What are Payroll Taxes?

Posted by Think Tank on 12 March 2018.

Employees may find that their payslips reflect various deductions.  Some deductions are for loans or advances they took during the month or an earlier period.  Some may be for contributions to medical, pension or other funds and some deductions may even be compulsory contributions to unions and other organisations to which the employee belongs.  However, employers will always find themselves having to make the following deductions/contributions:

1.  Pay as You Earn (PAYE)

All employers are required to register with SARS for PAYE (also referred to as ’employees tax’) if any of their employees are liable to pay income tax.  PAYE represents an advance collection by SARS of the income tax of an employee via the employer.  It is withheld by the employer on a monthly basis and must be paid over to SARS by the 7th day of the following month (registered employers are required to subit an EMP201 return to SARS by the 7th day of each month).  The final amount of employees tax to be withheld is dependent on the level of tax payable by the employee with reference to the annual income tax table as approved and released by SARS.  No PAYE can be withheld if the employee’s income falls below the minimum tax bracket after taking into account income tax rebates applicable to individuals.  Twice a year the employer is required to reconcile the PAYE withheld and paid over to SARS to the actual PAYE liability of all the employees – this reconciliation is known as the EMP501 and an interim reconciliation is submitted for the six months running from March to August (deadline for submission is usually by 31 October each year) while the final reconciliation is submitted for the enire financial year running from March to February (deadline for submission is usually by 31 May each year).

2.  Unemployment Insurance Fund (UIF)

Most employers (few exceptions) are required to register with the Department of Labour for UIF upon which they receive a UIF number from the Department of Labour.  Employers currently have to withhold 1% of salary from each employee and, in addition, contribute a further 1% of salary for each employee.  The collective 2% needs to be paid monthly to the Department of Labour, but, SARS have made it easier for employers to simply pay the UIF withheld and contributed to SARS (via the EMP201 return process) by the 7th day of each month (SARS ultimately refunds the Department of Labour).  For an employer to pay over UIF to SARS it must apply for a UIF number with SARS.  It is important to note that a UI19 return must also be submitted to the Department of Labour each month, irrespective of whether the employer is paying the UIF over to SARS or to the Department of Labour directly.

3.  Skills Development Levy (SDL)

Where an employer expects that the total salaries in their business will be more than R500 000 over the next 12 months, that employer becomes liable to pay SDL.  They are then required to register for an SDL number with SARS and should conribute 1% of salary for each employee on a monthly basis. Payment should be made to SARS by the 7th day of the following month (via the EMP201 reutrn process). Note that SDL is not required to be withheld from the employee and only the employer contributes SDL.

4.  Workmens Compensation

Most employers (few exceptions) are required to register with the Compensation Fund.  Contributions to the Compensation Fund are made annually and are contributed directly by the employer (Workmens Compensation is not withheld from any employees).  Due to the separate annual contributions process, Workmens Compensation is technically not a payroll tax as with the above.  An annual return (W.AS.8) has to be submitted (deadline usually between 31 March and 31 May each year) to the Compensation Fund which is assessed and payment then needs to be made (usually within 30 days) by the employer in order to settle the assessment.

Final Thoughts

A good payroll system will easily cater for the above payroll taxes.  Better systems (such as the one utilised by The Tax Shop and our clients) further empower employers by allowing them to electronically (and automatically) submit monthly returns, such as the UI19, to the Department of Labour.