You won’t be the first start-up
that appointed their first employee without knowing exactly what is
expected from them when it comes to managing their Small Business PAYE obligations.
So will you be one of the exceptions educating yourself beforehand?
Employee’s tax – PAYE
Employee’s tax is money that is deducted by an employer from an employee’s wage or salary on a regular (usually monthly) basis. The amount of tax that should be deducted is calculated using tax tables that are issued by SARS each year.
You will be deemed to be an employer from the 1st employee that you employee, which includes yourself as the director of the company. Once you are a registered employer, there are certain statutory requirements that you may have to fulfill from time-to-time. Let’s have a look at what those are:
What are your monthly obligations?
The Basic Conditions of Employment Act requires you to issue all employees with a monthly salary slip, reflecting their gross remuneration as well as any monies you may have deducted from his/her salary. At the end of each month, after deducting the required tax from each employees’ salary, you are required to pay over to SARS all the taxes deducted on behalf of your employees. You are required to:
- Calculate all the taxes deducted from each employees’ salary and write it on the form called an EMP201 form
- Submit the form on SARS E-filing and make an electronic or manual payment.
SARS must receive the form and the cheque or electronic payment by the 7th of the next month. For example, the PAYE for January must reach SARS by 7 February. If it is late, SARS will fine the employer. If the seventh day falls on a weekend or public holiday the Return and payment must be submitted on the last working day before the weekend or public holiday.
What are your annual obligations?
Twice a year, you will be asked to submit a reconciliation to SARS that reflects all the PAYE that you have deducted each month and reconcile that with the IRP5 certificates of all your employees. These reconciliations are due before the end of May and October of each financial year. Once SARS has approved you final recon submitted in May, you must issue each employee a form called an IRP5 form, which says how much the employee has earned that year, what deductions have been made and how much tax the employee has paid that year. The employee must keep the form in a safe place as he/she will be required to submit this to SARS on their personal Income Tax return.
In cases where the employer has, for valid reasons, not deducted employees’ tax, the employer must provide the employee with an IT 3(a) certificate.
The law around payment of tax for CC members and company directors is therefore complicated and difficult to work out.
Casual employees and tax
From 2013, the law differentiates between standard – and non-standard employment. An employee falling into the category of standard employment will have 25% PAYE deducted from his/her salary. An employee that is deemed to be in standard employment is defined as:
An employee that works for at least 22 hours per week and works for one employer only.
The following applies as further guidelines to the deduction of PAYE for casual employees:
- Employee is not in standard employment and works at least 5 hours per day and earns less than R261 for that day – no tax to be deducted.
- Employee is required to work at least 22 hours a week and is in standard employment – deduction tables.
- Employee is not in standard employment and works less than 5 hours a day and earns less than R261 for that day – 25% deduction.
- Employee is not in standard employment and works at least 5 hours a day and earns more than R261 for that day – 25% deduction.