How PAYE Works for a Small Employer in South Africa

Hire one person and you've taken on a second job: collecting tax for SARS. PAYE, short for Pay As You Earn, is the income tax you take off your team's salaries every month and hand to SARS on their behalf. Here is how it works, without the jargon.

What you're actually collecting

PAYE is employees' tax. Each month you work out the income tax each person owes on their pay, subtract it from their salary, and pay it over to SARS. They see the deduction on their payslip. You see money that lands in your account and leaves again a few weeks later. It was never your money, and it isn't a cost to you. You are the go-between. But when it's wrong, it's your name on the letter from SARS, so it pays to understand the basics.

Three amounts leave with every payroll run. There's PAYE itself, the income tax withheld from each person and worked out from the SARS tax tables. There's UIF, which is two percent of what someone earns, split down the middle: one percent off them, one percent from you, with a monthly earnings ceiling on it. And there's SDL, the Skills Development Levy, one percent of your total payroll, which you only start paying once your annual payroll goes over R500,000. Two of those three come partly or wholly out of your own pocket, which surprises employers who assumed payroll tax was purely something they collect on someone else's behalf.

The rhythm, and it never changes

Before you can pay PAYE you have to register for it and get a PAYE reference number from SARS. The rule is 21 business days from the day you become an employer. If you already file other taxes on eFiling, you can add PAYE there instead of starting from scratch.

Then it's monthly. Once a month you file an EMP201, a short declaration that tells SARS how much PAYE, UIF and SDL you're paying, and then you pay it. Both are due by the 7th of the following month. If the 7th falls on a weekend or a public holiday, it moves to the last business day before, which is backwards from how most deadlines behave and catches people out for exactly that reason. Pay late and SARS adds penalties and interest. This is the date worth putting in your calendar with an alarm on it.

Twice a year you reconcile the lot. That's the EMP501: you confirm that what you declared, what you paid, and what your people actually earned all agree, and you hand each person an IRP5 or IT3(a) certificate for their own tax return. One reconciliation runs around September and October, the other around April and May. Get the monthly numbers right and this is a few hours of confirming. Get them wrong and it's where you find out.

Where it goes wrong

None of this is hard to understand. What catches people is the rhythm. It's monthly, it punishes late payment, and the tax tables change every year after the February Budget. Run it in a spreadsheet and one stale rate quietly compounds for months before anyone notices, because nothing in a spreadsheet tells you a rate has expired.

This is the sort of work software is good at and people are bad at. That's the reason E·BIZI Pay exists.