What is Code 3613 on a South African Payslip?
Restraint of trade payments explained — how PAYE applies since 2015, what the code means on your IRP5, and what to expect at tax return time.
3613Code 3613 is a restraint of trade payment — compensation paid to you for agreeing not to compete with your employer after leaving. Since 1 March 2015, this amount is fully taxable income subject to PAYE. It appears on your IRP5 and is included in your total taxable income for the year.
What Code 3613 Means
Code 3613 records restraint of trade payments — amounts paid by your employer in exchange for your agreement not to compete with them after your employment ends. This might mean not working for a direct competitor, not approaching the company's clients, or not operating in the same industry within a defined geographical area, for a specified period.
Restraint of trade agreements are common in industries where employees hold sensitive client relationships, trade secrets, or specialist knowledge — financial services, technology, sales, and professional services. The code 3613 payment is the compensation the employer pays in return for those restrictions on your post-employment activity.
Before 1 March 2015, restraint of trade payments were exempt from income tax under Section 10(1)(v) of the Income Tax Act. The Tax Laws Amendment Act 24 of 2014 removed that exemption entirely. Any restraint of trade amount received on or after 1 March 2015 is now fully taxable income, subject to PAYE deduction at source, and reported under code 3613 on your IRP5.
How It Affects Your Take-Home Pay
Because code 3613 is fully taxable, your employer deducts PAYE before paying you the net amount. The PAYE is calculated using the aggregation method: your restraint payment is added to your other remuneration for the period, and PAYE is calculated on the combined total using SARS's progressive tax brackets.
Restraint payments are often significant lump sums — sometimes equivalent to several months' salary. This can push your total income for the tax year into a higher bracket, meaning the effective tax rate on the restraint amount can be 36% to 41% for higher earners. Use our PAYE Calculator to estimate your take-home after tax on a given lump sum.
| Item | Amount |
|---|---|
| Monthly salary (code 3601) | R30,000 |
| Restraint of trade payment (code 3613) | R120,000 (lump sum) |
| Total income this month | R150,000 |
| Projected annual income | R480,000 (using R150k for this month + R30k × 11) |
| Marginal tax rate at this income | 36% |
| Estimated PAYE on restraint amount | ≈ R43,200 |
| Net restraint payment received | ≈ R76,800 |
If your restraint payment and your final salary month both fall in the same tax year, the combined income could push you into a higher bracket for the full year. If PAYE was under-deducted, SARS will raise an assessment when you file your ITR12. Plan ahead and set aside funds for a potential shortfall.
What a Restraint of Trade Agreement Covers
South African courts apply a reasonableness test when deciding whether to enforce a restraint of trade agreement. The restraint must be reasonable in terms of:
- Duration — typically 6 to 24 months; indefinite restraints are almost never enforceable
- Geography — must be limited to the area where the employer actually operates
- Scope — must be tied to the employee's actual role and the legitimate interests being protected
An unreasonably broad restraint — for example, banning a junior employee from working anywhere in South Africa for five years — is unlikely to survive a legal challenge. The payment of a restraint amount (code 3613) does not automatically make a restraint enforceable, and a court may set it aside even where payment was made.
The legal enforceability question is separate from the tax treatment — SARS taxes the payment regardless of whether the restraint agreement would withstand a court challenge.
Frequently Asked Questions
What does code 3613 mean on my IRP5?
Code 3613 is a restraint of trade payment — an amount paid to you for agreeing not to compete with your employer after leaving. Since 1 March 2015, this is fully taxable income. Your employer deducts PAYE before paying you, and the gross amount appears as code 3613 on your annual IRP5 certificate, forming part of your total taxable income.
Is a restraint of trade payment taxable in South Africa?
Yes — fully taxable since 1 March 2015. The Tax Laws Amendment Act 24 of 2014 removed the previous exemption under Section 10(1)(v) of the Income Tax Act. All restraint of trade amounts received after this date are subject to PAYE at the employee's marginal rate. There is no preferential rate or partial exemption.
How is PAYE calculated on a restraint of trade payment?
Your employer uses the aggregation method: the restraint amount is added to your other remuneration for the month, and PAYE is calculated on the combined projected annual total. Because restraint payments are often large lump sums, the effective tax rate can be 36% to 41% for higher earners. The net amount after PAYE is what you receive.
What is the difference between a restraint of trade payment and severance pay?
Severance pay (covered partly under code 3901 in the lump sum system) compensates you for losing your job — it is paid on retrenchment and benefits from a partial tax exemption under the retirement lump sum table. A restraint of trade payment (code 3613) is not connected to job loss; it compensates you for a specific contractual restriction on your future employment activity, and receives no special tax treatment — it is fully taxed as ordinary income.
What if I receive a code 3613 payment and do not honour the restraint?
If you breach a restraint of trade agreement, your employer may seek a court interdict to enforce it and claim damages. They may also demand repayment of the code 3613 amount. If you repay it, you would be entitled to a tax refund for the PAYE deducted on the original payment. This is a complex legal and tax situation — consult a labour attorney.
Does code 3613 affect my annual tax return filing?
Yes. The code 3613 amount appears on your IRP5 and is included in your taxable income on your ITR12. If your employer deducted too little PAYE — which can happen with large lump sums — SARS will raise an additional assessment. If too much was deducted, you will receive a refund. Review your IRP5 carefully and use the SARS eFiling calculator to check your position before filing.