The moment you hire your first employee in South Africa, three statutory obligations arise simultaneously: PAYE (Pay-As-You-Earn), UIF (Unemployment Insurance Fund), and SDL (Skills Development Levy). Missing any of them can result in SARS penalties, backdated assessments, and interest charges. Here's exactly what each one means and how to comply from day one.
What is PAYE?
PAYE is the income tax withheld from employees' salaries on behalf of SARS. As the employer, you are responsible for calculating the correct tax on each employee's remuneration, deducting it before payment, and remitting it to SARS by the 7th of the following month (or the last business day before the 7th).
PAYE applies to all employees who earn above the tax threshold — currently R95,750 per year for taxpayers under 65 (2024/25 tax year). Employees earning below this amount are not subject to PAYE, but you must still register as an employer and report their earnings.
How PAYE is Calculated
You calculate PAYE using the SARS tax tables published annually in the Budget. The calculation takes each employee's monthly remuneration, annualises it, applies the tax brackets, subtracts applicable rebates (primary, secondary for employees over 65, tertiary for those over 75), and divides by 12.
The most reliable way to handle this is through a SARS-compatible payroll system such as SimplePay or Sage Payroll, which updates automatically when tax tables change. Manual calculations are error-prone and difficult to reconcile.
UIF — Unemployment Insurance Fund
UIF provides short-term relief to workers who lose income due to unemployment, illness, maternity, or adoption leave. Both employer and employee contribute 1% of the employee's gross remuneration each — a total of 2% per month.
Contributions are capped at a monthly remuneration ceiling updated annually by the Department of Employment and Labour. Employees earning above this ceiling still contribute, but only on the ceiling amount. As of 2024, the monthly ceiling is R17,712.
You must register your business with the Department of Employment and Labour (not SARS) for UIF purposes. However, UIF contributions are declared and paid alongside PAYE via your monthly EMP201 return on SARS eFiling — SARS collects UIF on behalf of the UIF Commissioner.
SDL — Skills Development Levy
SDL is a levy paid by employers to fund workplace training through the SETA (Sector Education and Training Authority) system. It applies at 1% of your total leviable amount (gross payroll).
Employers are only required to pay SDL if their total annual leviable amount exceeds R500,000. If your annual payroll is below this threshold, you are SDL-exempt — but you must still register as an employer and indicate your exempt status. Public benefit organisations and certain government entities are also exempt.
SDL is submitted and paid together with PAYE and UIF via the monthly EMP201 return.
The EMP201 — Your Monthly Payroll Return
The EMP201 is a payment declaration submitted to SARS by the 7th of each month. It declares your PAYE, SDL, and UIF contributions for the prior month. Late submission carries a penalty of 10% of the amount due, plus interest at the prescribed rate.
Every six months (August and February), you must also submit an EMP501 reconciliation, which reconciles your monthly EMP201 submissions against the IRP5/IT3(a) certificates issued to employees.
Registering as an Employer with SARS
To register as an employer, log into SARS eFiling and complete the EMP101e registration form. You'll need your company registration number, tax reference number, banking details, and the details of at least one director or representative. SARS typically issues an employer tax reference number within 48 hours.
Once registered, you can generate and submit EMP201 returns directly from eFiling or via compatible payroll software. Sikatrix Business Accountants manages the full employer registration and monthly payroll compliance process for all our clients — contact us to get set up correctly from the first payslip.