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South Africa

Payroll in South Africa: A Complete Guide

South Africa is well-known for being home to a sundry economy and owning enhanced technologies. It is the 39th largest nation in the world with a mixed economy. The country is located at the southernmost tip of the African continent and therefore has a long coastline perfect for trading.

The GDP per capita of South Africa is  $7,055, making it one of the wealthiest African countries. The industries from the financial sector are the largest contributor to its GDP. Most financial industries are located in Johannesburg, the largest city in South Africa. 

It is one of the most potential nations to establish a successful business with skilled and talented employees. However, South Africa’s payroll requirements should be followed while hiring these employees. Let’s dive in to comprehend more about the payroll policies and procedures of South Africa.

How Is Payroll Calculated in South Africa?

South Africa’s payroll process involves the calculation of an employee’s monthly salary. For this, employers must consider the employee’s contract, working hours, overtime, and deductions. 

Payroll in South Africa (Net Pay) = Gross Pay – Gross Deduction

Here, 

  • Gross pay includes allowances, basic salary, HRA, DA, and incentives.
  • Gross deduction includes income tax, professional tax, insurance, loan and leave deduction.

Important Elements of Salary Structure in South Africa

Here are a few essential elements of the salary structure in South Africa:

  • Remuneration: This is also known as the gross income of an employee. The remuneration of an employee is eligible for tax payment. In South Africa, the remuneration consists of all types of allowance and the primary income.
  • Net pay: At the end of each pay period, the cash received by the employee is known as their net pay. Net pay is generally calculated by taking away any deduction from the main gross income. 
  • Basic salary: An employee’s basic salary is the amount of money they will receive from their employer before any deductions or additions. 
  • Allowance: Allowance is the money paid to employees by their employers for their job. The allowance is given after calculating the expenditure of the employees. It includes the travel allowance, uniform allowance, and subsistence allowance. In South Africa, employees can also overwork for only 10 hours per week. Employees earning less than 205,433.30 ZAR annually are eligible for 150% overtime compensation. However, if an employee earns more than  205,433.30 ZAR annually is not eligible to receive overtime compensation.
  • Benefit: Benefit is a reward given to the employee by their employers for their job. Benefit can be anything that has an excellent monetary value. However, taxes are applicable on benefits. 

How to Set Up a Payroll in South Africa 

Here are the steps for setting up a payroll in South Africa:

  1. Before setting up a payroll in South Africa, it is essential to know vividly about the state government’s local employment law. 
  2. A company must also fix and create a payroll calendar showing when its employees are receiving their payments. Small companies tend to pay their employees weekly. In contrast, larger companies pay their employees every month. 
  3. A company should also make a payroll policy book for employees. It will give employees a comprehensive idea of the payroll method and benefits. 
  4. After fixing a payroll calendar and policy, the company should apply for their employer’s number. This number will act as an identification number for an employee. 
  5.  Administrating a payroll is not an easy job. Therefore, companies should hire a payroll administrator to look after their payroll. 
  6. Companies must finish all kinds of paperwork to complete payroll setup. Paperwork includes detailed information about a newly hired employee.   

A Step-by-step Process of Payroll Processing in South Africa

To set up payroll in South Africa, a company needs to follow these processes step-by-by:

Gather relevant employee documents

  • First, the relevant documents must be submitted to commence the South Africa payroll process.
  •  The company needs to submit all documents of their employees. Documents like bank information, passport, and right to work are required.

Estimating gross and net pay

  • A company needs to calculate the net pay and gross of their employees. 
  • To find the gross pay, the company must determine the employee’s remuneration before deduction. Net pay can be found by withholding the deduction, contributions, and benefits.
  • Companies should also consider employees’ work timings and overtime worked and check for other relevant allowances applied while estimating the net pay.

Processing payroll

  • Once net pay is calculated, employers can process the payroll as per the payroll policy and schedule. 
  • One of the important payroll processes in South Africa is to issue and maintain the employees’ payslips. This helps to track the remuneration of the employees. 

Informing relevant authorities about deductions

  • Authorities must be provided with the deduction details such as social security. Employers are responsible for paying taxes and benefits to the African authorities.

Maintaining payroll records

  • Companies must maintain a payroll record if they are willing to establish in South Africa. 

Payroll Contributions

Here are South Africa’s employer payroll taxes: 

Employer contribution

Particulars

Employer Payroll Contribution

Skills Development Levy

1.00%

Unemployment Insurance

1.00%

Employee contribution

Particulars

Employer Payroll Contribution

Unemployment Insurance

1.00%

Employee income tax

Tax rate

Tax on the lower amount (ZAR)

18%

226,000 ZAR

40,680 + 26% for income above  226,000 ZAR

226,000 ZAR – 353,100 ZAR

73,726 + 31% for income above  353,100 ZAR

353,100 ZAR – 448,700 ZAR

115,762 + 36% for income above  448,700 ZAR

448,700 ZAR – 641,400 ZAR

170,734 + 39% for income above  641,400 ZAR

641,400 ZAR – 817,600 ZAR

239,452 + 41% for income above  817,600 ZAR

817,600 ZAR – 1,731,600 ZAR

614,192 + 45% for income above 1,731,600 ZAR

Above 1,731,600 ZAR 

Annual Tax Rebates

Particulars

Primary 

16,425 ZAR

Secondary (Persons from age 65 and above)

9,000 ZAR

Tertiary (Persons from age 75 and above)

2,997 ZAR

Age

Tax Threshold

Less than 65 years 

91,250 ZAR

65 years to 75 years 

141,250 ZAR

Above 75 years

157,900 ZAR

Payroll Cycle

South Africa’s payroll guide does not provide a fixed payroll scale. Hence, the companies and employees fix a particular payroll cycle according to which they will receive their payment. The payroll cycle may be monthly or weekly, which must be mentioned in the employment contract. 

In South Africa, it is essential to pay a 13th-month salary to all employees, and it is generally credited during December each year. 

South Africa Payroll Options for Companies

South Africa’s payroll policies and procedures offer four payroll options for the companies, which are as follows:

Remote payroll

This option allows a single payroll to merge African employees’ payroll with the parent company’s payroll. However, South African companies must use the African employment law separately. 

Internal payroll

Big companies permanently settled in South Africa may use the internal payroll option. It allows a company to hire employees in the African office to distribute payroll. 

South African payroll companies

Companies can even hire an African company to carry out their payrolls without inconvenience. Nevertheless, the parent company will be liable for any disputed fact.  

Outsource partners

Many companies outsource the African payrolls to their global partners, who will even take the liability for any disputed fact. 

Entitlement and Termination Terms

South Africa’s payroll guide has made it mandatory for foreign companies to draft an employment contract containing a section for entitlement and termination terms. This contract must be drafted before the company hires any African employee. According to the African termination terms, a termination letter must be given to the employee 1 or 4 weeks before the cessation. 

This termination letter is provided to the employees according to their service period. Along with the termination letter, the company must also provide severance pay to the employees for the layoff. South Africa also has a strict probation period of three months. 

There are many elements of entitlement in South Africa. These are

Severance pay

  • In South Africa, severance pay is paid to an employee based on the years they have worked for that company. This pay is also known as the transition payment given to employees when their jobs are terminated. 
  • Severance pay is not applicable if an employee gets terminated due to bad performance. 

Leaves

  • Employees are entitled to 13 public holidays. 
  • An employee can take unpaid maternity leave that should not exceed four months. Female employees are eligible for only 60% of their regular salaries if they contribute to Unemployment Insurance (UIF).
  • Employees get 30 days of paid sick leaves if they work for five days a week. If they work for six days, they get 36 days of paid sick leave. 
  • Payroll rules and regulations of South Africa allow unpaid paternity leave for fathers with a newborn child or for partners who have adopted a child. This unpaid leave is a maximum of ten days.
  • An employee in school can take ten days of paid study leave in a year. After which, all the leaves will be considered to be unpaid. 
  • Employees can receive 75% of their remuneration for three months of leave if they have faced an injury at the workplace.

Minimum pay

  • According to payroll policies and procedures in South Africa, the employee’s minimum salary is 25.42 ZAR per hour. It is a fixed component and does not include overtime or other incentives.

South Africa Payroll Processing Company

A company must understand South Africa’s payroll requirements and taxation rules before establishing a business entity there. To simplify things, you can choose a company that can guide you with payroll policies and taxation laws. Multiplier will help you set up your business without difficulties and guide you through South Africa’s payroll process. 

How Multiplier Can Help With Global Payroll

Multiplier is the ultimate solution for a company while setting up payroll and taxes in a foreign country. Our skilled as well as experienced employees can assist a company to grow and establish its business adhering to the local labor law and government. We provide payroll and taxation solutions to more than 150 countries without interrupting the development of the companies. 

Frequently Asked Questions

According to the payroll rules and regulations in South Africa, the salary must be credited to the employee within seven days of completing their payable work period.

In South Africa, a company with less than 1,000 employees must pay the remuneration within the 7th of a month. However, if a company has more than 1,000 employees, it must pay the remuneration within the 10th of each month.

Employees must contribute 1% of their monthly salary to payroll contributions.

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