Payroll in South Africa (Explained)

In the continental tip where the Atlantic and Indian Oceans meet, South Africa is the home of Africa’s second-biggest market and approximately 58 million people. The Rainbow Nation’ represents a great starting point for multinational companies wishing to expand into broader African commerce.

The South African market has come on in leaps and bounds since the end of the apartheid era in the early 1990s. However, its expansion reached a peak in 2011 and national output has been turbulent since. Nonetheless, its yearly GDP of $350 billion for 2019 places South Africa second among African markets, behind only Nigeria, whose population is more than triple the size.

Businesses looking at going into the South African economy could benefit from high demand for jobs: the national unemployment rate climbed 30 percent at the beginning of 2020. But a relatively unstable political landscape can make running citizenship in South Africa catchy for incoming associations. Here are the principles behind getting started in South Africa:

What Global Companies Need to Know About South Africa Payroll

South Africa has relatively few restrictions on foreign companies opening branches or companies. However, prior to beginning the process, it is important to look at the condition of the tax treaty (if there’s one) between South Africa and the corporation’s original country, to make certain that profits made in South Africa do not wind up being taxed twice.

The most common kind of business formed is a Pty Ltd, which has no limitations on shareholders and can be completely foreign-owned despite being a separate legal entity. Companies should first book a title and file a Notice of Incorporation with the Companies and Intellectual Property Commission (CIPC). Next, employers should then register with the South African Revenue Service (SARS) for Pay As You Earn (PAYE) and Standard Income Tax on Employees (SITE). Collectively, this procedure is a lengthy affair and can take a few months.

Opening an in-country bank account is a legal necessity, but it doesn’t necessarily need to be used for making payments.

Employment Considerations

All workers must be enrolled with the Department of Labor. South African labour legislation ensures workers (including foreign nationals) are treated fairly by their employers; it details policies on reimbursement in addition to workers’ rights, working conditions, health and safety, discrimination, unemployment, and termination.

There’s absolutely no established limit around probationary periods in South Africa, even though the agreed duration must be explicitly set out in the contract of employment. Companies considering bringing in overseas labour should also note that the South African government is now introducing quotas on migrant workers that change between different industries.

The maximum working week in South Africa is 45 hours each week. The daily maximum is nine hours for people who work twenty-four weeks, and eight hours for those working six-day weeks.

The arrangement of the employee is limited to 3 hours each day or ten hours each week, and is compensated with a 50 percent premium. Work on public holidays and Sundays likewise requires employee approval and is compensated with a 100 percent premium.

Notice periods are weekly for employees with less than six months’ service, fourteen days for employees with between six and 12 months’ service, and four weeks for individuals who have been with the business for a year or more.

Compensation and Severance

South Africa introduced a national minimum wage for the first time in January 2019, as part of an attempt to lift its lowest earners from poverty. As of 2020, the speed is 20.76 rand (ZAR) per hour (roughly #1.00; $1.20; $1.10). The amount of the minimum wage has been reviewed yearly, and so may well rise again in the years to come. It must be noted that the standard wage in South Africa is significantly higher than this: in the end of 2019, the national average was ZAR 22,500 per month (approx. £1060; $1320; €1180).

Lower rates apply to farm workers, domestic workers, and those used on public works programs. Workers must be paid within seven days of the end of a specific period of earning.

Workers  are entitled to severance pay if their employment is terminated for operational reasons (i.e. redundancy), at a speed of one week’s salary per year of support.

Tax & Withholding Considerations

Managers in South Africa have monthly withholding duty for income tax and social security. The South African tax year charge from 1 March to 28 February (29 February on leap years).

For the 2020/2021 tax season, South Africa’s progressive tax rates begin at 18 percent for the first ZAR 205,900 of yearly income (approx. $9700; $12,100; $10,800). There are seven groups in total; the maximum of 45% applies to earnings over ZAR 1,577,300 annually (approx. $74,300; $92,700; $82,500).

Those making less than ZAR 83,100 annually are exempt from council tax; this exemption threshold is greater for employees over age 65. Foreign nationals are taxed on work supplied or services rendered in South Africa, although taxation treaties with other nations may offer specific levels of tax relief.

Managers who run over ZAR 500,000 annually in payroll (approx. $23,500; $29,400; $26,100) must give 1% of their payroll total to SARS as a contribution towards education, training and skills development.

There are no specific social security obligations as such, though both workers and employers should each contribute 1 percent of gross salary into the Unemployment Insurance Fund (UIF). Every time they’re paid, workers must be issued a payslip containing details of the remuneration and any deductions.Foreign nationals are exempt from UIF contributions.

Employee contributions in different areas like healthcare aren’t compulsory. South Africa conducts an insurance-based system for personal health care, while public healthcare demands up-front payment, even though it’s part-subsidized.

Holiday and Leave Considerations

Employees are eligible for a minimum of a three-week block of leave (15 working days) in every 12-month period. Some employers provide an alternate accrual-based paid leave scheme where employees earn leave for an hourly or daily rate based on a 1:17 ratio, i.e. one day of leave per 17 days worked. Employees should also be compensated for the 12 days of national holiday that South Africa observes annually.

Maternity leave entitlement is a minimum of four consecutive months, even though some employers voluntarily provide more than this. Furthermore, new parental leave laws were introduced in January 2020 that entitle all new parents not giving birth to ten days’ unpaid leave.

Employees can be given a maximum of six months of sick pay, insured by the employer, over a three-year interval – that means 30 days’ pay for those working fourteen days, and 36 days’ pay for those on six-day weeks. This complete entitlement only applies to employees with at least six months of support.

Summing Up

While the chances for business success in South Africa are significant, it does pose some challenges to incoming companies round employment legislation, in addition to cultural considerations. It can be particularly tricky for businesses not used to working in Africa or other developing markets.

To begin on the front foot, it is therefore a good idea to develop a worldwide payroll partner that can offer up-to-date regional experience, and that can easily assimilate your South African operation into your broader global payroll system.