Payroll & Employment Guide South Africa

Employment contracts in South Africa must be in written form and contain elements such as remuneration, working hours, leave entitlements, and termination notice. In addition, employment contracts must be compliant with the BCEA’s (Basic Conditions of Employment Act) minimum conditions.

Notice periods: Ranging from one week to four weeks, depending on the length of employment.

Termination of employment: Termination must be based on valid reasons (misconduct, incapacity, operational requirements, etc).

Employers in South Africa must provide mandatory employment benefits in line with the country’s labour law. Many of them also offer extra perks to stay competitive in the job market. Understanding both of them is essential to attracting and retaining talent.

• Mandatory benefits: Paid leave, unemployment benefits.
• Common perks: Meal vouchers, transport reimbursements.
• Leave policies: Annual leave, sick leave, maternity leave.

The Unemployment Insurance Fund (UIF) contributions are capped at ZAR 177.12 for both employers and employees, ensuring that contributions do not exceed this limit.

South Africa has a comprehensive tax system that applies to both individuals and employers. Companies must deduct employee income tax (PAYE), contribute to statutory funds such as UIF, and follow VAT and other tax rules, depending on the business structure and income type.

In South Africa, employee tax obligations are governed by a progressive tax rate system that ranges from 18% to 45%, depending on the individual's income bracket. New joiners are subject to the same tax rates as existing employees, ensuring uniformity in tax obligations across the workforce.

Employers have specific responsibilities, including withholding taxes from employees' salaries through the Pay-As-You-Earn (PAYE) system and submitting these amounts to the South African Revenue Service (SARS).

In addition to PAYE, employees also contribute to the Skills Development Levy (SDL), which is 1% of total payroll, and the Unemployment Insurance Fund (UIF), which consists of a 1% contribution from both the employee and employer. The total payroll taxes thus include PAYE based on employee earnings, SDL, and UIF contributions, which collectively ensure a comprehensive social security system.

Employers must submit monthly declarations detailing these deductions and are responsible for issuing annual certificates (IRP5/IT3(a)) to employees, summarising their earnings and tax deductions for the year.

Personal income tax rate: From 18% to 45%, depending on income brackets.

VAT: 15%

Salaries are calculated on a monthly basis, with employees receiving 12 monthly salary payments each year. There are no provisions for mandatory 13th or 14th month salaries. Employers are required to pay salaries by the last day of the month, ensuring timely compensation for employees. Salary payments must be compliant with local labour rules, including those for minimum wages, etc.

Additionally, employers are responsible for completing an annual declaration known as the EMP501, which summarises all contributions made throughout the year. This annual report is due by February 28th of the following year.

Salary payment deadline: By the last day of the month.

Taxes and contributions payment deadline: By the 7th of the following month.

Payroll declarations deadline: By the 7th of the following month.

Payroll currency: ZAR

Termination pay: In South Africa, termination payments are typically made in the last month of payroll, ensuring that all final compensation is settled promptly. In addition to the standard final salary, employees may receive additional termination pay, which can include ex gratia payments; these are discretionary payments made to employees, often as a gesture of goodwill, and can be provided in cash. Employers are required to ensure that all payments to terminated employees are completed by the end of the month in which the termination occurs. This structured approach to termination payments helps maintain compliance with labour regulations and ensures that employees receive their due compensation in a timely manner, facilitating a smoother transition for both parties.

South Africa’s labour law is primarily governed by the Labour Relations Act (LRA) and the Basic Conditions of Employment Act (BCEA). It covers essential aspects like employment contracts, working hours, wages, leave entitlements, employee benefits, social security, and more.

Total employment cost: Base salary, bonuses, and mandatory contributions

• Employer’s social security contributions: 1%
• Employer’s Skills Development Levy (SDL) contributions: 1%
• Employees’ social security contributions: 1%

Minimum wage: ZAR 28.79 per hour

Probation period: No mandatory duration

With EOR services in South Africa, you can legally employ individuals in the country without establishing a local legal entity. The EOR takes over all the legal responsibilities as an official employer, including:

• Legal employment and contracts
• Payroll processing
• Tax withholding
• Benefits administration
• Onboarding/offboarding employees

With PEO services in South Africa, you can get the necessary HR and administrative support while you remain the legal employer. PEO services are beneficial for employers who already have legal entities in the country but need support to manage their workforce operations, including:

• HR support and workforce administration
• Payroll and benefits management
• Compliance and local labour law guidance
• Employment contracts assistance

Native Teams provides a payroll calculator adjusted per South Africa’s labour laws. Using our calculator, you can easily estimate net and gross salaries, employer/employee contributions, and other mandatory deductions in the country.