How Does Payroll Work in South Africa?  

South Africa undoubtedly has one of the largest economies in Africa. Since the end of the apartheid era in 1991, South Africa has become an important international business destination. Regardless of your company's industry specialization, the Rainbow Nation can be a great place to expand your business. 

According to recent surveys by the World Bank, South Africa is ranked at position 82 when it comes to ease of doing business. Even though starting and running a business in South Africa can be such a profitable experience, you may encounter some drawbacks along the way if you are not fully prepared. 

Running payroll in South Africa is not as simple as running it locally. You have to meet many requirements and submit a lot of paperwork to comply with the country's labour laws and avoid fines from the Department of Labor and South African Revenues Service (SARS). 

Below are the details you need to know about payroll in South Africa and how it works. 

Payroll Options in South Africa 

The following are the various payroll options your company can adopt in South Africa to ensure that you comply with the country's labour laws and regulations:

1. Remote payroll 

Your company can rely on remote payroll services to pay remote employees located in South Africa. Your company can accomplish this by hiring a fully outsourced HR service. They will be responsible for various functions such as recruitment, background verification, training and development, payroll, and administration of your employees on your behalf. 

2. Internal payroll 

If you run a big company and are committed to your South African branch, you can choose to run recruitment and payroll for all your employees, both local and foreign. However, this is a more complex process. 

For instance, you will have to fully incorporate and register your business while recruiting the required employees. Your company will need to hire human resource management who understands South African labour and payroll laws. You can count on them to fulfil all payroll, income, and withholding tax requirements. 

The company may also need to hire accounting personnel to ensure full compliance with the country's labour laws. It is also worth noting that this payroll approach requires extensive knowledge of the prevailing local government and payroll laws and regulations. Therefore, this payroll option will be slightly more expensive for companies.

3. Local payroll administration 

You can also register your company and its business operations in the Rainbow Nation using another company or setting up a branch office. You can do this with the assistance of a payroll provider based in South Africa. Assigning payroll duties to another company is more convenient and more straightforward. 

This company will act as the Employer of Record(EOR), which means that they will be responsible for recruitment and payroll solutions, all in compliance with South African immigration, employment, payroll, and tax laws. Additionally, the payroll provider will oversee payroll calculations and payments, plus paying taxes. 

4. Completely outsource payroll and employment

Your company can opt to outsource the recruitment and payroll of your employees in South Africa to a Global Employment Organization (GEO) like Workpay. This option works for both local and foreign employees. Workpay will handle everything related to payroll for your employees in South Africa, including withholding taxes, income taxes, and social security payments. 

The organization will also act as the Employer of Record and recruit all the qualified employees your company needs as per your guidelines. The organization will pay your employees on time with income tax and social security payments deducted and delivered to the relevant authorities every month. 

It is also the work of the GEO to provide employees with payslips every month and send out invoices to different clients before preparing payroll. 

How Long Does it Take to Establish an Entity and Register Your Company in South Africa? 

For a company to successfully process payroll in South Africa, it needs to outsource its HR functions to an organization like Workpay or establish a legal entity in the country. The company will then use this entity to pay taxes to SARS. SARS demands that such an entity have a physical address and local bank account. 

The following are the time limits involved with registering companies and establishing entities in South Africa: 

• It takes one to six months to register with the Registrar's Office. 
• It takes one to six months to register with SARS for your company's income tax. 
• It takes one to six months to register with SARS for Value Added Tax (VAT).
• It takes two to three months to register with SARS for Pay As You Earn (PAYE), Skills Development Levy (SDL), and Unemployment Insurance Fund (UIF).
• It takes one to six months to register with the Department of Labor for Workman's Compensation. 
• It takes one month to register with the Department of Labor for Unemployment Benefits. 

After your company has established a legal entity in South Africa, you must still complete all statutory registrations related to its payroll processes. It takes approximately 21 days from the day your company submits its registration documentation to get an official registration number. 

However, if you don't fill out these documents as required, your company's application will be rejected. The company will have to resubmit its application and wait 21 days to get a registration number. 

We recommend that you fill out the documentation with accurate information the first time to avoid unnecessary delays. When you complete the application, your company should be registered for the following:

• Pay As You Earn (PAYE) 
• Unemployment Insurance Fund (UIF)
• Skills Development Levy (SDL)
• Occupational Injuries and Disease Insurance (OID) 

Suppose the company proceeds to process payroll before completing the registration. In that case, the company will be charged penalties amounting to 10% plus interest of 10.5% per month for all payments you would have made as the company awaits a registration number. Note that it is not legally possible to start processing payrolls without acquiring an official registration number. 

We recommend starting registration at least three months before your company makes the first payments to the employees. 

Working Hours and Days in South Africa 

The majority of employees in South Africa work from Monday to Friday. According to the country's labour laws and regulations, 45 is the maximum number of hours an employee can work in a week.

But, the employee can negotiate with the employer regarding overtime, which law states you should pay 1.5 times more than daily working hours. Employees in South Africa can work for three hours a day or ten hours a week as overtime. The Department of Labor states that no employee should work more than 12 hours a day. 

Income Tax in South Africa 

While the employer must register for PAYE, UIF, and SDL with SARS, it is the employee's responsibility to register themselves for income tax with SARS. The employer must withhold the necessary taxes from the employee's salary and pay them to SARS before the 7th day of every month. 

Summing Up

South Africa can be an excellent place to find the right talent needed to lead your company to success. If you need help with processing payroll in South Africa, consider reaching out to Workpay for the best HR solutions.