Payroll and tax guide for businesses in South Africa – 2024 Updates

South Africa, known as the “Rainbow Nation”, is celebrated for its vibrant culture and scenic landscapes. The country has established a rigid tax system over the years. The main economic drivers of this county are mining, tourism, and finance. The South African government introduced a robust payroll tax system to provide monetary assistance to counter inequality and unemployment.

There are several; factors that play an effective role in a country’s tax system. These factors are related to unemployment and social security. One of such factors is PAYE tax. The term “PAYE” refers to the “Pay As You Earn”. Like Value-added Tax (VAT), PAYE is an indirect tax.

Social security system in South Africa

Pay-As-You-Earn (PAYE) Tax

PAYE is a tax deducted from the employee’s salary and the tax amount goes to the South African Revenue System (SARS). Employers of a company are responsible for submitting the PAYE amount to the SARS. Employers can use any tool to calculate PAYE on their salary. The value of tax depends on the earnings and has certain tax brackets. The financial year in South Africa starts on 1st March and ends on the last date of February. So, the deadline for submission of PAYE tax is the last date of February.

Unemployment Insurance Benefits (UIF)

Apart from the PAYE tax, the Unemployment Insurance Fund (UIF) also comes under the South African payroll tax system. The South African government introduced UIF to provide financial assistance to employees entitled to take sick leave due to illness or other circumstances. Employees and employers must pay a percentage of their income to the SARS to claim UIF illness benefits. As per the latest update of SARS, this percentage is 2. 

Compensation for Occupational Injuries and Diseases Act (COIDA)

Another important benefit that comes under the payroll system is the Compensation for Occupational Injuries and Diseases Act (COIDA). These benefits are given to employees who are unable to work due to disease or injury. This compensation includes all the necessary expenses, such as the injured employee’s healthcare costs. Determining how much benefits injured employees will get depends on their employer fund and industry risk.

Skill Development Levy (SDL)

The government introduced the Skill Development Levy (SDL) to bridge the skill gaps in the workforce across various industries. Businesses with revenue of more than R500,000 need to contribute 1% of their monthly or annual payroll to the SDL fund. The government invests that amount in the education sector through various skill development schemes.

Retirement pension plan

The South African government has recently introduced a “Two pot” retirement system. In this system, an employee can access a portion of his or her retirement fund before retirement and the remaining after retirement. This pension system provides employees with sufficient financial security after taking retirement from their jobs.

Compensation and Benefits of payroll

In 2024, the national minimum wage in South Africa has increased to R27.58/hour which is 8.5% higher than the previous year. Those employed in public works programs are getting R15.16/hour. The work hours have been revised this year. Now, an employee needs to work 45-48 hours a week.
Under the Basic Conditions of Employment Act (BCEA), South African employees can apply for five types of leave.

• Annual Leave: Employees can apply for 21 days of leave each year. It means an employee is entitled to take 1.25 days of leave each month.
• Sick Leave: Employees can apply for 36 days of paid sick leave in three years. In their employment service period, they earn 1 day of paid sick leave after working 26 26 days.
• Maternity Leave: Female employees can apply for 4 months of maternity leave before or after childbirth. The government provides them with sufficient UIF to cover the medical expenses.
• Parental Leave: Employees can take 10 days of leave if they adopt a child or their child is born. This kind of leave was introduced in 2020.

Advantages of the Payroll tax

• Cost saving: Managing payroll taxes is an effective cost-saving method. If you manage your business’ payroll slips and taxes yourself rather than outsourcing them to a tax consultant, it will save your annual expenses.
• Suitable for small businesses: For businesses having a small number of employees, it is easy for them to handle payroll. They can easily solve any issues if they arise. However, for large companies involved in multiple operations, managing payroll will be hectic. So, employing tax consultants will be feasible for them.
• Improving knowledge: If you enjoy learning taxation and managing your payroll, your understanding of the financial operation of a business will be enhanced. It will further increase your knowledge of cost management and taxation.

Submission process

To access all the benefits, it is essential to submit certain documents and credentials to the SARS authority within the stipulated time. Employers must calculate the right amount of PAYE before submitting the monthly returns. Along with it, submit EMP 201 and 501 application forms. Late submission of these forms will result in a penalty.