South Africa Payroll and Benefits Guide

What global businesses need to know about payroll in South Africa

With a population of around 60 million, and the third-biggest African economy by GDP, South Africa is always towards the top of the list of candidates for international expansion into Africa. The ‘Rainbow Nation’ has come on leaps and bounds since the transition away from apartheid in the early 1990s, and it supports a very wide range of businesses (the services/industry split is around 70/30).

South Africa has been through plenty of turbulence in recent years, both economically and politically, but it has a very welcoming attitude to incoming investment. There’s also the opportunity to generate substantial cost efficiencies in a country where wages are low compared to Western standards, and unemployment remains stubbornly above 30%.

If you can get to grips with its payroll and employment law characteristics, then you’re ready to go with an exciting business adventure into a vibrant culture. This guide is your ideal starting point.

Getting Started

South Africa has relatively few restrictions on foreign businesses opening companies or branches. However, before starting the process, it’s important to check the status of the tax treaty (if there is one) between South Africa and the company’s original country, to ensure that profits made in South Africa don’t end up being taxed twice.

The most common type of business formed is a proprietary limited company, which has no restrictions on shareholders and can be entirely foreign-owned despite being a separate legal entity. There’s also the advantage that only one registered director is required, and there is no minimum capital requirement. 

Companies should first reserve a name and file a Memorandum of Incorporation with the Companies and Intellectual Property Commission (CIPC). After this, companies 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 process is a lengthy affair and can take several months, although the costs involved are negligible.

Opening an in-country bank account is a legal requirement, but it does not necessarily have to be used for making payments.

Employment Considerations

All employees must be registered with the Department of Employment and Labour. South African labor legislation ensures employees (including foreign nationals) are treated fairly by their employers; it details policies on compensation as well as employees’ rights, working conditions, health and safety, discrimination, unemployment, and termination.

There is no set limit around probationary periods in South Africa, although the agreed term should be explicitly set out in the contract of employment. A three-month probation period is commonplace within most industries. Companies looking at bringing in foreign labor should also note that the South African government is currently introducing quotas on migrant workers that vary between different industries.

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

Overtime can only be worked with the agreement of the employee, is limited to three hours a day or ten hours a week, and is paid with a 50% premium. Work on public holidays and Sundays similarly requires employee consent and is paid with a 100% premium. However, there is a cut-off in place: anyone who earns more than ZAR 205,433.30 a year (approximately £8800; $11,200; €10,200) is not entitled to any overtime pay at all.

Notice periods are one week for employees with less than six months’ service, two weeks for employees with between six and 12 months’ service, and four weeks for those who have been with the company for a year or longer.

Compensation and Severance

South Africa introduced a national minimum wage for the first time in January 2019, as part of an effort to lift its lowest earners out of poverty. As of the end of 2023, the rate was 25.42 rand (ZAR) per hour (approximately £1.10; $1.40; €1.24). Lower rates apply to farm workers, domestic workers, and those employed on public works programs. Employees must be paid within seven days of the end of a particular period of earning. 

However, at the time of writing, an announcement was expected imminently from the Department of Employment and Labour over a further rise from 1 March 2024. You should keep an eye out for this change, and potentially further rises each March in the future. It should also be noted that the average wage in South Africa is significantly higher than this: as of the end of 2019, the national average was around ZAR 31,000 per month (approximately £1330; $1690; €1540).

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

Tax & Withholding Considerations

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

For the 2023/2024 tax year, South Africa’s range of seven progressive tax rates begin at 18% for the first ZAR 237,100 of annual income (approx. £10,200; $12,900; €11,800). The highest of 45% applies to earnings above ZAR 1,817,000 per year (approx. £79,000; $99,000; €90,000).

Foreign nationals are taxed on work provided or services rendered in South Africa, although tax treaties with other countries may provide certain levels of tax relief.

Social security contributions in South Africa are relatively small. Employers and employees each contribute 1% of earnings for unemployment insurance, while employers also contribute 1% for the Skills Development Levy. Perhaps the largest contribution employers have to make is to the Workers Compensation Fund, which varies significantly depending on employment type, employee earnings, and the level of risk involved. Foreign nationals are exempt from UIF contributions. 

Employee contributions in other areas such as healthcare are not compulsory. South Africa runs an insurance-based system for private healthcare, while public healthcare requires up-front payment, although it is part-subsidized.

Holiday and Leave Considerations

Employees are entitled to a minimum of a three-week block of leave (15 working days) in each 12-month period. Some employers offer an alternative accrual-based paid leave scheme in which employees earn leave at an hourly or daily rate according to a 1:17 ratio, which normally works out at 1.25 days per calendar month. Employees should also be paid for the 12 days of national holiday that South Africa observes each year; when public holidays fall on a Sunday, employees are normally entitled to the following Monday off.

Maternity leave entitlement is a minimum of four consecutive months, as long as the employee has worked at least 24 hours a month, although some employers voluntarily offer more than this. This leave is unpaid by employers, although mothers who have made contributions to unemployment insurance can receive maternity benefits. The amount depends on the policy taken out, and is capped at 60% of normal salary for the four months of leave.

There is no specific entitlement to paternity leave, but non-birthing parents are entitled to parental leave, which is ten days unpaid after children are born. Again, those making unemployment insurance payments can claim benefits here, of up to 66% of their salary.

Employees can receive a maximum of six weeks of sick pay, covered by the employer, over a three-year period – this means 30 days’ pay for those working five-day weeks, and 36 days’ pay for those on six-day weeks. This full entitlement only applies to workers with at least six months of service.

If an employee is injured at work, then employers must cover 75% of their regular salary from the fifth day of absence to the end of the third month, although employers can be reimbursed for this through the Workers Compensation Fund. The fund picks up the tab for absences longer than three months.

In Summary

The good news is that running payroll in South Africa isn’t overly complicated compared to some other countries. However, initial business set-up can be a long, drawn-out affair, and there are also some cultural considerations to take into account, too.

If your business isn’t accustomed to doing business in Africa, then it’s definitely worth considering partnering with a global payroll expert. They can help you cover off all the ins and outs of payroll and employment, so that you can focus on making the most of your opportunities in the Rainbow Nation.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.

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