If you employ staff in South Africa, you are legally required to register as an employer with SARS and deduct Pay-As-You-Earn (PAYE) from your employees' salaries. Failure to comply can result in significant penalties, interest, and personal liability for directors.
## What is PAYE?
PAYE stands for Pay-As-You-Earn. It is the system by which employers deduct income tax from employees' salaries on behalf of SARS and pay it over monthly. Rather than employees having a large tax bill at year-end, tax is collected incrementally throughout the year.
## Who Must Register for PAYE?
You must register as an employer for PAYE if you employ one or more employees AND any employee earns above the tax threshold (currently R95,750 per year for people under 65 - check SARS for current thresholds). Even if employees earn below the threshold, you may still need to register if you provide taxable benefits or allowances.
## How to Register as an Employer
1. Register on SARS eFiling (www.sars.gov.za)
2. Complete the EMP101 form (Application for Registration as an Employer)
3. SARS will issue you a PAYE reference number
## How to Calculate PAYE
PAYE is calculated on the employee's taxable income using the progressive tax table published by SARS each year. Key steps:
1. Determine gross remuneration - include salary, bonuses, commissions, taxable allowances, and benefits in kind
2. Apply deductions - subtract pension/provident fund contributions, medical scheme fees tax credits, and other approved deductions
3. Annualise the income - multiply the monthly figure by 12
4. Apply the SARS tax table - calculate annual tax applying primary, secondary, and tertiary rebates
5. Apply medical credits - subtract the monthly medical scheme fees tax credit
6. Divide by 12 - this gives you the monthly PAYE amount to deduct
## UIF and SDL
In addition to PAYE, employers must also deduct and contribute: UIF (Unemployment Insurance Fund) at 1% from the employee plus 1% employer contribution on remuneration up to R17,712/month; and SDL (Skills Development Levy) at 1% of total payroll if your annual payroll exceeds R500,000.
## Monthly Employer Returns (EMP201)
By the 7th of each month, you must submit the EMP201 return on eFiling showing PAYE, UIF, and SDL for that month, and make payment. Late submission results in a 10% penalty on unpaid amounts, plus interest.
## Bi-Annual Employer Reconciliation (EMP501)
Twice a year (August and March), submit an EMP501 reconciliation on eFiling confirming total PAYE, UIF, and SDL paid during the period, along with IRP5/IT3(a) certificates for all employees.
## Payslips
The BCEA requires you to give every employee a written payslip every payday showing: employer name and address, employee name and occupation, pay period, gross remuneration and how it is made up, all deductions, and net pay.
## Common Mistakes to Avoid
- Failing to register for PAYE when employing staff
- Not keeping up with annual tax bracket changes
- Incorrectly treating independent contractors as employees
- Missing the 7th-of-month payment deadline
- Not submitting IRP5 certificates timeously
For complex payroll arrangements, consider using SARS-approved payroll software such as Sage Payroll, PaySpace, or SimplePay.