Payroll Guide South Africa
If your business has interests in global tourism, agriculture, and natural resources, South Africa is a wonderful country in which to set up business. From eclectic culture to geographic location, South Africa is a far different world from the United States. This guide will help you become aware of the many complexities involved in establishing your global business, particularly as it relates to hiring and payroll in South Africa.
Ease of Doing Business in South Africa: An Overview
South Africa is the largest economy in Africa after Nigeria. The country’s fast-developing cities – Cape Town, Bloemfontein, and Johannesburg – attract businesses and investors from all around the world.
Compared to the United States, South Africa is considered poor. But labor law in South Africa is intent upon taking care of employees and growing the economy. Registering a foreign business is not simple, but working with a local tax professional and legal advisor will ensure that you are properly registered with all tax and labor authorities.
Recent Developments in South Africa’s Payroll Laws
For much of South Africa’s economic and labor history, it has been without a standard minimum wage. Recently, however, the government established minimum wage in South Africa at R20/hour ($1.40/hour). While South Africa’s economy has been on the rise in recent decades, it has declined slightly in the last couple years. In spite of this, Africa’s southern-most nation is a stable economy in which to expand your business.
Basic Facts about Payroll in South Africa
Because citizens in South Africa do not enjoy the same political stability as do countries in Europe and North America, payroll can feel overwhelming to most employers – even those that originate from South Africa.
Instead of a single tax authority, employers must register and file with both the South African Revenue Service (SARS) and the South African Department of Labour. Tax contributions end up in Pay-As-You-Earn (PAYE – standard income tax withholdings), Standard Income Tax on Employees (SITE), Unemployment Insurance Fund (UIF), and Skills Development Levy (SDL). This means that employers must be registered at four tax destinations across two public entities.
Income taxes are high in South Africa. Corporate income taxes are 28%, and income taxes range from 18-45%.
Many residents in South Africa makes wages from organizations outside the country. SARS labels these employees as provisional. Provisional employees must make tax payments to SARS much like U.S. self-employed/business owners pay estimated taxes before the end of the year.
Employees of businesses registered in South Africa are non-provisional employees. Regardless of whether an employee is provisional or non-provisional, they are all subject to the same income tax laws if they work and reside in South Africa.
Rates and Thresholds
An income of R1 is taxed at 18%, and the tax rate caps at 45% on incomes in excess of R1,500,000 ($104,806). For more specific rate and threshold information, consult the chart below.
How Withholding Works
South African employers withhold taxes owed from a non-provisional employee’s paycheck on a monthly basis using South Africa’s PAYE system. While there is no payroll tax in South Africa, there is a 15% withholding tax.
Tax Credits, Returns and Filing
The tax year begins on January 1 and ends on December 31. Employees are required to file their income tax returns by the end of January. SARS invoices the tax payer if they owe any taxes after they’ve filed their returns.
In the event that an employee’s withheld taxes exceed what they actually owed, SARS will refund any overpaid taxes.
Failing to file one’s tax return is considered a “nil” return. Those guilty of not filing a tax return face fines and interest penalties up to 200% of taxes owed. Income earners that file late risk being dealt with as though they filed no return at all.
Tax Rate Chart
|USD Comparison||Income Range (South African Rand)||Income Tax Amount||Income Tax Rate on Excess*|
|$0 – 13,684||R 0 – 195,850||–||18%|
|$13,684 – 21,370||R 195,851 – 305,850||R 35,253||26%|
|$13,684 – 29,576||R 305,851 – 423,300||R 63,853||31%|
|$29,576 – 38,820||R 423,301 – 555,600||R 100,263||36%|
|$38,820 – 49,490||R 555,601 – 708,310||R 147,891||39%|
|$49,490 – 104,806||R 708,311 – 1,500,000||R 207,448||41%|
|$104,806||R 1,500,001+||R 532,041||45%|
*“On excess” refers to any amount above the base number in the income range in column 2. For example, for the income range R 195,851-305,850, income taxes are R 35,253 on 195,851 and any amount above that amount but less than 305,850 is taxed at a rate of 26%.
Compensation and Benefits
The average South African employee earns R250,320/year ($17,490). There is a modest paid leave system, as long as limited sick leave and non-paid maternity leave.
Minimum wage in South Africa is R20/hour, which is the USD equivalent of $1.40/hour.
Overtime is established in a work contract between employee and employer. The law permits employees to work 3 hours of overtime in a day, not to exceed 50 hours in a week’s time. While most overtime is paid the regular hourly rate, some employers choose to offer a premium overtime rate at their discretion.
Hours of Work
The standard workweek is 40 hours. An employer/employee work agreement can establish work hours and overtime, so long as it does not exceed overtime regulations outlined above.
Holiday & Leave
Employees are entitled to 15 days of paid leave, and employees with children may also receive 3 days of Family Responsibility Leave after they’ve stayed with their employer for 4 months. New mothers can take maternity leave – up to 4 months – but only without pay.
South Africa recognizes 13 national holidays as follows.
- New Year’s Day
- Human Rights Day (March 21)
- Good Friday
- Easter Sunday
- Family Day (Monday after Easter)
- Freedom Day (April 27)
- Labor Day (May 1)
- Youth Day (June 16)
- National Women’s Day (August 9)
- Heritage Day (September 24)
- Day of Reconciliation (December 16)
- Christmas Day
- Day of Goodwill (December 26)
Sick leave follows a three-year rotation and employees working 5 or 6 days a week are allotted 30 and 36 days respectively.
Employee Stock/Share Plans
For medium and large-sized businesses, it is common for South African employers to offer profit sharing and stock options for their employees.
Unlike most work visa or foreign worker permits, South Africa allows foreign hires to secure a work visa prior to employment on either a general work visa or critical skills visa. Work visas must be applied for prior to arriving in South Africa since the government does not permit visitors on tourist visas to apply for work or resident visas once they arrive.
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