Everything about payroll (2024)

How does salary work in South Africa? What should be included in a pay slip? In this article, we will explain everything you need to know about salary for your employees. 

How is payroll calculated in South Africa?

Employees are required to receive payment at a minimum on a monthly basis, and the compensation can be delivered through various methods, including: 

• Cash
• Cheques, money orders, or postal orders made out to the employee
• Electronic funds transfer (such as EFT or bank transfer). 

The specific frequency of payment, whether weekly, fortnightly, or monthly, is typically outlined in awards, enterprise agreements, or registered agreements. In cases where the payment frequency is not explicitly stated, employees are still entitled to receive payments at least on a monthly basis.

You must pay employees money for their work; paying them in non-monetary forms, like goods (e.g., food), is not allowed.

Payroll options for companies

Employers in South Africa have several payroll processing options. These are some of the options:

• Engage an South African payroll processing company, where the employer retains the status of the employer of record, bearing the responsibility for compliance and taxation matters.
• Large companies may choose to handle payroll in-house, necessitating the setup of a subsidiary, business registration, and the hiring of a dedicated payroll team. This approach demands a comprehensive understanding of tax regulations, withholding, and other payroll-related requirements.

Gross and net salary

We often discuss salary in terms of gross and net. Let’s say you have an annual salary of 70 000 South African Rand. This salary is gross, meaning it’s the income before taxes. Net refers to the actual amount someone receives.

Gross signifies a value before any deductions, and gross salary is the amount someone earns before taxes and other deductions are subtracted. Annual and hourly wages specified in the employment contract are gross.

Net is the value after deductions. Net salary is what the employee receives in their account after the employer has deducted tax and any other deductions.

Income tax

When you pay your employees, some contractors, or other businesses, you have to set aside a portion of the payment and send it to the government. This is known as PAYG withholding, and it’s done to make sure that workers don’t end up owing a lot of tax at the end of the financial year.

If you have to withhold out money from payments to your employees, contractors, or other businesses, you should:

• Enroll for PAYG withholding before it becomes mandatory to deduct from a payment.
• Submit the amounts deducted from wages and other payments to SARS.
• Record the deducted amounts on your monthly EMP201 returns.
• Furnish IRP5/IT3(a) certificates to all employees and other payees.s.
• File an EMP501 reconciliation twice a year (mid-year and annual reconciliation).

What should be included in a payslip?

Pay slips play a crucial role in ensuring that employees receive accurate compensation and entitlements, while also aiding employers in maintaining precise and complete records.

A payslip should include:

• Names of the employer and employee
• Employer’s South African Revenue Service (SARS) VAT registration number (if applicable)
• Pay period and date of payment
• Gross and net pay
• For hourly rates:
  • Ordinary hourly rate
  • Hours worked at that rate
  • Total pay at that rate
• Additional details like loadings, allowances, bonuses, or penalties
• Last day pay rate
• Deductions with amount and details
• Contributions to the Unemployment Insurance Fund (UIF) with amount and fund details.

Collecting Tax File Number

A Tax Reference Number (TRN) is a special number issued by the South African Revenue Service (SARS) for individuals. It’s a personal code for taxes. This number is really important and employees will use it throughout their lives.

Only certain organizations, agencies, and individuals can collect the Tax Reference Number. If you are unsure if you can collect Tax Reference Numbers, you can confirm it with SARS.

When you request a Tax File Number, you are obligated to provide the following information:

• State why you are collecting it, and specify the relevant laws that make you gather the Tax File Information.
• Clearly stating that it’s not offensive if the employee doesn’t want to provide you with their Tax File Information.
• Say something about what will happen if they do not want to provide the Tax File Numbers.

This information must be included in any form soliciting your company’s Tax Reference Number. The justification for the collection of the TRN can be general, as long as it communicates the legal permissions governing its use.

Annual leave

Annual leave, often referred to as holiday pay, enables an employee to receive compensation while taking time away from work. You must pay at least the base rate of pay while employees are on annual leave. This includes extra salary components such as allowances, penalties, and overtime. A full-time employee is entitled to accumulate 21 consecutive days (which equates to 15 working days) of paid annual leave per year of employment, while part-time employees will accrue leave on a pro rata basis. There is no limit on the amount of leave an employee can accumulate each year. Unutilized leave from one year will carry forward to the next. All employees, excluding casual employees, accrue annual leave.

Annual leave can be accessed at any time by agreement between you as an employer and the employee. If an employee chooses to take annual leave during a pay period, the payslip should indicate both the taken leave and any applicable leave balance.

Age pension

Retirement savings, commonly known as pension in South Africa, constitute the retirement savings framework. When an individual is employed in South Africa, you as an employer are often obligated to contribute a percentage of the employee’s salary to their pension or provident fund. The specific contribution rate can vary depending on the employment contract or union agreements, but it generally ranges between 5% to 15% of the worker’s salary and is in addition to their regular wages. If you’re mandated to contribute to your employees’ pension funds, you must ensure timely payments to their designated pension or provident fund by the specified deadlines, as outlined in the employee’s contract or the provisions of the relevant fund rules.

Monthly contributions should be made by the 7th of the following month or as stipulated by the fund. Always ensure you are familiar with and adhere to the specific deadlines set forth by the pension or provident fund to avoid penalties and ensure the financial well-being of your employees’ future.