Payroll guide
PAYE, UIF and SDL explained for a first time employer
The three deductions every South African employer deals with, what your payroll must calculate, and where small businesses get caught.
Three deductions sit on almost every South African payslip. Knowing what each one is, who pays it and when it is due tells you most of what your payroll software has to get right.
PAYE, the tax the employee pays
Pay As You Earn is income tax deducted from the employee and paid over to SARS on their behalf. The amount comes from tax tables published each year, applied to the employee's taxable remuneration after allowable deductions such as retirement fund contributions and medical aid tax credits.
Your payroll must apply the current tables, handle the medical scheme fees tax credit correctly for the employee and their dependants, and cope with the fact that a bonus or a commission month should not be taxed as though every month will look like that. Getting the last part wrong is what produces an employee who receives a much smaller payslip than expected and comes to ask why.
UIF, which both sides contribute to
Unemployment Insurance Fund contributions are one percent from the employee and one percent from the employer, calculated on remuneration up to a monthly ceiling set in legislation. The ceiling is adjusted from time to time, so confirm the current figure rather than relying on a number in an old spreadsheet.
There are two obligations, not one. The contribution is paid over with your monthly declaration, and separately the Department of Employment and Labour needs employee information declared so that a worker can actually claim. Payroll software that produces the contribution but not the employee declaration has done half the job.
SDL, which only the employer pays
The Skills Development Levy is one percent of total payroll, paid entirely by the employer. It becomes payable once your annual payroll exceeds R500 000, which means a very small employer may be exempt and then become liable as they grow without anybody noticing.
Your payroll should tell you when you cross that line. If you are registered for SDL, part of the levy can be recovered through your Sector Education and Training Authority if you submit the required training reports, which is money most small employers leave on the table.
The monthly rhythm
All three are declared together on an EMP201 and paid over to SARS by the seventh of the following month. Where the seventh falls on a weekend or public holiday, the deadline moves to the last business day before it.
Late payment attracts a penalty and interest, and the penalty is charged on the amount rather than being a flat fee. This is the deadline that matters most in a small business payroll calendar, and it is worth a standing diary entry rather than trusting anyone's memory.
What else lands on the employer
Beyond the three deductions, most employers must register with the Compensation Fund under COIDA and submit an annual Return of Earnings. Payroll that produces the earnings figure for that return saves an afternoon of reconstruction every year.
If your industry falls under a bargaining council there will be further contributions and reporting on top, in formats the council specifies. Very little general payroll software handles those natively, which is worth establishing before you buy rather than after.
Common questions
01What is the difference between PAYE, UIF and SDL?
PAYE is the employee's income tax, deducted from their pay. UIF is one percent from the employee and one percent from the employer up to a ceiling. SDL is one percent of payroll paid only by the employer, once annual payroll exceeds R500 000.
02When is EMP201 due?
By the seventh of the month following the payroll month. If the seventh falls on a weekend or public holiday it moves to the last business day before. Late payment attracts a penalty and interest.
03Do I have to pay SDL as a small employer?
Only once your total annual payroll exceeds R500 000. Below that you are generally exempt, but you must monitor it because the obligation begins when you cross the threshold.
04Does payroll software submit EMP201 to SARS for me?
Most South African payroll products produce the EMP201 figures and many can generate the file for eFiling. Confirm exactly what is automated with your provider, because producing a number and submitting a return are different things.
Editorial note
This guide is general buying guidance and not accounting, legal or tax advice. Amounts and deadlines set by SARS change, so confirm the current figures for your own business before you rely on them.