PAYE (Pay-As-You-Earn) in South Africa: A Guide for Small Businesses

PAYE is the system for withholding employees’ income tax in South Africa. By law (the Income Tax Act’s Fourth Schedule), employers must deduct tax from every employee’s salary or wage and pay it to SARS each month. In practice, PAYE is administered via two main SARS processes: the monthly EMP201 return and the EMP501 reconciliation. Small businesses and startups with employees must register for PAYE and file these returns or face penalties.

Who must register for PAYE?

Any business that pays taxable salaries must register for PAYE. There’s no minimum size exemption – even a one-person startup must register once it pays an employee above the tax threshold. In fact, Admin Boss notes that small or newly-registered companies “must remain compliant” and register for PAYE “as soon as the first employee earns a salary more than the tax threshold”. (For 2024/25 the annual tax threshold is R95,750 for employees under 65, or about R7,979 per month.) Once registered, the employer will receive a PAYE reference number and must begin deducting employees’ tax each payday.

Admin Boss offers a PAYE Registration guide that walks through registering with SARS and related obligations.

Monthly EMP201 Submissions

Each month, the employer must declare and pay all payroll taxes for that month using the EMP201 form. This includes PAYE (employees’ tax), the Skills Development Levy (SDL), and UIF contributions. In other words, EMP201 is essentially a self-assessment that reports total payroll deductions (PAYE) and contributions (SDL/UIF) for the month. The consolidated amount must be paid to SARS by the due date.

• Deadline: The EMP201 form and payment are due by the 7th day after the end of each payroll month (for example, the return for May payroll is due by 7 June). If the 7th is a weekend or holiday, you must file and pay by the last business day before that date.
• Filing: Employers should submit EMP201 via SARS eFiling or e@syFile. (Physical forms dropped off or mailed are no longer accepted.) The EMP201 must be fully and accurately completed – payments cannot be made without first filing the return.
• Payment: After submission, pay the total due (PAYE + SDL + UIF) into SARS with the correct reference. SARS will automatically allocate the payment across PAYE, SDL, and UIF as declared on the EMP201. Any penalties or interest (if applicable) must also be included on the EMP201.
• Corrections: If you discover an error in a previous month’s EMP201, you can correct it immediately by submitting a Request for Correction (RFC) on that return. It’s best to fix mistakes promptly rather than wait for year-end.

In short, submitting EMP201 each month keeps your payroll taxes on track. As Admin Boss summarizes, “PAYE compliance includes: Monthly EMP201 submissions, [and] bi-annual EMP501 reconciliations”. Filing late or with missing information can trigger interest or penalties, so timeliness and accuracy are critical.

PAYE Reconciliation (EMP501)

While EMP201 is about monthly payments, the EMP501 is the reconciliation process done twice a year. The EMP501 ties together all of your payroll data and tax certificates to confirm that what you declared matches what you paid and what you reported to employees.

• Purpose: In the EMP501, you submit a summary of all EMP201 returns for the period, along with all employee tax certificates (IRP5/IT3(a)). SARS then checks that “the values of tax on the IRP5 certificates” match your cumulative EMP201 declarations and actual payments. Any discrepancies must be resolved – for example, by correcting earlier EMP201 errors or issuing missing certificates.
• Frequency and Deadlines: There are two reconciliation periods each year. An interim reconciliation (covering March–August) is filed around September/October, and a final annual reconciliation (covering the full tax year March–February) is filed by about late May. These dates are published by SARS each year.
• Contents: The EMP501 package includes all IRP5/IT3(a) certificates for your employees (which you issue to them and submit to SARS) as well as the EMP501 form itself. The goal is to show that total PAYE declared equals total PAYE on certificates and payments made. If any adjustments are needed (e.g. if an employee left or rates changed), they are made here.

In practical terms, think of EMP501 as a “year-end audit” of your payroll. It “ensures that everything you’ve declared and paid over… is correct,” according to industry guides. It also drives SARS’s payroll data: the IRP5 certificates submitted will pre-populate employees’ personal income tax returns (ITR12), so accuracy is very important. Admin Boss emphasizes that EMP501 is a “big deal for staying compliant” – even though it only happens twice a year, it ties up your payroll records and confirms compliance.

Example: Calculating and Paying PAYE

To illustrate, consider a simple payroll. Suppose your business has one employee who earns a monthly salary of R15,000. Here’s how PAYE might be calculated and paid:

• SARS provides monthly tax tables (or you can calculate from the annual tax brackets). The annual tax threshold is R95,750 (for <65 age), so the monthly tax-free portion is about R7,979. For a R15,000 salary, the taxable income per month is R15,000 – R7,979 = R7,021.
• The tax rate on that R7,021 (in this bracket) is 18%. So monthly PAYE = R7,021 × 18% ≈ R1,264. (Using 2024/25 tax rates, this matches the SARS tables.)
• In addition, you must deduct UIF: 1% from employee (R150) and 1% from employer (R150). If you’re subject to SDL, that adds another 1% of total salaries (R150 from employer) as well.
• On your EMP201 for that month, you would declare PAYE = R1,264, UIF = R300 (employee + employer portions), and SDL = R150 (if applicable). You then pay the total R1,264 + R300 + R150 = R1,714 to SARS by the 7th of the next month. You must submit the EMP201 form (showing these amounts) at the same time.

Each following month you repeat this process (with any new hires or salary changes). At year-end, when you do the EMP501, you would confirm that the total R1,264 × 12 = R15,168 of PAYE (plus all UIF and SDL paid) matches the amounts on the IRP5 certificate you issue to the employee. If there’s any shortfall or over-payment, the reconciliation handles the adjustment.

Key Takeaways and Compliance Links

• Register early: As soon as you hire staff, register for PAYE (and linked UIF/SDL) with SARS. Admin Boss’s post-registration guide highlights this as a critical next step.
• File EMP201 monthly: Every month’s payroll taxes must be declared on EMP201 and paid by the 7th of the next month. Use eFiling for best reliability.
• Do EMP501 twice a year: Reconcile all your PAYE/SDL/UIF and issue IRP5s during the interim (Sept/Oct) and final (May) reconciliation periods. This completes the payroll tax process for the year.
• Use corrections if needed: If you make an error on an EMP201, fix it right away via a Request for Correction rather than waiting for EMP501. This ensures EMP501 can be filed smoothly.
• Watch deadlines: SARS penalizes late or incorrect submissions. Missing the EMP201 deadline or leaving fields blank can trigger penalties and interest. To stay compliant, consider professional help – for example, Admin Boss offers services to manage PAYE, UIF, COIDA, and other compliance obligations for small businesses.

For further guidance, consider Admin Boss’s dedicated resources:

• PAYE Registration South Africa – How to register as an employer for PAYE, UIF, and SDL.
• After-Registration Checklist – Steps new companies should take, including appointing a public officer and registering for UIF/PAYE.
• Business Compliance Services – Overview of Admin Boss’s support for company registration, SARS compliance, and more.

Frequently Asked Questions About PAYE

What is PAYE and who must register for it?

PAYE (Pay-As-You-Earn) is the system where employers deduct employees’ income tax from their salaries and pay it to SARS every month. Any business in South Africa that pays taxable salaries or wages must register for PAYE as soon as an employee earns above the annual tax threshold.

What is an EMP201 return and when must it be submitted?

The EMP201 is a monthly declaration that employers submit to SARS to report PAYE, UIF, and Skills Development Levy (SDL). It must be submitted and paid by the 7th of the month following the payroll month. Late or incorrect EMP201 submissions can result in penalties and interest.

How does PAYE reconciliation (EMP501) work?

PAYE reconciliation is done through the EMP501, which is submitted twice a year. The employer reconciles all EMP201 submissions with employee tax certificates (IRP5/IT3(a)) to ensure the PAYE declared, paid, and reported to employees matches exactly.

How is PAYE calculated?

PAYE is calculated using SARS tax tables based on the employee’s taxable income. For example, if an employee earns R15,000 per month, PAYE is calculated after deducting the monthly tax-free threshold and applying the relevant tax rate. The employer deducts this amount from the salary and pays it to SARS.

What happens if PAYE or EMP201 submissions are missed?

Missing PAYE payments or EMP201 submissions can result in a 10% late payment penalty, interest charged by SARS, and possible compliance notices. Employers should correct errors as soon as possible and submit outstanding returns to reduce penalties.