The Basics of Payroll
Payroll is one of those topics that small businesses tend to overlook by assuming it is as simple as preparing payslips every month while others think that having a payroll system is only necessary when they have alot of employees. Payroll is not as simple as it may seems and can get quickly complex with a whole lot of requirements that need to be met to avoid penalties from the South African Revenue Services (SARS) and the Department of Labour.
Any business that has employees or any self-employed individual that receives any form of benefit from his/her company is required by law to submit monthly , Bi-annual and annual employer declarations , submissions and reconciliations to both SARS and the Department of Labour.
PAYE stands for Pay As You Earn. It is tax paid on employees salary/remuneration. However , not everyone is required to pay PAYE. Only employees who earn above the tax threshold are required to pay PAYE tax. For example, during the 2021 year of assessment, any person earning less than R83100 per year or R6925 per month is not required to pay tax . The tax threshold and the amount tax to be paid varies per year. SEE RECENT RATES AND THRESHOLD HERE
Worth mentioning is also the fact that depending on the composition of your salary package you might end up paying less tax or more tax. For example, items like travel allowance, medical aid contributions and retirement annuities, tend to reduce tax liability. However, things like employer used vehicles or employer provided accomodations can increase your tax liability. Therefore, it is important that this calculations are done correctly to avoid penalties and interest from SARS.
The employer has a responsibility to deduct employee tax from the employees remunration and pay it over to SARS. It must be paid within seven days after the end of the month during which the amount was deducted. If the last day for payment falls on a public holiday or weekend, the payment must be made on the last business day before the public holiday or weekend.
The Unemployment Insurance Fund (UIF) is a fund that provides relief to workers when they become unemployed or are unable to work because of maternity, adoption leave, or illness. It also provides relief to the dependants of a deceased contributor.
- Is employed by the employer for less than 24 hours a month
- Receives remuneration under a contract of employment as contemplated in section 18(2) of the Skills Development Act, 1998 (Act No.97 of 1998)
- Is employed as an officer or employee in the national or provincial sphere of Government
- Entered the Republic for the purpose of carrying out a contract of service, apprenticeship or learnership within the Republic. If upon termination, the employer is required by law or by the contract of service, apprenticeship or learnership, or by any other agreement or undertaking, to send home that person, or if that person needs to leave the Republic
- Is the President, Deputy President, a Minister, Deputy Minister, a member of the National Assembly, a permanent delegate to the National Council of Provinces, a Premier, a member of an Executive Council or a member of a provincial legislature or
- Is a member of a municipal council, a traditional leader, a member of a provincial House of Traditional Leaders and a member of the Council of Traditional Leaders.
The employee is required to contribute 1% of their salary per month subject to a max of R148.72. For example, if an employee earns R6000 per month, their contribution would be R60 (R6000* 1%) per month . However, if the employee earns say R20000 per month, the employee contribution would be R148.72 and not R200.
SDL (Skills Development Levy) is a levy imposed to encourage learning and development in South Africa and is determined by an employer’s salary bill. The funds are to be used to develop and improve skills of employees.
Not all employers are required to register for SDL. It becomes mandatery to register for SDL only Where an employer expects that the total salaries to bec paid to all its employees will be more than R500 000 over the next 12 months period. Only the employer is required to pay SDL. The amount to be paid by the employer is 1% of the total amount paid in salaries to employees (including overtime payments, leave pay, bonuses, commissions and lump sum payments).
The term remuneration is a very complex one and is the pitfall to which most employers fall prey to. Note that PAYE, UIF and SDL payments are all based remunration. Therefore, geting it wrong can result in huge tax liabilities and penalties or interest.
In terms of the Income tax act, the term remuneration is defined as –
“any amount of income which is paid or is payable to any person by way of any
salary, leave pay, wage, overtime pay, bonus, gratuity, commission…. whether in
cash or otherwise and whether or not in respect of services rendered, including—
(a) any amount referred to in paragraph (c) of the definition of “gross
income” in section 1(1)…
but not including—
(ii) any amount paid or payable in respect of services rendered or to be
rendered by any person …. in the course of any trade carried on by him
independently of the person by whom such amount is paid or payable and
of the person to whom such services have been or are to be rendered:
The proviso to subparagraph (ii) contains statutory tests which, if met, override the
factual position and deem a person not to carry on a trade independently for
employees’ tax purposes.
As discussed in 4.1.1(b) tips fall within paragraph (c) of the definition of the term
“gross income” and accordingly, initially at least, are included in “remuneration” as
defined. It is then necessary to determine whether the subparagraph (ii) exclusion of
the remuneration definition applies. Amounts are excluded from remuneration if
received from an independent trade. Technically, the common law tests should be
applied first to determine whether the amount was received in the course of carrying
on an independent trade and, if the answer is in the affirmative, then the statutory
tests in the proviso would be applied to determine whether, irrespective of having met
the common law tests, the person is deemed not to be carrying on an independent
trade. However, in practice the statutory tests are often considered first and, only if
the statutory tests are not applicable in a particular situation, are the common law
tests applied to determine whether the person is indeed carrying on an independent
trade. In this Note, the statutory tests are considered first.
The statutory tests21 provide that –
• if the services are required to be performed mainly at the premises of the
by whom the amount is paid or payable; or
to whom such services are rendered or will be rendered; and
• the person rendering the services is subject to the control or supervision of
any other person as to the –
manner in which the person’s services are or will be performed, or
the hours of that person’s work,
then the person is deemed not to carry on an independent trade and the amount so
received or receivable is not, therefore, excluded from remuneration.
The facts and circumstances of each case will need to be considered in determining
whether the statutory tests are met. For example, if a recipient only works at the
owner’s restaurant premises then the statutory test is likely to be met because the
services are mainly performed at the premises of the person to whom such services
are rendered (see 4.1.1(b) for a discussion on whom the recipient renders services
to) and it is likely that person will also control the recipient’s hours or supervise the
manner in which the services are performed. In these circumstances, one of the
statutory tests will be met and tips will constitute remuneration.
In contrast, if, for example, the recipient only delivers take-away orders for the
restaurant then based on the detailed facts it may be that the recipient’s services are
not mainly performed at the restaurant owner’s premises and, given that the services
are almost certainly not performed at the customer’s premises (who would most likely
be awarding the tip), it means that none of the statutory tests will be met.
In the event that none of the statutory tests is met, it is necessary to determine
whether or not the recipient rendered the services as part of an independent trade.
The appropriate common law tests22 must be applied in making this determination.
Tips will not constitute “remuneration” as defined if the services to which the tips
relate are rendered by the recipient as part of an independent trade (remembering
this is premised on the basis that none of the statutory tests applied). Tips will
constitute “remuneration” as defined if an independent trade is not being conducted.
Firstly Employers are required to be registred with both SARS (PAYE, UIF & SDL) and the Department of Labour (UIF). The following monthly submissions need to made:
1) Monthly declarations/submissions and payments of PAYE, UIF & SDL
2) Bi-annual employer reconciliations
3) Yearly Employer reconciliations
4) Yearly issuing of IRP5 to employees
Get The Right Support
Payroll management can be quiet complex. At Business Takers, we got the right experts to help your business by handling all your payroll processes and administration thereby ensuring that you comply with all the numerous requirements throughout the year.
We would Manage your payroll from annual leave, sick leave, Family Responsibility leave to Payslips for each Employee, Monthly Payroll Reports, Monthly Calculation and Submissions of EMP201 and UIF declarations with department of labour, Bi-annual and annual, Submissions of EMP501 Reconciliation and IRP5s . We also provide a dedicated Tax Parctitioner to advise on your payroll on a continuous basis.