Our guide to Payroll in South Africa

Doing Business in South Africa

South Africa, known for its strategic position at the southern tip of Africa, serves as a gateway to the African continent's markets, offering businesses a unique blend of sophisticated infrastructure and a diverse economic landscape. As the most developed economy in Africa, South Africa provides a conducive environment for doing business, characterised by a robust financial and legal framework, advanced transportation networks, and a growing technology sector. The country's economy is diversified, encompassing mining, agriculture, manufacturing, and services, with an increasing focus on innovation and digital transformation.

Entering the South African market offers access to a large consumer base and serves as a springboard into other African markets, thanks to regional trade agreements and a well-established logistics network. However, businesses must navigate challenges such as regulatory complexities and understand the local socio-economic dynamics. Embracing South Africa's multicultural workforce and engaging in sustainable business practices are key to successful market entry and expansion. The government's initiatives to improve the ease of doing business and attract foreign investment, such as special economic zones and investment incentives, further bolster the attractiveness of South Africa as a business destination.

Investing in South Africa

Investing in South Africa offers a compelling proposition for investors looking for growth opportunities in a market with significant potential, strategic location, and access to the African continent. The country stands out for its well-developed financial and legal systems, competitive business environment, and rich mineral resources. South Africa's commitment to renewable energy and sustainable development opens up investment opportunities in green technologies, energy efficiency, and environmental services.

The government actively promotes foreign investment through various incentives, including tax benefits, grants, and support services for investors, particularly in priority sectors such as manufacturing, agribusiness, and information and communication technology (ICT). The burgeoning start-up ecosystem and focus on innovation provide fertile ground for venture capital and private equity investments. Additionally, South Africa's diverse and vibrant culture, coupled with its tourism appeal, offers unique opportunities in the hospitality and entertainment sectors. Investors are encouraged to consider the long-term growth prospects and the role of South Africa as a conduit for accessing broader African markets, benefiting from its strategic trade agreements and regional connectivity.

Foreign Direct Investment (FDI) in South Africa

Foreign Direct Investment (FDI) in South Africa plays a critical role in the country's economic growth, providing a pathway for international businesses to contribute to and benefit from South Africa's diverse market. The government welcomes FDI across a range of sectors, emphasising sustainable development, technological advancement, and industrial diversification.

Key sectors attracting FDI include:

Mining and Minerals Processing: Capitalise on South Africa's rich mineral reserves, including gold, diamonds, and platinum.

Renewable Energy: Invest in a rapidly growing sector with opportunities in solar, wind, and bioenergy, supported by the government's commitment to transitioning to a more sustainable energy model.

Manufacturing: Engage in South Africa's manufacturing sector, focusing on automotive, agro-processing, and electronics, with incentives for innovation and export.

Information and Communication Technology (ICT): Tap into a growing market for digital services, fintech, and telecommunications, driven by increasing internet penetration and digital literacy.

Tourism and Hospitality: Leverage South Africa's appeal as a premier global tourist destination, with investment opportunities in hotels, resorts, and eco-tourism initiatives.

For investors looking at South Africa, conducting thorough market research, understanding the regulatory environment, and establishing local partnerships are crucial for navigating the complexities of the market. The country's strategic initiatives to enhance FDI, including improving the ease of doing business and offering investment incentives, position South Africa as an attractive destination for international investors aiming to explore the African continent.

Basic Facts about South Africa

Full Name: Republic of South Africa

Population: 60.41 million (World Bank 2023)

Capital: Pretoria (Executive Capital); Cape Town (Legislative Capital)

Primary Language: 11 official languages including English, Afrikaans, Sesotho

Main Religion: Christianity, Islam, Indigenous beliefs

Monetary Unit: 1 Rand = 100 cents

Main Exports: Gold, Diamonds, Metals & Minerals, Cars, Machinery

GNI Per Capita: US $6,750 (World Bank 2023)

Internet Domain: .za

International Dialing Code: +27

How to Say:

Hello: Hallo

Good morning: Goeie Môre

Good evening: Goeienaand

Do you speak English? Praat jy Engels

Good bye: Totsiens

Thank you: Dankie

See you later: Sien jou later

Registrations and Establishing an Entity

A company is required to have a legal entity established in order to process a payroll.

All taxes deducted must be paid over to South Africa Revenue Services (SARS) and can only be done once the entity is registered with SARS. All companies must have a physical business address and local bank account.

The timescale for completion of this process and a list of the relevant registrations is outlined below:

• Registration with the Registrar’s office = one - six months
• Registration with SARS for company income tax = one - six months
• Registration with SARS for VAT = one - six months
• Registration with SARS for PAYE/SDL/UIF = two - three months
• Registration with the DOL for Workman’s Compensation = one - six months
• Registration with the DOL for unemployment benefits = one month

Once the legal entity is established, the company has to complete all payroll related statutory registrations.

It is imperative that the applications for payroll related registrations are completed in full.

From the time the documentation is submitted to receiving a registration number takes 21 days. This is the time the statutory bodies take to process the registration application. If the documents are not completed in full, the applicable authority will reject the application and it will need to be resubmitted with a further waiting time of 21 days, hence the importance of having everything correct before submission.

The client must be registered for the following:

• PAYE (employees’ taxes)
• UIF (unemployment insurance)
• SDL (skills development levy)
• OID (occupational injuries and disease insurance)

Should the company commence payment of the employee before the registrations are complete, the statutory bodies will charge penalties of 10% plus interest as per the gazetted rate by Reserve Bank p.m. for all payments that should have been made while waiting for the registration numbers. It is not possible to make payments to the statutory bodies without a registration number. Due to this situation, it is good practice to get the registration process underway at least three months before the company intends to start paying employees.

Banking

It is not mandatory to make payments from an in-country bank account. Payments can be made from overseas to the employee’s local bank account.

Working Week

The working week in South Africa is Monday to Friday. The maximum number of hours that can be worked per week is 45 and no more than nine hours per day.

Overtime can be worked in accordance with an agreement. The maximum overtime that may be worked is three hours a day or 10 hours a week; this again must be in accordance with an agreement. The maximum number of hours (normal plus overtime) that can then be worked by an employee in a day is 12 hours.

Employment Law

Holiday Accrual / Calculations

Employees are entitled to 21 consecutive days of annual leave or by agreement, one day for every 17 days worked or one hour for every 17 hours worked. The employee will be paid at the same basic salary rate during the period of leave.

Public holidays are calculated at double time when worked.

Maternity Leave

Female employees can claim four consecutive months of unpaid leave.

Based on Legislation in Section 25 of the Basic Conditions of Employment Act employees may take maternity leave one month before their due date, or earlier or later as agreed or required for health reasons. The employee may not go back to work within six weeks after the birth unless their doctor or midwife says it is safe.

Maternity leave may be paid or unpaid. If the employee has been contributing to the Unemployment Fund, she will be able to claim benefits during the period that she is on maternity leave. An employer may appoint a temporary employee to perform the duties of the employee while she is on maternity leave.

Based on Legislation in Section 26 of the Basic Conditions of Employment Act, it is not a statutory requirement to pay the employee whilst on maternity leave. Some employers, however, may decide to pay them a certain percentage of their fixed salary for the duration of the leave period. The unemployment office will take such payments into account when determining the actual benefit per month, if any.

Paternity Leave

An employer must grant, at the request of the employee, 10 days’ paid leave, which the employee is entitled to take when the employee’s child is born.

Sickness

Employees are entitled to 30 days sick leave over a three-year cycle; during the first six months of employment, the employee is entitled to one day of sick leave for every 26 days worked.

National Service

There are no mandatory national military service obligations.

Tax, Employee Provident Fund, Social Security & Human Resource Development

The tax year runs from 1^st March to 28^th February. Anyone with a SA ID can register on South African Revenue Service (SARS) and use e-filing to do these filings.

Each client may, after being registered with SARS and Unemployment Insurance Fund (UIF), transfer their responsibility to their payroll provider, who will then, on their behalf, complete and submit the monthly, bi-annual and annual returns. If the payroll provider is not a registered tax consultant agency, they may submit returns as part of their service, when compelled and authorized by the client.

All taxes deducted must be paid over to SARS and can only be done once the entity is registered. The company must have a physical business address and local bank account.

There is a 10% penalty on outstanding amounts (either income tax or social security) as well as interest at the rate to be determined at that specific period in time (currently 11.75%).

Income Tax

The employer must be registered for PAYE (Pay as You Earn)/SDL/UIF with SARS. The employee is responsible for registering him/herself for income tax with SARS. It is the employer’s responsibility to obtain the employee’s income tax reference number before any payments are allowed to be made to the employee. It is the employer’s responsibility to calculate taxes as per the statutory tax tables and to withhold such taxes from the employee’s salary and to pay it over to SARS every month.

It must be paid to SARS before/on the 7th day of the following month; if the 7th falls on a weekend then on the Friday preceding the weekend.

A provisional taxpayer is any person who earns income other than remuneration or an allowance or advance payable by the person’s principal. An individual is exempt from the payment of provisional tax if he or she does not carry on any business and his or her taxable income:

• will not exceed the tax threshold for the tax year; or
• from interest, dividends, foreign dividends and rental from the letting of fixed property will be R30 000 or less for the tax year.

The individual tax rates are as follows:

The penalty for late payments is 10% of the total amount, interest is then charged daily until payments have been made.

Calculation Example

Social Security

The employer must be registered for UIF with both SARS and the DOL. The employer must deduct 1% of the employee’s taxable earnings, currently capped at R177.12 per month, as contributions towards the Unemployment Insurance Fund. The employer must equal this 1%. The total of the 2% contributions, together with the taxes, as well as the 1% Skills Development Levy (SDL), must be paid over to SARS every month.

Social security contributions must be paid before or on the 7th day of the following month to SARS; if the 7th falls on a weekend then on the Friday preceding the weekend.

Reporting

Monthly EMP201 Tax Return

The following information is required to complete the document:

• Total amount of PAYE withheld from employees
• Total amount of SDL employer contributions
• Total amount of employee and employer contributions towards UIF

The documents are required to be submitted to SARS electronically through e-filing.

They must be submitted before the 7^th day of the following month; if the 7^th falls on a weekend, then on the Friday preceding the weekend. The documents can be submitted by anyone who is registered on e-filing to receive the monthly EMP201 returns from SARS on their e-filing profile.

It is signed electronically by the person who submitted the return through e-filing

Bi-Annual and Year-End EMP501 Tax Reconciliation

The following information is required to complete the document: -

• Total amount of PAYE, SDL & UIF withheld from employees and paid over to SARS for the first six months of the tax year (March to August) and then later again (February) for the full 12 months period

The documents are required to be submitted to SARS electronically through Easyfile before 31^st May each year.

The documents can be submitted by anyone who is registered on E-Filing and Easyfile to receive the annual EMP501 return from SARS and to submit it electronically through Easyfile to SARS. It is signed electronically by the person who submitted the return through Easyfile.

New Retirement Fund Rules (Two pot system)

Effective 1 September 2024, the two-pot system was implemented by the South African Government.

Why is the government implementing the two-pot system?

So South Africans can retire more comfortably.

Government wants South Africa to become a nation of savers, but they understand that members of funds have emergencies as well. For this reason, one can access some of your retirement savings in an emergency without leaving your current employer.

The retirement savings in Fund is divided into 3 components, a vested, savings and retirement component. Different rules apply to each component.

Retirement savings on 31 August 2024 (Vested)

Your Fund will do a once-off compulsory transfer of 10% of your retirement savings on 31 August 2024 or R30 000, whichever is the lowest to the savings component. The rest of the money will remain in your vested component.

The money invested component will still follow the same rules.

When leaving the employer one can:

• stay as a paid-up member of the Fund.
• take their money in cash.
• transfer the money to another fund.

Retirement contributions from 1 September 2024

On retirement contributions will be split into 2 components.

• One third to savings component, and two thirds to retirement component.

Savings component

• One can withdraw this money when they retire.
• One can withdraw, for emergencies, a minimum of R2 000 (before fees and taxes) once a tax year without leaving the employer.

• One can’t withdraw any money when you leave your employer.
• This money must remain invested until your retirement.
• The employee must buy a pension when you retire

Annual WCA Workman’s Compensation return

The following information is required to complete the document:

• Gross remuneration for the full tax year capped to the maximum WCA amount per employee and the number of employees per month for the current tax year as well as an estimation for all of the before-mentioned for the following tax year.

The documents are required to be submitted to the Department of Labor (DOL) in person on the 31st March each year.

The Department of Labour introduced the submission of Returns of Earnings online; registration should be completed on the Department of Labour website and submit returns at CF-Filing.

The documents can be submitted in person or electronically by either the employer or payroll partner.

A representative or the employer must sign the original bar-coded return.

UIF submission

The following information is required to complete the document:

• Start date
• End date
• Reason of exit per employee

The documents are required to be submitted to the UIF office electronically before the 7^th day of the following month. The documents can be submitted by either the employer or payroll partner by email.

Payroll

It is legally acceptable in South Africa to provide employees with online payslips. There is no applicable law.

Reports

Payroll reports must be kept for at least 5 years.

Payslip Example

In general, payslips are provided in English (example below)

New Employees

All employees need to register for income tax with SARS. The employer or payroll partner can do this on their behalf through SARS E-filing. This must be done before the first payment is made to the employee.

The following information is required to set up a new start:

• Company Number
• Employee Number
• Employee Title
• Employee Initials
• Employee Full Name
• Gender
• Marital Status
• Nationality
• RSA ID Number (Social Security)
• Date of Birth
• Passport No
• Address
• Employee Start Date
• Permanent/Temporary
• Job Title
• Annual Salary/ Hourly Rate/Daily Rate
• Bank Name and Details
• Account Name/Type
• Income Tax Reference Number
• Cost Centre Number
• Name of Cost Centre
• Annual Leave Entitlement

Expat new employees are required to provide the following documentation:

• Copies of Signed Contract
• Work Permit
• Passport
• Income Tax Reference Number

Leavers

It is common practice to pay the employee on their final day, although there is no specification set out.

It is mandatory to issue form UI19 to the employees. This is a form the employees can take to the UIF department to claim unemployment.

Employee Benefits

It is not a statutory requirement to offer any pension or retirement fund benefits to employees. There is no Government Pension Fund available for any employee. The Government Pension Fund, SASSA (South African Social Security Agency), only provides for low/no income pensioners with strict control on the eligibility of such a pensioner/disabled person however; most employers offer either a Pension Fund or a Provident Fund along with a Medical Health Benefit from an independent service provider.

Employers can split the monthly contributions into an employer/employee premium, from 50% to 2/3rd contributions on behalf of the employee.

Certain employer paid benefits are considered a taxable benefit to the employee and statutory and source deductions must be calculated on the benefit cost. The taxable benefits must be reported on the Canadian tax slips (T4, T4A, RL1, RL2…) in the applicable boxes.

Expenses

Most allowances have been done away with and are all now fully taxable.

General expenses need to be reimbursed to the employee through the payroll.

Car mileage needs to be reimbursed to the employee through the payroll and must be declared on the employee’s Tax Certificate.

Additionally, the South African Revenue Services (SARS) issued a notice announcing new rates for subsistence and travel allowance rates as per below. The new rates are effective from 1 March 2025.

Subsistence Allowance:

• Overnight Trips – Meals and incidentals: Increased from R548 to R570
• Overnight Trips – Incidentals only: Increased from R169 to R176
• Day Trips – Meals and incidentals: Increased from R169 to R176
  
  

Travel Allowances

• Motor vehicle rate per kilometre – Reduced from R4.84 to R4.76
  
  

Common expenses would include, but are not limited to:

• Cell Phone
• Fuel
• Data Card
• Subsistence
• Toll Fees
• Parking
• Air Travel
• Entertainment

Visas & Work Permits

It is a requirement for anyone who wishes to work in South Africa, accept voluntary or paid employment or studies must apply for a work, work-seeker's or study permit. If you apply for a permit then it is not necessary to also apply for a visa, as the permit also functions as a visa.

Quota Work Permit

The government has made a pre-determined number of visas available to address skills shortages in certain occupations as part of its economic growth plans. For example, engineers, artisans and technical skills. The quota work permit is "open ended", meaning it is valid for as long as you stay employed in the original approved category or profession.

General Work Permit

Foreigners who have general qualifications and intend to work in South Africa are issued with a general work permit. A general work permit is valid for the duration of the contract. However, it will lapse six months after being issued (and every year thereafter) unless employees submit "satisfactory proof" to the Department of Home Affairs that they are still employed.

Exceptional Skills Work Permit

Foreigners who are highly skilled or have exceptional qualifications and intend to work in South Africa are issued with an exceptional skills work permit. An exceptional skills permit is valid for three years.

Intra-Company Transfer Work Permit

An employee who is being transferred from their company to work in South Africa shall be granted an intra-company transfer work permit. All intra-company transfer work permits are valid for two years.

The permits below are not considered as work permits. They are however permits associated with doing business or working in South Africa:

• Corporate Permit

For South African companies who need to employ foreign personnel. Validity set on application.

• Business Permit

Issued to foreigners who intend to establish or invest in a business South Africa in which they may be employed.

• Exchange Permits

These permits are issued to applicants younger than 25 years, who may only work for one year. Exchange permits are valid for length of the program, or to a maximum of one year.

The Trusted Employer Scheme

The Trusted Employer Scheme is set to be the linchpin of this transformation, designed to simplify immigration management and cater to the needs of high-skilled professionals, technical experts, corporate professionals, and investors.

Under the TES, companies and employers will bear the responsibility of demonstrating financial strength, participating in training programs for South African citizens, and maintaining the mantle of good corporate citizenship. In exchange, they will enjoy priority processing of visa applications, reducing the burden of documentation and enhancing the efficiency of the process.

Key Updates 2025

The Minister of Employment and Labour of South Africa published in the Government gazette, Notice 52232, increasing the BCEA earnings threshold from R254 371.67 to R261 748.45 per annum effective from 1 April 2025.

“Earnings” means the regular annual remuneration before deductions i.e income tax, pension, medical and similar payments but excluding similar payments(contributions) made by the employer in respect of the employee: Provided that subsistence and transport allowances received, achievement awards and payments for overtime worked shall not be regarded as remuneration for the purpose of this notice.

All employees earning in excess of threshold are excluded from sections 9 (ordinary hours of work), 10 (overtime), 11 (compressed working week), 12 (averaging of hours of work), 14 (meal intervals), 15 (daily and weekly rest period), 16 (pay for work on Sundays), 17(2) (night work) and 18(3) (public holidays not ordinarily worked) of this Act with effect from 1 April 2025.