Starting a Small Business in South Africa? Here's What You Need to Know About Payroll

Starting a business in South Africa is an exciting venture, but the moment you hire your first employee, you take on a set of legal obligations that you cannot afford to ignore. Payroll is one of those obligations. Getting it wrong can mean penalties from SARS, fines from the Department of Employment and Labour, and unhappy employees. Getting it right from the start saves you time, money, and stress down the road.

This guide covers everything you need to know about setting up payroll for your new South African business.

Register Your Business for Tax

Before you can legally pay employees, your business must be registered with the South African Revenue Service. There are several registrations you will need:

Company registration (CIPC). If you are operating as a private company (Pty Ltd), you will register with the Companies and Intellectual Property Commission. Sole proprietors do not need CIPC registration but still need to register with SARS.

Income tax registration. Your business must be registered as a taxpayer with SARS. This applies to all business structures.

Employer registration (PAYE, UIF, SDL). When you hire your first employee, you must register as an employer with SARS. This single registration covers PAYE (Pay As You Earn income tax), UIF (Unemployment Insurance Fund), and SDL (Skills Development Levy). You can register through the SARS eFiling portal, which is the quickest method, or at a SARS branch office.

Once registered, SARS will issue you an employer reference number. You will use this number for all payroll-related submissions and payments. Do not delay this registration. You are required to register within 21 business days of becoming an employer, and failure to do so can result in penalties.

Understand Your PAYE Obligations

As an employer, you must deduct income tax from your employees' salaries and pay it to SARS each month. This is the PAYE system. The amount you deduct depends on the employee's annual taxable income and is calculated using the SARS tax tables, which are updated each year.

Key points about PAYE:

• PAYE must be deducted from every payment to the employee, not just the main salary. This includes bonuses, overtime, and most allowances.
• You must use the correct tax year's tables. The South African tax year runs from 1 March to the end of February.
• Employees below the tax threshold (R95,750 per year for under-65s in the 2025/2026 tax year) do not have PAYE deducted, but you still need to report their earnings.
• PAYE must be paid to SARS by the 7th of the month following the payment. Late payments attract a 10% penalty plus interest.

Register for and Pay UIF

UIF is a mandatory contribution for almost all employees. The total contribution is 2% of the employee's gross remuneration: 1% is deducted from the employee's pay and 1% is contributed by the employer.

You must start contributing from the very first month of employment. UIF contributions are included in your monthly EMP201 declaration to SARS and paid at the same time as PAYE.

Make sure you show the UIF deduction clearly on each employee's payslip. Employees may need to claim UIF benefits in the future, and their payslips serve as proof that contributions were made.

Know the National Minimum Wage

South Africa has a national minimum wage that applies to most workers. As of 2025, the national minimum wage is R27.58 per hour. This is reviewed annually and tends to increase each year.

Some important details about the minimum wage:

• It applies to all workers regardless of the sector, with limited exceptions such as workers employed under expanded public works programmes.
• Farm workers and domestic workers are now covered by the standard national minimum wage rate.
• You cannot pay below the minimum wage even if the employee agrees to it. Any contract provision that pays less than the minimum wage is void.
• The minimum wage applies to the basic wage only, not including allowances. So you cannot claim compliance by adding a transport allowance to bring the total above the minimum.

For a standard 45-hour work week (the maximum ordinary hours under the BCEA), the minimum wage works out to approximately R5,380 per month. Make sure your employment contracts and payslip calculations reflect at least this amount for the ordinary hours worked.

Issue Payslips Every Pay Day

As discussed in our earlier articles, Section 33 of the BCEA requires you to issue a payslip with every payment. There are no exceptions for small businesses. Even if you have only one employee, you must provide them with a written payslip that shows their gross pay, every deduction, and their net pay.

Payslips serve multiple purposes: they are your proof of compliance, your employees' proof of income, and a record that both parties can refer to if any disputes arise. Keep copies of all payslips for at least three years.

Set Up Employment Contracts

Before your first employee starts work, you should have a written employment contract in place. While the BCEA does not make a written contract mandatory in all cases, it is strongly recommended. The contract should specify:

• The employee's job title and description
• The start date and whether the position is permanent or fixed-term
• Working hours (which must comply with the BCEA's limit of 45 ordinary hours per week)
• Remuneration, including how it is calculated and when it is paid
• Leave entitlements (annual leave, sick leave, family responsibility leave)
• Notice periods for termination
• Any deductions that will be made from the employee's pay

A clear employment contract protects both you and the employee and forms the foundation of a professional working relationship.

Skills Development Levy (SDL)

If your annual payroll exceeds R500,000, you must also pay the Skills Development Levy. SDL is calculated at 1% of the total payroll (all employees' remuneration combined) and is paid to SARS monthly as part of your EMP201 declaration.

If your payroll is below R500,000 per year, you are exempt from SDL but must still submit nil returns if you are registered. Many new small businesses fall below this threshold initially but should be aware that they will need to start paying SDL as their payroll grows.

Keep Accurate Records

The BCEA requires employers to keep records of each employee's name, occupation, time worked, remuneration paid, and deductions made. These records must be kept for three years after the employee leaves your company.

Good record-keeping is not just about compliance. It protects you in case of labour disputes, SARS audits, or employee claims. A well-organised record system also makes your annual tax reconciliations much simpler.

Simplify Everything with Origami Pay

Setting up payroll can feel overwhelming when you are also trying to get your business off the ground. That is exactly why Origami Pay exists. The platform handles the complex parts of payroll for South African small businesses: PAYE calculations using current SARS tax tables, automatic UIF deductions, and professional payslip generation that meets all BCEA requirements.

You do not need an accountant or expensive enterprise software to handle payroll properly. Origami Pay lets you add your employees, generate compliant payslips, and download professional PDFs in minutes. Your first 30 days are free, with no credit card required.

Start your business on the right foot. Register for Origami Pay today and handle payroll like a professional from day one.