What businesses should know about payrolls in South Africa to avoid penalties

The Payroll process in South Africa

Payroll refers to the process of calculating and distributing employees remuneration, as well as the administration of related tax obligations and benefits, for a given period (usually a month or week).

It involves gathering information about an organisation's employees such as payroll packages, their hours worked, salary rates, statutory or other deductions, and contributions to pension or retirement funds and medical aid funds. The resulting calculations determine how much each employee’s net pay is and what taxes need to be paid on their behalf.

It is essential for companies to understand the legal and regulatory requirements of payroll management in the country, as non-compliance can lead to severe consequences such as fines and penalties and this can be accumulated further by interest being charged on a daily basis.

Here are a few crucial points that every business must keep in mind:

Payroll registrations to register for and how to be tax compliant

• Employers in South Africa must register for UIF (Unemployment Insurance Fund) contributions, SDL (Skills Development Levy), PAYE (Pay-As-You-Earn) taxes and income tax with The South African Revenue Services.
• Companies must register as employers with the Unemployment Insurance Fund which must be done directly with the Department of Labour.
• The Compensation for Occupational Injuries and Diseases Act places extensive obligations upon all employers in South Africa and, as a result, the employer must register with the Commissioner. The company must submit annual wage returns, pay assessments and report all accidents and occupational diseases to the Commissioner. The employer is required to pay employees who are temporarily disabled their compensation for the first three months of absence from work. Failure to perform any of these functions is a criminal offence and extensive penalties can be imposed in cases of non-compliance.

How frequently do the submissions occur:

• Employers have certain statutory deductions they must make on employee salaries. These include Pay As You Earn taxes, Unemployment Insurance Fund contributions and Skills Development Levies. These deductions are disclosed on the EMP201 and submitted via e-filing. Payments and submissions to SARS for the EMP201’s must be paid before the 7th of each following month. This deadline will fall on the Friday should the 7th fall over a weekend. Failure to do so results in a 10% penalty being applied to the liability due.
• Additionally, to avoid payment allocation issues, you are required to ensure that the payment reference number, as shown on the EMP201, is used when making the payment.
• Another procedure could be to opt for a third-party service provider to load a payment request on your behalf as an employer and then for you to release this preloaded payment on your banking platform.
• EMP501 declarations are due in May and in October. You can file these returns using the SARS Easyfile system. Failure to meet the submission deadline can result in a penalty being levied that is equal to the total liability for the period being submitted.
• The amount of UIF is stipulated at 1%, therefore by South African law the employer must contribute the equivalent of the 1% of taxable earnings. The contribution is however capped at R177.12 at the moment. Monthly UIF declarations must be emailed to the Department of Labour before the 7th of the following month.

There are also various other factors that need to be considered by the company to remain payroll compliant, such as:

• Keeping a track record of any leave taken such as annual leave, sick leave, and family responsibility leave
• Maintaining record of any severance packages and/or lump sums awarded.
• Maintaining records related to remuneration in the event of CCMA cases that could have arisen.
• Keeping back-ups of payrolls for when information might be needed.
• Attending to legislation changes in the payroll, unless you are making use of a payroll software that automatically updates this information or have an outsourced service provider. It however remains the employer’s responsibility to monitor whether the changes have been put into effect.

Lesego Ntlhe    

Bookkeeper, Johannesburg