Payroll Services in South Africa

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Mercans is your premier partner for top-quality payroll services in South Africa, serving as the leading Payroll provider in South Africa with both Managed and SaaS solutions. Our steadfast commitment to delivering exceptional payroll outsourcing in South Africa is unmatched. Drawing from extensive experience in the payroll sector, Mercans ensures precise and compliant payroll services, establishing us as the preferred option for businesses of all sizes seeking reliable Payroll in South Africa. Count on Mercans for prompt and accurate payroll transactions, complemented by the convenience of multi-currency payments tailored to the South African market. As your dedicated local payroll provider in South Africa, we feature a team of in-country payroll specialists well-versed in local regulations, providing comprehensive assistance for a seamless payroll experience customized to your business requirements.

Payroll Provider in South Africa – Roles and Responsibilities

Payroll outsourcing services in South Africa go beyond basic calculations, leveraging technology to streamline administrative tasks for employers and enhance employee engagement. Here are the key capabilities of payroll providers:

Automated payroll processing: Reduces time spent on wage calculations and supports flexible payment options.
Tax withholding and wage garnishment: Ensures accurate deductions and timely payments.
Tax filing services: Handles tax filing and year-end reporting for clients.
Compliance expertise: Stays updated with regulatory changes and provides real-time updates through cloud-based systems.
Payroll reporting: Enables detailed reporting on wages, taxes, and hours worked.
Employee self-service: Empowers employees to manage pay statements and personal information independently.
Product support: Offers expert assistance and 24/7 support via phone or online chat.

Integrating payroll with other software and business processes enhances efficiency:

Benefits: Deducts health insurance and retirement contributions seamlessly.
Human resources: Updates payroll with real-time policy changes to ensure compliance.
Workers’ compensation: Calculates premiums based on actual payroll data.
Time tracking and attendance: Improves wage accuracy by integrating data directly into payroll.
Expenses and budgeting: Integrates with accounting software to track payroll expenses against revenue.
Point of sale (POS) devices: Links payroll costs to sales figures for better financial insights.
Job costing: Assesses profitability by analyzing payroll costs per project.
Business management: Tracks payroll expenses within project workflows.

Discover the potential of payroll outsourcing in South Africa with Mercans and its impact on business efficiency.

Payroll Solutions in South Africa

Explore Mercans’ comprehensive payroll solutions in South Africa. Our services ensure local compliance, facilitate seamless multi-currency transactions, and integrate effortlessly with global Human Capital Management (HCM) and Enterprise Resource Planning (ERP) systems. Ensuring accurate payroll has never been easier.

Discover Our Flexible Solutions:

SaaS (Software as a Service): Tailored for enterprise businesses managing payroll across multiple countries, handling diverse data points, locations, currencies, and languages. Our SaaS model enhances operational efficiency.
Managed Services: Designed for mid-sized to large enterprises managing multi-country payroll, providing on-demand HR expertise for security, reliability, and compliance.
HRMS (Human Resource Management System): Ideal for expanding mid to large businesses, offering comprehensive payroll and benefits management with customizable features for efficient solutions.

Mercans is your trusted partner for streamlined payroll processing in South Africa, supporting your business growth with tailored, efficient payroll solutions.

Everything you need to know before running payroll in South Africa

South Africa Overview

South Africa boasts Africa’s most advanced and diversified economy, making it a prime destination for U.S. companies seeking entry into the Sub-Saharan African market. With a population exceeding 60 million and covering 1.22 million square kilometers, South Africa leads globally in the production of platinum, vanadium, chromium, and manganese.

Despite recent challenges including the COVID-19 pandemic, July 2021 riots, provincial floods, and electricity supply issues, South Africa maintains relative macroeconomic stability. The GDP, valued at $405.87 billion in 2022, reflects a modest 2% growth, underscoring the nation’s economic resilience amid global uncertainties. Notably, the economy is primarily driven by a robust services sector, contributing around 73% to GDP, with significant contributions from finance, government services, retail, and transport industries.

South Africa benefits from well-developed urban infrastructure in key areas, although rapid urbanization has led to stark urban-rural disparities. The country’s banking sector remains stable, supported by the reputable Johannesburg Stock Exchange (JSE), a prominent emerging market platform. However, challenges persist within critical State-owned enterprises, impacting service delivery and revenue generation.

Internationally, South Africa’s economic integration is bolstered through memberships in regional blocs like the Southern African Development Community (SADC) and the Southern African Customs Union (SACU). Additionally, as a member of the WTO, G20, BRICS, and the African Continental Free Trade Agreement (ACFTA), South Africa actively participates in global and regional economic frameworks, enhancing its trade and investment prospects.

South Africa’s strategic advantages, coupled with its resilient economic framework and extensive regional ties, position it as a pivotal hub for business growth and investment opportunities in Africa.

Minimum Wages

As of July 2024, the current minimum wage in South Africa stands at ZAR 27.58 per hour, effective from March 1, 2024. This rate is mandated by the South African government to ensure fair compensation for all workers. The national minimum wage applies universally, except for domestic workers, farm workers, and participants in expanded public works programs.

Employers in South Africa are legally obligated to adhere to this minimum wage. Failure to comply may result in penalties imposed by the government. It’s important to note that businesses experiencing financial difficulties may be exempt from this requirement.

For monthly wage calculations, the weekly wage is multiplied by 4.33. Similarly, for hourly wages, the standard weekly hours are multiplied by 4.33.

Working Hours and Overtime Pay

Normal Working Hours: In accordance with the Basic Conditions of Employment Act (BCEA), the maximum normal working time permitted is 45 hours per week. This translates to nine hours per day excluding lunch breaks for a five-day workweek, or eight hours per day excluding lunch breaks for schedules spanning more than five days.
Lunch Breaks: Lunch breaks are unpaid and considered the employee’s personal time. Employees may engage in personal activities during this period, such as reading, shopping, or exercising. Typically, a one-hour lunch break is provided after five continuous hours of work, although this can be mutually reduced to 30 minutes by agreement between employer and employee.
Overtime Pay: Overtime work is voluntary and requires mutual agreement between employer and employee. The maximum allowable overtime is three hours per day or 10 hours per week. Compensation for overtime is set at 1.5 times the normal wage rate, except for Sundays and public holidays, where it must be paid at double the normal rate. Alternatively, time off may be granted in lieu of payment, subject to agreement with the employee.
Definition of Overtime Work: Overtime hours are any hours worked in excess of the employee’s contracted normal working hours. For instance, if an employee’s standard workweek is 45 hours, any hours beyond this threshold qualify as overtime.
Overtime on Short Notice: While overtime cannot be compelled, employees may refuse to work overtime on short notice. However, there are exceptions if the work is urgent due to unforeseen circumstances like equipment breakdowns, and cannot be deferred to normal working hours.

Payroll Cycle

The payroll cycle can either be monthly or weekly, as stipulated in the employment contract. In South Africa, it is mandatory to provide employees with a 13th-month salary, typically disbursed in December annually.

13th Month Salary

There are no legal obligations for the 13th-month payment. However, it is a common practice to provide this additional payment every December.

Termination and Severance Pay

Severance pay serves as a critical buffer during retrenchment, providing financial support to employees affected by economic, technological, or structural changes within the employer’s operations, rather than due to any fault or performance issue on their part. This compensation, often termed as “bridging finance,” aids retrenched employees in their transition to new employment opportunities.

Under South Africa’s Basic Conditions of Employment Act (BCEA), severance pay is determined based on an employee’s rate of remuneration and length of service. The minimum severance pay requirement is one week’s remuneration for each completed year of continuous service. Employers may agree to higher rates, typically outlined in collective agreements or employment contracts, or negotiated during the retrenchment consultation process.

Entitlement to severance pay applies to employees with at least one year of continuous service prior to retrenchment, provided they do not unreasonably refuse suitable alternative employment offered by the employer. Additionally, employees who have had a break in service of less than 12 months may still claim severance pay for their previous period of service, as long as it does not exceed the 12-month threshold and they have not already received severance pay for that period.

For employees on fixed-term contracts exceeding 24 months under Section 198B of the Labour Relations Act (LRA), severance pay is mandated if specific conditions are met, including earning below a designated threshold and the absence of alternative employment opportunities offered by the employer.

“Remuneration,” as defined by the BCEA, encompasses more than just basic wages and includes the value of various benefits received by the employee. When calculating severance pay, it is based on the gross remuneration before tax deductions. Special tax rates apply to severance benefits, requiring employers to obtain a tax directive from the South African Revenue Service (SARS) before disbursing severance pay to employees.

In essence, severance pay serves as a vital safeguard during workforce restructuring, ensuring fair compensation and supporting employees in their career transitions.

Company Registration in South Africa

Registering a business in South Africa has never been easier, thanks to the convenience of online platforms like the Companies and Intellectual Property Commission (CIPC) website. Below, we outline a straightforward DIY process to guide you through registering your company smoothly.

Step 1: Create an Account

Begin by visiting the CIPC eServices website. From the homepage, navigate to the Customer Registration link and follow the prompts to enter your identity number and required personal details. Make sure to deposit sufficient funds into your CIPC account to cover the initial fees: R50-00 for reserving a business name and R125-00 for registering with a standard Memorandum of Incorporation (MOI).

Step 2: Name Your Business

Choose a distinctive and meaningful name for your business. Navigate to the Name Reservations section under Transact on the CIPC eServices website. Enter your preferred business name and up to three alternative choices if your first option is unavailable. Upon submission, you’ll receive a tracking number and a confirmation email (COR9.4) indicating the reserved name.

NB – You can initially register your business using the registration number as its name. You can later change this by reserving a name and amending the MOI after the name change is approved.

Step 3: Determine Your Business Entity

Before proceeding, decide on the type of business entity best suited to your needs. Options include Private Companies (Pty Ltd), Public Companies (Ltd), Personal Liability Companies (Inc.), and Non-Profit Organisations (NPO). Close Corporations are no longer registered in South Africa. Opt for a standard Memorandum of Incorporation (MOI) for simplicity during the registration process.

Step 4: Register Your Company Online

Navigate to the Company Registration section on the CIPC website under Transact. Enter your identity number and personal details, or those of the director if registering on behalf of someone else. Complete all required information about the company, including financial year-end and share allocation details.

Proceed to the Use Name Already Reserved tab and enter the tracking number from your name reservation confirmation email (COR9.4). Follow the prompts to finalize the registration. Upon successful submission, you’ll receive another tracking number and an email confirmation with the COR 15.1A document. Sign and date this document as the incorporator or director.

Step 5: Finalize the Registration

Gather all necessary supporting documents to complete the registration process. These include your name reservation confirmation letter, signed COR 15.1A form, certified copy of your South African ID, and a completed Power of Attorney form if acting as a representative or proxy.

Scan these documents and email them to [email protected] with the COR15.1A tracking number in the subject line. Once processed, you will receive your company registration documents (COR 14.3 and MOI) via email.

Congratulations! Your business is now officially registered as a legal entity. You can proceed to apply for a business bank account, register with SARS for tax purposes, and embark on your entrepreneurial journey with confidence.

Payroll Compliance in South Africa

In South Africa, employers are obligated to submit the following statutory filings. Mercans assists you in completing the necessary filings as per the South African local laws.

Statutory Body	Report/Declaration	Filing Frequency	Due dates	Purpose	Process Definition
South African Revenue Service (SARS)	EMP201	Monthly	By the 7th of the subsequent month	Reporting of the monthly Pay-As-You-Earn (PAYE), Skills Development Levy (SDL), Unemployment Insurance Fund (UIF) and Employment Tax Incentives (ETI) deductions to SARS.	In order to submit PAYE declarations, an entity needs to have access to the SARS online platform, eFiling. eFiling is a free-to-use platform offered by the SARS Registration on eFiling (https://secure.sarsefiling.co.za/app/login) needs to be done by a representative of the entity who will be responsible for communicating with the SARS regarding the entity’s tax matters The representative will fill out the registration form and furnish details such as their full names, identity/passport number and contact details Once registered on eFiling, the representative will need to activate the PAYE service on their profile as per these step-by-step instructions as furnished by the SARS: (https://www.sars.gov.za/types-of-tax/pay-as-you-earn/how-to-register-for-paye-on-efiling/) Once activated, the employer will need to manually complete and electronically submit the EMP201 showing their monthly PAYE, UIF, SDL and ETI deductions at the end of each month (sample attached below) A payment form with a Payment reference number (PRN) will be generated on submission of the declaration The PRN must be used to make payment of the liability shown on the assessment If the entity has a South African bank account, the SARS will automatically be loaded as one of the public beneficiaries. The entity will use the PRN to link the payment to their account. Where the entity has no South African bank account, payment may be made via eFiling, the SARS MobiApp, an Electronic Funds Transfer (EFT) or through a standard SWIFT 103 message
South African Revenue Service (SARS)	EMP501	Bi-annual	31 October and 31 May	Employer reconciliation declaration	An EMP501 reconciliation is a report of all employees' earnings, which must be submitted to the SARS on a bi-annual basis on 31 October (for the period 1 March-31 August) and on 31 May (for the period 1 September-28/29 February). Employers are required to reconcile the payroll tax liabilities (PAYE, SDL and UIF) declared monthly on the employer declarations (EMP201). In order to submit the EMP501 electronically, an employer must download the e@syFile software (https://downloads.sarsefiling.co.za/ easyfilehome/easyfile.html) and register using the entity representative’s names and the entity’s CIPC registration details. Once registered, the employer will generate a tax certificate file in csv format from the payroll system and import it onto e@syFile™. Once imported, e@syFile will generate a ZipCentralFile which must be uploaded onto eFiling to submit the EMP501 declaration. The same login details used to submit the EMP201 will be used when submitting the EMP501. e@syFile™ will automatically generate PDF versions of the IRP5/IT3(a) employee tax certificates should there be a need to distribute them in a physical format (sample attached below)
South African Revenue Service (SARS)	IRP5/ IT3(a) certificates	Annually	Usually 31 May, but not mandatory	Generating employee tax certificates showing the total employment remuneration earned for the year of assessment and the total amount of employees’ tax deducted or withheld.	The PDF tax certificates generated by e@syFile™ after submission of the EMP501 can be issued to employees manually. Alternatively, where a payroll system has an ESS function, the IRP5 certificates can be downloaded directly from the system. Only certificates generated at year-end (on 31 May) are issued to employees. Only in instances where the employee has been terminated or the employer has ceased operations may certificates generated in the interim reconciliation period (on 31 August) be issued to employees.
Unemployment Insurance Fund (UIF)	UI-19	Monthly	By the 7th of the subsequent month	Reporting of the monthly UIF contributions.	Where an entity has employees that are not liable for income tax, such entity is not mandated to register for PAYE purposes. However, should any of such entity’s employees work for a minimum of 24 hours per month, such entity is still obligated to register for UIF (https://ufiling.labour.gov.za/uif/register) and submit UIF declarations. Once registered, the employer will submit monthly declarations using a UI-19 form that they will access on the ufiling portal (sample attached below) Payment of the UIF liability can be made directly on the ufiling portal or by linking the entity’s South African First National Bank or Nedbank bank account to the UIF
The Compensation Fund at the Department of Labour	Occupational Injuries and Diseases (OID) Return of Earnings (W.As.8)	Annually	31 March (usually extended to 31 May)	Reporting of the annual workman’s compensation earnings.	Employers must register on the Department of Labour portal (https://cfonline.labour.gov.za/) A South African ID number and functioning email address is required for registration. Each year, by 31 March, the employer must manually complete the W.As.8 declaration and electronically submit it on the DOL portal (sample attached below) The DOL will issue a notice of assessment within 24 hours of submission which will detail how much the employer needs to pay. Payment must be made through an EFT or via the entity internet banking portal within 30 days of the assessment.

Payroll Taxes in South Africa

Social Security Contributions

The social security landscape in South Africa aims to provide a safety net and support for its citizens, encompassing various programs and benefits addressing social and economic challenges. Key components include the Unemployment Insurance Fund (UIF) for temporary income support, the Old Age Pension, the Child Support Grant for low-income families, and the Disability Grant for individuals with disabilities.

South Africa’s social security system plays a critical role in poverty reduction, promoting social inclusion, and ensuring a basic standard of living for vulnerable groups.

Regarding contributions:

Employees contribute 1% of their salary to the Unemployment Insurance Fund (UIF).
Employers contribute a total of approximately 2.65% of the employee’s salary:
1% towards the Unemployment Insurance Fund (UIF),
1% towards the Skills Development Levy (SDL) for training and education,
Approximately 0.5% towards the Compensation for Occupational Injuries and Diseases Act (COIDA), depending on the risk level of the work.

Comparatively, in surrounding countries:

Botswana mandates employers to contribute approximately 10.5%.
Namibia requires around 2%.
Zimbabwe imposes about 4.5% in employer contributions to social security.

These contributions vary based on the country’s specific social security frameworks and economic considerations.

Gross Annual Salary	ZAR 99,999.96
Total Annual Employer Costs	ZAR 2,199.96
1. UIF (Unemployment Insurance)	ZAR 999.96
2. SDL (Skill Development Levy)	ZAR 999.96
3. Workman's Compensation	ZAR 200.04
Total Annual Cost	ZAR 102,199.92

Based on an annual gross salary of ZAR 100,000 in South Africa, employers incur additional costs beyond the salary itself. These costs include mandatory contributions to social security programs and other employment-related expenses. Specifically, employers are obligated to contribute approximately ZAR 2,200 annually towards social security components such as the Unemployment Insurance Fund (UIF), Skills Development Levy (SDL) for training and education purposes, and the Compensation for Occupational Injuries and Diseases Act (COIDA). These contributions are essential elements of the overall employment cost in South Africa, ensuring coverage for unemployment benefits, skills development initiatives, and workplace injury compensation. Understanding these components helps businesses calculate their total expenditure per employee accurately and comply with regulatory requirements in the country.

Personal Income Taxes

South African tax regulations impose worldwide income taxation on residents, while non-residents are taxed solely on income sourced within South Africa. Both residents and non-residents are subject to the same progressive tax rates for the tax year spanning from 1 March 2024 to 28 February 2025. Below are the personal income tax rates applicable:

Income Range (ZAR)	Tax on column 1 (ZAR)	Tax on excess (%)
0 to 237,100	0	18
237,101 to 370,500	42,678	26
370,501 to 512,800	77,362	31
512,801 to 673,000	121,475	36
673,001 to 857,900	179,147	39
857,901 to 1,817,000	251,258	41
1,817,001 and above	644,489	45

It’s important to note that South Africa does not levy any local income taxes. Residents can claim tax credits for foreign taxes paid on income from non-South African sources to avoid double taxation, ensuring a fair and equitable tax regime across different income brackets.

Employee Benefits in South Africa

In South Africa, mandatory employee benefits include contributions to the Unemployment Insurance Fund (UIF). Both employers and employees are required to contribute an equal 1% of the employee’s earnings, up to a maximum earnings ceiling of R17,712 per month or R212,544 annually, effective from 1 June 2021.

Supplementary Employee Benefits in South Africa

Retirement

Given the inadequacy of the government-funded old-age grant, employer-based retirement funding is strongly recommended and highly valued by employees. Employers typically establish defined contribution funds, which are mandatory for all employees within specified categories. These funds cover risk benefits, administrative fees, and other associated costs.

Healthcare (Medical Aid & Medical Insurance)

With the public healthcare system facing significant challenges, many employed South Africans opt for private healthcare cover, a highly valued benefit. Medical Aid, regulated and community-rated, provides comprehensive access to private healthcare services. On the other hand, Medical Insurance offers lower-level coverage and is treated as an insured product, primarily chosen by lower-income earners.

Life & Disability

Employers often provide group life insurance schemes that include lump sum benefits for death and disability, typically based on multiples of each employee’s salary.

Health and Wellness Benefits

Employee Assistance Program (EAP): Includes services such as trauma counseling, financial management guidance, legal support, and access to trained psychologists to assist with stress and burnout.

Healthy Lifestyle and Rewards

Some leading medical scheme providers offer add-on benefits aimed at improving members’ health, safety, fitness, and finances. Employees can earn rewards, discounts, and cashbacks through these programs, which are usually voluntary and employee-funded.

These employee benefits play a crucial role in enhancing the overall well-being and financial security of employees in South Africa.

Streamline Payroll with Mercans’ Technology and Integrations

Technology: Explore the forefront of innovation with Mercans’ cutting-edge technology that powers our global payroll solutions. Learn more about our technological prowess here
Integrations: Seamlessly integrate your Human Capital Management (HCM) systems with Mercans’ solutions, enhancing efficiency and connectivity. Discover the power of integration here
Recognitions: Join a partner recognized for excellence. Mercans has earned accolades for its commitment to delivering exceptional payroll services. Explore our awards and recognitions here

Outsource to Payroll Company in South Africa

In South Africa’s dynamic business environment, Mercans is the premier partner for navigating local complexities. With a steadfast dedication to complete compliance, extensive expertise in labor regulations, and a comprehensive service offering, we are your ideal ally for achieving business success. Rely on Mercans for smooth operations, adherence to statutory requirements, and thriving expansion opportunities in Southern Africa.

This document was prepared for informational purposes only. As local laws & regulations keeps on changing. Please consult your tax & legal advisors as well.