# Regulatory Compliance Category > Labour Relations and Legislation Forum >  Sole Proprietors excluded from UIF according to which section of the UIF act?

## cppgenius

Hi there

The bright sparks at SARS have done an audit on our 2012 PAYE recon and found that we under-declared on UIF. The reason for the difference is that the palookas went and simply added the gross remuneration of each employee and calculated 2% on that total. The calculation is totally flawed because the largest salary is for the sole owner of the business, hence excluded from UIF legislation. I still have to see what is the cause of the rest of the difference.

Anyway, can someone tell me which section of the UIF act states that sole proprietors are excluded from UIF legislation, because every resource on the web simply states the fact, but do not refer to a section in the act. SARS disagrees with this rule and we need to prove them wrong.

The UIF act only states the obvious exclusions:

    workers working less than 24 hours a month for an employer;
    learners;
    public servants;
    foreigners working on contract;
    workers who get a monthly State (old age) pension; or
    workers who only earn commission.

nothing about sole proprietors, so I guess it must be some kind of interpretation note or special regulation.

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## cppgenius

Oh, the idiots forgot that some employees earn more than the monthly threshold (12,478 then) only certain months of the year, for example during December where the bonus pushes the monthly income beyond the monthly threshold. So you need the monthly breakdown of the employee's salary to make this calculation, you can't simply go and calculate 2% on the total gross, every "auditor" is supposed to know that.

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## Dave A

It's a brilliant strategy. Do a rush job, produce an audit result and who cares if it's accurate. From there the onus is on you to prove every little detail where they've gone wrong. I've been down this road many years ago - I can't believe it still happens. I remember having to go into SARS at West Street with a small filing cabinet in tow, and spent two hours with a senior from their audit division going over my summary compared to their auditors, and scratching out original documentation along the way to prove why I was right and where their two fellows had gone wrong. 

On the flip side I had a payroll taxes audit about two years ago and it went smooth as silk.

 :Hmmm:  Comparing the two, and the two very different outcomes, I believe I presented the payroll data in a far more organised manner the second time around. The first time I just gave them the payslips and let them get on with it.

EDIT: On the sole proprietor UIF issue, a sole proprietor doesn't draw a salary or wages, they take drawings.

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## cppgenius

Thanks Dave, I came to the conclusion that I have to use the "employee" definition angle and that the sole proprietor falls outside the scope of this definition. The bloody problem is, it is left to interpretation and for you and me, who have common sense, it is an easy concept to grasp, but for those idiots you can't leave anything to interpretation you have to give them everything on a silver tray, in black and white, bar coded and packed with bubble wrap.

The lady at SARS already disagreed with my interpretation of the UIF act, so I see a long road of e-mails, frustration, swearing and wasted time. Perhaps I should not be so negative, perhaps we will resolve this query without any hassles (LOL Wishful thinking!)

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## CLIVE-TRIANGLE

Yes, and they are also not employees in the sense that they have an employer.

I think the exclusion is implied; the Act requires that all Employees, including Directors of companies and members of CC's, contribute to the fund.

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## flaker

Quote: The calculation is totally flawed because the largest salary is for the sole owner of the business...........



The calculation is not flawed. what is probably flawed might just be your submission of the salary amount, which should have excluded moneys taken by the proprietor. Am i not understanding something??

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## cppgenius

@flaker

Perhaps you missed this post:



> Oh, the idiots forgot that some employees earn more than the monthly threshold (12,478 then) only certain months of the year, for example during December where the bonus pushes the monthly income beyond the monthly threshold. So you need the monthly breakdown of the employee's salary to make this calculation, you can't simply go and calculate 2% on the total gross, every "auditor" is supposed to know that.


This is just one reason why their calculation is heavily flawed. You can't just calculate 2% on the gross income of the employee. At least they applied the threshold, but there are too many variables to consider, anyway, UIF is always calculated on a monthly basis, so there is a BIG possibility that you'll get a difference if you calculate it on the annual salary. When the employee gets exactly the same every month, the calculation will work, but when it goes past the monthly threshold every now and again, you are going to get a different result if you calculate the UIF on the annual income.

In any case, the income of the owner should be reported under code 3601 on the IRP5, I don't think they have a special code for sole proprietors. Remember, the sole owner can declare a monthly salary and pay the PAYE on that salary on a monthly basis. For that you will need to issue "yourself" an IRP5 at the end of the year (how else are you going to balance your IRP5 reconciliation)?

My point is, SARS had all the information to their disposal, they knew they were dealing with a sole proprietor, so they could at least have taken into account that one of the IRP5's belonged to the owner, as a matter of fact, the business name contains the surname of the owner, so just by using a little common sense (... oops forgot, they don't have any) they could have easily seen that the IRP5 with the same surname as the business name and the largest gross salary should be the IRP5 of the owner. If they weren't sure they could at least have asked, but no, they simply ignored all the variables and assumed they are right, without ruling out all the possibilities. This is not how you conduct an audit, what happened to due diligence and care? But they accuse us of not taking reasonable care in completing the return!!! The cheek :Rant1: !  :Banghead:   :Headbutt:  :Chair:

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flaker (16-Jan-13)

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## Newretailer

I am a sole proprietor with 3 employees. Does this mean I do not register them for UIF? It seems a bit unfair towards the employees. Or could I register them all as domestic employees?

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## CLIVE-TRIANGLE

No, you do "register" them, but not yourself.

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Dave A (05-Feb-13)

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## Newretailer

That's what I thought, thanks. If you want to register on-line though, they want a business registration number, which is not applicable for sole proprietors. Or did this change?

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## cppgenius

Newretailer, the emphasis lies in what you register as. In other words, a sole proprietor needs to register as an EMPLOYER if he has employees working for him, but he does not have to register as an EMPLOYEE because the employer cannot be an employee of himself. So you are excluded from paying over uif on your own income as a sole proprietor, but you still have to pay over the contributions deducted from the salaries of your employees (including the 1% contributed by yourself as an employer of that employees)

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## Dave A

> If you want to register on-line though, they want a business registration number, which is not applicable for sole proprietors.


Just put in your ID number - it used to work for me.



> Or did this change?


That I don't know - but if you don't try you won't find out  :Wink:

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