Understanding Payroll in South Africa: What Global Companies Need to Know About South Africa Payroll

Jan 22, 2017  | Topic: Country Payroll

While South Africa has strong potential as a business location for multinational organizations, it has come nowhere close to reaching that potential yet. GDP growth for the year 2016 came in lower than expected at just 0.3% for South Africa, and unemployment sits at a whopping 25.1%.

Nonetheless, the economy of South Africa is the second largest in Africa – making the country a smart first stop for expansion into the continent – and growth is forecasted to improve in the years to come. Increased foreign investment activity will be key to South Africa’s economic future.

With political instability and unclear policies afflicting the country’s regulatory environment, however, businesses may find it highly challenging to incorporate South Africa into their global payroll strategy. Here’s a primer on the unique complexity (and in some areas, the lack of clarity) of payroll in South Africa.

Getting Started

Foreign nationals who wish to establish their own business or a partnership in South Africa must, apart from having sufficient funds to support themselves and their family, be able to invest at least ZAR 2.5 million in the business. Aside from any required capitalization, an in-country bank account is not necessary mandatory as payments from overseas are allowed.

Any business that employs at least one employee must register with the South African Revenue Service (SARS) for Pay As You Earn (PAYE) and Standard Income Tax on Employees (SITE). Businesses employing staff must also pay a gross revenue or salary-related levy to the district council. Employers also have to file with the registrar’s office, which grants authority to operate a business in the country. The bureaucratic system in South Africa is not speedy; overall, it can take 2-6 months for an organization to complete the set-up necessary to operate payroll.

Payroll Assessment

Employment Considerations

All employees must be registered with the Department of Labor. South African labor legislation ensures employees (including foreign nationals) are treated fairly by their employers; it details policies on compensation as well as employees’ rights, working conditions, health and safety, discrimination, unemployment, and termination.

Probationary periods must be of a length deemed “reasonable,” with no hard limit defined by law. Foreign workers are required to have the proper visas and work permits in South Africa, as established by immigration laws. Depending on the type of visa, it can be 2-4 months before a foreign employee is approved. The working week in South Africa is Monday to Friday. The maximum number of hours that can be worked per week is 45 and no more than nine hours per day.

Compensation Considerations

Unlike most countries in sub-Saharan Africa, South Africa has never had a formal minimum wage. However, a minimum wage of R20 per hour – which translates to R3,500 per month (~$250 USD) for workers on a 40-hour week – is set to take effect in May 2018 despite some opposition.

Overtime hours can be worked in accordance with an employment agreement. The maximum overtime that may be worked is 3 hours a day or 10 hours a week in accordance with an agreement. It is common practice to pay the employee on their final day, although there is no legal mandate to do so. It is mandatory to issue form UI19 to employees, which they use to claim unemployment.

Tax Requirements/Collection/Withholding

Employers in South Africa have monthly withholding obligations for income tax and social security. Income tax is deducted from employees’ salaries via the PAYE system at the rate that aligns with their income (scaling from 18 to 40 percent), and paid to the South Africa Revenue Service (SARS).

Contributions from both employer and employee include the Unemployment Insurance Fund (UIF), the Workmen’s Compensation fund, medical aid, and life insurance schemes. Every time they are paid, employees must be issued a payslip containing details of their remuneration and any deductions. Foreign nationals are omitted from UIF contributions.

Leave Considerations

Employees are entitled to 15 working days of leave per year at full pay and pregnant employees receive four months of unpaid maternity leave. Employees who have been with the same employer for more than 4 months are also entitled to 3 days per year of Family Responsibility Leave at full pay (with domestic workers entitled to 5).

Sick leave is subject to unique restrictions: An employee is entitled to 30 (if he/she works five days a week) or 36 (if he or she works six days a week) days of paid sick leave for every three-year ‘sick leave’ cycle. During the first 6 months of employment, the employee is entitled to 1 day for every 26 days worked; on the first working day of month number 7, the balance of the 30 days becomes available, less any days taken sick during the first 6 months.

 Date  South Africa's Public Holiday Schedule
 January 1st  New Year's Day
 March 21st  Human Rights Day
 Friday before Easter Sunday  Good Friday
 Monday after Easter Sunday  Easter Monday/Family Day
 April 27th  Freedom Day
 May 1st  Labor Day
 June 16th  Youth Day
 August 9th  National Women's Day
 September 24th  Heritage Day
 December 16th  Day of Reconciliation
 December 25th  Christmas Day
 December 26th  Day of Good Will

In Conclusion

There can be serious repercussions for companies that don’t adhere to South Africa’s payroll policies. As such, companies with South African operations can benefit from working with a trusted global payroll managed services partner with deep expertise on maintaining South Africa payroll compliance.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.