under the P.A.Y.E scheme.

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