Payroll & Employer Compliance in South Africa: What Employers Need to Know
Employing staff creates ongoing payroll and statutory responsibilities. Payroll compliance involves considerably more than calculating salaries and issuing payslips — employers must correctly account for employees’ tax and other applicable statutory contributions and ensure that payroll records agree with amounts declared to SARS.
Errors that accumulate during monthly payroll processing can become particularly problematic when the employer’s biannual and annual reconciliations are prepared.
PAYE and employer responsibilities
PAYE, or Pay-As-You-Earn, is employees’ tax deducted or withheld by an employer from remuneration paid or payable to employees.
Where an employer is required to withhold employees’ tax, the amounts must be calculated correctly and paid to SARS together with the employer’s applicable UIF and SDL liabilities.
Employers are responsible for the accuracy and completeness of these payroll tax declarations.
What is an EMP201?
The EMP201 is the monthly employer declaration used to declare amounts relating to PAYE, UIF, SDL and, where applicable, the Employment Tax Incentive (ETI).
The EMP201 and applicable payment are generally due within seven days after the end of each month. Where the seventh day falls on a weekend or public holiday, the deadline moves to the last business day before it.
Accurate monthly payroll records are important because the information declared throughout the year ultimately needs to reconcile with the employer’s payroll records and employee tax certificates.
UIF and SDL
UIF contributions generally involve contributions by both the employer and employee, subject to the applicable legislation and contribution ceiling. SARS’s current employer guide specifies a contribution of 1% by the employer and 1% by the employee of applicable remuneration, subject to the prescribed limit.
SDL applies to employers who meet the applicable requirements. An employer whose leviable remuneration is not expected to exceed R500,000 over the following 12 months is generally not required to register for SDL on that basis. Where applicable, SDL is calculated at 1% of leviable remuneration.
The correct treatment depends on the employer and the nature of remuneration paid.
EMP501 employer reconciliations
Employers are also required to reconcile their payroll information through the EMP501 Employer Reconciliation Declaration.
The reconciliation compares three important components:
- amounts declared through the monthly EMP201s;
- payments made to SARS; and
- employee tax certificate information reflected on IRP5/IT3(a) certificates.
SARS requires both an interim reconciliation covering the first six months of the tax year and an annual reconciliation covering the full tax year.
If these records do not agree, differences should be investigated and corrected rather than simply carried forward.
IRP5 and employee information
Employee tax certificates form an important part of employer compliance.
The IRP5/IT3(a) records remuneration and applicable employees’ tax information for the employee and feeds into the individual’s SARS tax records.
Accurate employee information is therefore important not only for the employer but also for the employee’s own income tax return and assessment. SARS has also made valid Income Tax Reference Numbers mandatory, where required, for employer submissions.
Common payroll compliance problems
Employer compliance issues frequently arise where payroll information, EMP201 declarations, SARS payments and IRP5 certificates do not reconcile.
Other problems may include incorrect employee information, late submissions or payments, incorrect remuneration treatment, outstanding EMP201s, incorrect UIF or SDL treatment and payroll adjustments that were not properly reflected in the statutory declarations.
Good payroll compliance therefore starts with accurate monthly processing, rather than trying to correct an entire year when the EMP501 becomes due.
Payroll records and reconciliations
Employers should maintain appropriate payroll records and supporting information throughout the year.
Before an EMP501 is submitted, the payroll records, EMP201 declarations, payments to SARS and IRP5/IT3(a) information should be reconciled. SARS specifically requires these components to agree as part of the employer reconciliation process.
How MVA can assist
MVA Tax and Corporate Advisory assists employers with:
- monthly payroll processing and payslips;
- PAYE, UIF and SDL compliance;
- EMP201 calculations and submissions;
- EMP501 interim and annual reconciliations;
- IRP5/IT3(a) employee tax certificates;
- employer registrations and related SARS matters;
- payroll reconciliations and corrections; and
- ongoing employer compliance support.
Payroll and employment-tax requirements depend on the circumstances of the employer and employee. Specific remuneration arrangements should therefore be reviewed according to their particular facts.
Need assistance with payroll, EMP201, EMP501 or employer compliance? Contact MVA Tax and Corporate Advisory.