What to know about PAYE, UIF, and SDL as an employer.
Introduction to PAYE, UIF, and SDL
As a new employer, it can get a bit confusing trying to understand what you are and aren’t responsible for in terms of employer contributions. So, we’ve put together all the information you need to help make things clearer and ensure you comply with labour regulations and tax requirements.
Firstly, what do all these acronyms mean?
PAYE, UIF, SDL. These are the major mandatory contributions that employers need to make. But what do those acronyms mean? A good place to start in understanding your employee contribution responsibilities is to first learn about the contribution types and what they are, and then determine whether you’re responsible for them or not.
What is PAYE?
PAYE stands for Pay As You Earn. It is the tax that is required by law to be deducted by the employer from the employee’s remuneration. PAYE is calculated on a monthly basis and is paid directly to SARS from the employer. If you pay someone on a monthly basis, PAYE is calculated by taking their total earnings over the 12-month period and then applied to the SARS tax table to calculate the annual tax amount. Once this has been done, the annual amount will then be divided by 12, deducted, and paid over to SARS.
What is UIF?
The Unemployment Insurance Fund provides a form of short-term relief to workers if they happen to become unemployed or unable to work for medical reasons. UIF is also there to make provisions for the dependents of a deceased worker as well as in cases where there may be a loss of income due to a reduction in working hours.
All eligible workers in South Africa are required to be registered for UIF and to contribute towards the fund on a monthly basis. UIF is calculated at 2% of an employee’s monthly salary, where 1% needs to be paid by the employer, and the remaining 1% is deducted from the employee's salary. UIF is normally paid directly by the employer on the employee’s behalf.
What is SDL?
SDL, known as the Skills Development Levy, is imposed by SARS to encourage both the learning and development of workers in South Africa and is solely determined on an employer’s salary bill. If your payroll is above R500 000 per month, you are subject to pay 1% of the total amount paid in salaries to employees and are subject to pay this fee to SARS on a monthly basis. This 1% includes all aspects from wages, overtime, bonuses, and more.
When do I need to register for PAYE, UIF, and SDL?
Now that all these terms have been clarified, we can explore whether you’re responsible for these deductions, and when and where you need to register in order to make these contributions to SARS. As an employer, if you are paying any form of a salary to an employee/s and even yourself, you are subject to register for PAYE on eFiling. Once you have registered for PAYE, you will automatically be registered for UIF (Unemployment Insurance Fund) and receive a UIF number.
Employers will need to actively register for SDL with SARS. All employers are required by law to register for SDL within the first 21 days of becoming an employer. This is not valid if employees are not subject to normal tax. Although some employers may even be exempt from paying the 1% SDL levy, all must be registered.
What are my responsibilities as an employer?
As an employer, you are subject to deduct PAYE if you are paying any form of a salary. When paying employees a salary, it is recommended that this is done with a reputable payroll system where you can keep track of all payments and deductions made. Trying to keep track of this through an Excel spreadsheet may cause issues and errors in the future. When it comes to UIF, as an employer, you will be responsible for paying a 1% contribution per employee’s salary and up to a total of R177,12 per employee. The other 1% will be contributed by the employee themselves.
With the Skills Development Levy, you are subject to make your 1% contribution of your total payroll, per month and without any limits, to SARS if your payroll is over R500 000 per annum. It is crucial for you to take these factors into consideration when becoming an employer.
Can I call everybody an independent contractor to avoid PAYE and other contributions?
The contributions that an employer needs to make to SARS can amount to quite a lot. However, you may think there is a way out if you call someone an independent contractor, but it’s not that easy. If any of the below criteria are met, the employee is determined a full-time employee and may not be classified as an independent contractor.
The following criteria are subject to the control or direction of another person, organisation, and company:
1. If the way the person works, and their hours, are controlled by you.
2. The person is economically dependent on your company.
3. The person is provided with tools of trade or work equipment.
4. The person only works for or renders services to your company.
When looking at the above, it’s unlikely a person who works for you on a full-time basis can be considered an independent contractor.
As an employer, it is important to understand what you are and aren’t responsible for in terms of employee contributions in order to remain compliant with SARS regulations and the law.
For more information and advice, contact Cloudworx today.