Two mistakes, opposite directions, equally common.
The first is the employer who has never deducted a cent of tax because "it is only one person", and one day discovers that the salary went past the threshold two years ago. The second is the employer who deducts something off every wage because tax feels like a thing that ought to be deducted, on a salary that owes nothing at all.
The second one is worse than people think. Money you withhold that was never owed is the employee's money, and you are holding it.
What PAYE actually is
Pay As You Earn is not your tax. It is your employee's income tax, which you are required to withhold from their wage and pay over to SARS on their behalf.
That framing decides most of the arguments. It is their money going to their tax account. You are the collection mechanism, not the taxpayer, and you do not get to keep, delay or approximate it.
When tax is actually owed
Whether PAYE comes off depends on what they earn for the year, measured against the SARS tax threshold and the rebates for the current tax year. Below the threshold, no income tax is payable and no PAYE should be deducted.
The figures move every March with the Budget, so a specific rand amount in an article ages badly. Get the current ones from the SARS tax deduction tables, which is the authoritative source and is updated when the tables change.
What matters more than the figure is the shape of it:
- Most staff on a domestic-scale wage fall under the threshold and no PAYE is deducted.
- Someone on a full-time small-business salary may well be over it.
- The test is annual earnings, so a monthly wage is annualised to check.
- Overtime, bonuses and allowances are part of remuneration. A December bonus can push someone over for that month even if the basic salary never would.
That last point is the practical trap. The salary is under the threshold all year, a thirteenth cheque arrives, and the month it lands has tax in it.
Registering as an employer
Once you are liable to deduct, you must be registered with SARS as an employer. Registration is done on eFiling or with an EMP101, and it gives you a PAYE reference number.
Registration is not a light commitment, and this is the part small employers underestimate. Once registered, you owe returns whether or not there is tax to pay:
- EMP201 monthly, declaring PAYE, UIF and SDL, due by the 7th of the following month
- EMP501 reconciliation, filed twice a year
- IRP5 certificates for each employee, produced out of the EMP501
A nil return is still a return. Registering and then going quiet produces penalties for the silence, not for the tax.
Our guide on registering as an employer walks through the registration itself.
UIF is a separate question, and it is not optional
This is the single most common confusion. UIF is not PAYE and does not follow the same test.
You can owe no PAYE at all and still owe UIF every single month. UIF is one percent from the employee and one percent from you, and it applies regardless of whether their earnings reach the income tax threshold. If they work more than 24 hours a month for you, they are in.
So the common household position is: no PAYE, UIF every month, registered with the UIF but not necessarily as a PAYE employer. That is a normal, correct state of affairs and it confuses people because they expect the two to travel together. See UIF contributions and what you owe for the detail.
SDL is the third one, and most small employers do not pay it. The Skills Development Levy only applies once your annual payroll passes the registration threshold set for it, which is well above what a household or a very small business pays out in a year.
Two ways to calculate the same tax
SARS publishes monthly deduction tables, and there is also the annual-equivalent formula method. They do not always produce an identical figure for the same salary, particularly with irregular earnings, and that difference is real rather than an error by either party.
If your bookkeeper's number and your payroll's number differ by a few rand, this is usually why. It squares up at assessment. It is worth knowing so you do not spend an afternoon hunting a bug that is a methodology difference.
What to do, in order
- Work out their annual earnings, including overtime and any bonus.
- Check them against the current SARS threshold and rebates.
- If no tax is owed, deduct nothing for PAYE, and say so on the payslip.
- Register as an employer if tax is owed, and file the EMP201 by the 7th.
- Do UIF regardless, monthly, whatever the PAYE answer is.
- Show every deduction on the payslip, so they can see what came off and why.
That last one is not a nicety. A deduction the employee cannot see is a deduction they cannot check, and an unexplained gap between the salary you agreed and the money that arrived is where trust goes.
WageDesk calculates PAYE and UIF on each payslip and shows them as separate lines with the figures behind them, so what came off and why is visible to both of you at the time, not reconstructed in February.
This article explains the rules in general terms. It is not tax advice, and the SARS tables change every March — check the current year's figures before relying on any calculation.