South Africa: The seven laws of payroll

South Africa: The seven laws of payroll
31 Aug 2014

South Africa is a country rich in history, progress and resources. One of the country’s most distinguishing features is its diversity. And managing a payroll in South Africa proves this situation.

The management of payroll is complicated by the fact that there are seven laws that govern the employment relationship and each one has its own unique impact on payroll. In addition to these laws, each industry may have its own conditions of employment and unions who add another layer of complexity based on the agreements they reach with the employers - both on an individual and an industry level.
The following 10 points are important to know in order to run your payroll in South Africa effectively:

1. Your company needs to be registered for deductions

When you set up a company in South Africa, make sure that you are registered for:

• PAYE (the tax deducted from your employees)• the skills development levy (SDL) you deduct to pay over to the sectoral education training authority
• Unemployment insurance fund (UIF)

As a company you will also need to be registered for company tax as well as VAT.

2. There are certain requirements set by bargaining councils

Depending on the industry you are in, you may be governed by a bargaining council agreement that will dictate minimum wages to your employees. An example would be the retail bargaining council, or you may be in an industry that has no minimum wage.

The bargaining council will also dictate hours of work, overtime rates and every aspect of the employment relationship. Failure to comply does result in a warning and sometimes a hefty fine.

3. You must have a contract of employment for every employee

According to the basic conditions of the employment act, each employee must have a written employment contract provided by the company. The contract must contain certain conditions of employment as stipulated in the act. This includes notice period, annual leave, pay rates etc. Inspectors from the department of labour regularly check on adherence to these requirements.

4. The differences in classifying workers as employees

In South Africa you are considered an employee and you are protected by the employment laws if you work more than 24 hours per month. If you work less than 24 hours per month or if you are a member of the National Defence Force, National Intelligence Agency, South African Secret Service or an unpaid volunteer working for an organisation with a charitable purpose, you are not covered by the Basic Conditions of Employment Act. Beware that there are situations where the temporary worker can be covered and has the same rights as those of a permanent worker.

5. Leave pay is calculated at a different rate than normal pay

When calculating normal pay you multiply the hourly rate by the number of hours worked. When calculating holiday pay, the hourly rate is calculated as an average rate taken over the last three months, and this must also include overtime and any commission received by the employee.

6. You must submit all employee information monthly before the deadline

On the seventh day of each month, you must submit your tax, unemployment and skills development return (EMP 201) to the receiver of revenue and pay the amounts due. If there are any late submissions, you will be liable for a fine of 10 per cent of the total amount outstanding. No exceptions are allowed on this deadline.

There are also submissions in August for the six month reconciliation, as well as the annual reconciliation in April/May. Workmen’s compensation returns are due in March. There is also a monthly return to be done to the Department of Labour. These all refer to earnings and deductions done on your payroll.

7. All records must be saved and made accessible by employers

All employee records need to be kept for a period of five years. This is the responsibility of the employer. The documents that need to be kept include time sheets, payslips and contracts of employment.

Electronic copies are acceptable. It is recommended that any documents to do with the receiver of revenue be kept indefinitely.

8. Employment equity is a serious matter

This is a very real issue and the reporting and implementation is taken very seriously. Large companies need to submit a report every six months to the Department of Labour detailing their progress on their employment equity planning and status. Smaller companies need to submit these reports annually.

9. The banking system available

The South African banking systems are sophisticated and on par with international electronic transfer standards. All monies can be transferred to individual employees or across to third party creditors such as pension or medical insurance companies.

These transfers are done via the main banks or via third party suppliers. The timing of transfers is such that if you complete it by 3pm, the money will be available to employees by 12pm midnight.

10.There are seven laws that govern the employment and remuneration relationship

South African workers are well educated on what they are entitled to and expect the payroll department and the company to deliver what is due. Therefore it is imperative to run an error-free payroll. The following seven acts regulate the employment relationship in South Africa:

• Basic Conditions of EA
• Labour Relations Act
• Unemployment Insurance Act
• Health and Safety Act
• Workman’s Compensation Act
• Income Tax Act
• Skills Development Act

Ian Hurst is the founder of Paymaster, which processes the outsourced payrolls of companies in Africa and South Africa. Before setting up the company in 1999, Ian worked with large corporates including De Beers, Mobil Oil and local retail chain Berger’s for more 20 years, focusing on HR and payroll management. 

South Africa is a country rich in history, progress and resources. One of the country’s most distinguishing features is its diversity. And managing a payroll in South Africa proves this situation.

The management of payroll is complicated by the fact that there are seven laws that govern the employment relationship and each one has its own unique impact on payroll. In addition to these laws, each industry may have its own conditions of employment and unions who add another layer of complexity based on the agreements they reach with the employers - both on an individual and an industry level.
The following 10 points are important to know in order to run your payroll in South Africa effectively:

1. Your company needs to be registered for deductions

When you set up a company in South Africa, make sure that you are registered for:

• PAYE (the tax deducted from your employees)• the skills development levy (SDL) you deduct to pay over to the sectoral education training authority
• Unemployment insurance fund (UIF)

As a company you will also need to be registered for company tax as well as VAT.

2. There are certain requirements set by bargaining councils

Depending on the industry you are in, you may be governed by a bargaining council agreement that will dictate minimum wages to your employees. An example would be the retail bargaining council, or you may be in an industry that has no minimum wage.

The bargaining council will also dictate hours of work, overtime rates and every aspect of the employment relationship. Failure to comply does result in a warning and sometimes a hefty fine.

3. You must have a contract of employment for every employee

According to the basic conditions of the employment act, each employee must have a written employment contract provided by the company. The contract must contain certain conditions of employment as stipulated in the act. This includes notice period, annual leave, pay rates etc. Inspectors from the department of labour regularly check on adherence to these requirements.

4. The differences in classifying workers as employees

In South Africa you are considered an employee and you are protected by the employment laws if you work more than 24 hours per month. If you work less than 24 hours per month or if you are a member of the National Defence Force, National Intelligence Agency, South African Secret Service or an unpaid volunteer working for an organisation with a charitable purpose, you are not covered by the Basic Conditions of Employment Act. Beware that there are situations where the temporary worker can be covered and has the same rights as those of a permanent worker.

5. Leave pay is calculated at a different rate than normal pay

When calculating normal pay you multiply the hourly rate by the number of hours worked. When calculating holiday pay, the hourly rate is calculated as an average rate taken over the last three months, and this must also include overtime and any commission received by the employee.

6. You must submit all employee information monthly before the deadline

On the seventh day of each month, you must submit your tax, unemployment and skills development return (EMP 201) to the receiver of revenue and pay the amounts due. If there are any late submissions, you will be liable for a fine of 10 per cent of the total amount outstanding. No exceptions are allowed on this deadline.

There are also submissions in August for the six month reconciliation, as well as the annual reconciliation in April/May. Workmen’s compensation returns are due in March. There is also a monthly return to be done to the Department of Labour. These all refer to earnings and deductions done on your payroll.

7. All records must be saved and made accessible by employers

All employee records need to be kept for a period of five years. This is the responsibility of the employer. The documents that need to be kept include time sheets, payslips and contracts of employment.

Electronic copies are acceptable. It is recommended that any documents to do with the receiver of revenue be kept indefinitely.

8. Employment equity is a serious matter

This is a very real issue and the reporting and implementation is taken very seriously. Large companies need to submit a report every six months to the Department of Labour detailing their progress on their employment equity planning and status. Smaller companies need to submit these reports annually.

9. The banking system available

The South African banking systems are sophisticated and on par with international electronic transfer standards. All monies can be transferred to individual employees or across to third party creditors such as pension or medical insurance companies.

These transfers are done via the main banks or via third party suppliers. The timing of transfers is such that if you complete it by 3pm, the money will be available to employees by 12pm midnight.

10.There are seven laws that govern the employment and remuneration relationship

South African workers are well educated on what they are entitled to and expect the payroll department and the company to deliver what is due. Therefore it is imperative to run an error-free payroll. The following seven acts regulate the employment relationship in South Africa:

• Basic Conditions of EA
• Labour Relations Act
• Unemployment Insurance Act
• Health and Safety Act
• Workman’s Compensation Act
• Income Tax Act
• Skills Development Act

Ian Hurst is the founder of Paymaster, which processes the outsourced payrolls of companies in Africa and South Africa. Before setting up the company in 1999, Ian worked with large corporates including De Beers, Mobil Oil and local retail chain Berger’s for more 20 years, focusing on HR and payroll management. 

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