5 Things to Know Before Hiring Your First Employee

Hiring your first employee is a big moment for your business. It also turns you into something new in the eyes of the South African Revenue Service (SARS) and the Department of Employment and Labour (DEL): an employer. That changes the paperwork you owe, the registrations you need, and the monthly admin you're now responsible for.

This guide covers the five things every first-time employer in South Africa needs to get right: the contract, the SARS registrations, COID, the monthly payroll cycle, and your basic labour law duties. No jargon, no jumping between government portals to figure out what comes next.

Govchain handles the employer side of this for you. We register your business for PAYE (Pay-As-You-Earn tax), UIF (the Unemployment Insurance Fund) and SDL (the Skills Development Levy), get you onto COID (the workplace injury scheme), and run your monthly payroll — payslips, EMP201 returns, IRP5 certificates, the lot. One subscription, done in days, not weeks.

1. Get the employment contract right

Every employee must have a written contract. The Basic Conditions of Employment Act (BCEA) sets out what it has to include — you can create a free, BCEA-compliant one with our employment contract generator. At minimum:

The job title and a short description of the work
Working hours and the days they work
Salary or wage, and how often you pay (weekly, fortnightly, monthly)
Annual leave, sick leave and family responsibility leave
Notice periods on both sides
The probation period, if there is one

A good contract protects you and your employee. It also means you both agree on the rules from day one, which avoids most disputes later. Use a proper template rather than writing it from scratch. Small mistakes here cause big problems if things go wrong.

2. Register as an employer with SARS

The day you hire someone earning above the tax threshold (around R8,250 a month for the 2026/2027 tax year), you have 21 days to register as an employer with SARS. There are three registrations, and most small businesses need all of them:

PAYE (Pay-As-You-Earn): the tax you deduct from your employee's salary every month and pay to SARS on their behalf. Register for PAYE.
UIF (Unemployment Insurance Fund): a small monthly contribution (1% from you, 1% from the employee, capped) that gives workers short-term cover for unemployment, maternity, illness or adoption. Register for UIF.
SDL (Skills Development Levy): 1% of your total payroll, paid to SARS, that funds worker training. You only register if your annual payroll is above R500,000.

These three are submitted together every month on a single return called the EMP201, and reconciled twice a year on the EMP501. Missing the deadline (the 7th of the following month) gets you penalties and interest, fast. This is the part most first-time employers underestimate.

3. Register for COID and get your Letter of Good Standing

COID stands for Compensation for Occupational Injuries and Diseases. It's a state-run insurance scheme. If an employee gets hurt or sick because of their job, COID pays out — not you. Without it, that bill lands on your business.

Every employer in South Africa must register, and every year you renew by submitting your payroll figures and getting a Letter of Good Standing. That letter also turns up later when you tender for work, register on the Central Supplier Database, or apply for certain licences.

4. Set up your monthly payroll

Once you have an employee and your SARS registrations are live, payroll runs every month, on time, every time. Here's what one month looks like:

Work out your employee's gross salary (basic pay, plus overtime, bonus, allowances)
Calculate PAYE using the SARS tax tables for the year
Deduct UIF (1% from the employee)
Add the employer side: 1% UIF and, if applicable, 1% SDL
Pay the employee their net amount via EFT (electronic funds transfer)
Issue a payslip showing the breakdown
Submit the EMP201 to SARS by the 7th of the next month and pay what's due
At year-end, issue an IRP5 (a tax certificate) to each employee for their personal tax return

Each step has a deadline and a form. Get one wrong and the next one breaks. This is why most small businesses either spend a chunk of every month on payroll, or hand it over to someone who does it all year round.

Govchain runs your monthly payroll for you: calculations, payslips, EMP201 submissions, year-end IRP5s. You never miss a SARS deadline.

Want to see what an employee will actually take home before you hire? Try the free PAYE and UIF calculator for the 2026/2027 tax year.

5. Know the labour law basics

The BCEA (Basic Conditions of Employment Act) sets the floor on how you can treat employees. Some of the rules first-time employers most often get wrong:

Leave. Every full-time employee gets 21 consecutive days of paid annual leave per year (about 15 working days). Sick leave runs in three-year cycles: 30 days of paid sick leave per cycle. Family responsibility leave is 3 days a year for things like a child being born or a close family member dying.

Overtime. Overtime is voluntary. You and the employee must agree to it. Cap is 3 hours a day or 10 hours a week. The rate is 1.5x normal pay on weekdays and 2x on Sundays and public holidays.

Minimum wage. The national minimum wage applies to almost all employees. From March 2026 it sits at R28.79 an hour. Domestic workers and farm workers are now on the same rate. Even part-time and casual staff fall under it.

Pay slips. Every employee must get a written payslip every payday. It must show their name, the period, the gross pay, every deduction line by line, and the net amount. This is a legal requirement, not a courtesy.

Disputes. If a serious dispute happens, the first stop is the CCMA (Commission for Conciliation, Mediation and Arbitration). You don't need a lawyer for the first step. Most cases settle there.

What it actually costs to take on your first employee

The salary is only part of it. Realistic monthly cost on top of the salary:

UIF: 1% of salary (employer side), capped at the UIF earnings limit
SDL (if your payroll is above R500,000/year): 1% of salary
COID: roughly 0.5% to 2% of salary, depending on your industry
Once-off: employment contract, PAYE/UIF/SDL/COID registrations
Monthly: payroll calculations, payslips, EMP201 submission, payment to SARS

A managed payroll subscription typically costs less than what your time on monthly payroll admin is worth, and removes the SARS-penalty risk entirely.

Where first-time employers get stuck

Hiring before registering. A lot of new employers pay an employee for one or two months before realising they were meant to register for PAYE first. SARS backdates the obligation, plus interest.

Mixing freelancers and employees. A regular monthly payment to one person, doing set hours under your direction, looks like an employee to SARS — even if you both call it "freelance". The fix is simple if you handle it early.

No written contract. Verbal agreements are still legally binding under BCEA, but the moment something goes wrong, the lack of a written contract works against you, not the employee.

Missing the 7th. EMP201 is due on the 7th of the following month. Penalties stack from day one. Many small businesses lose more to SARS penalties in their first year than they would have spent on a payroll service.

Forgetting the IRP5 in May. Each year you must give every employee an IRP5 tax certificate by the end of May. Without it, they can't file their personal tax return — and SARS holds you, the employer, responsible.

Not renewing the COID Letter of Good Standing. It expires every year. Most employers only notice when a tender or supplier registration fails because of it.

FAQ

Do I need to register for PAYE if I only have one employee? Yes, if that employee earns above the tax threshold (around R8,250 a month for the 2026/2027 tax year). If they earn below, you may still need to register for UIF and COID.

What's the difference between UIF and COID? UIF covers the employee if they lose their job, take maternity leave, or fall ill outside work. COID covers them if they get hurt or sick *because of* the job. Both are compulsory.

Can I run payroll on a spreadsheet? Technically yes. In practice, the PAYE tax tables change every year, the EMP201 deadlines are fixed, and getting the numbers wrong costs more than the software or service. Most owners switch to managed payroll within a few months.

How long does it take to register for PAYE, UIF and SDL? With Govchain it's typically a few business days for all three. Done directly through SARS eFiling and the Department of Labour, it can take weeks if the supporting documents aren't right the first time.

What if my employee already has a tax number? Then you skip that step. You still need to register your business as an employer for PAYE — your employee's own tax number does not cover that side.

Do I need to register for SDL if I'm a tiny business? Only if your annual payroll is over R500,000. Below that, you skip SDL but still pay PAYE and UIF.

Ready to hire your first employee?

Govchain handles the full employer setup — PAYE, UIF, SDL and COID — and runs your monthly payroll for you. Payslips, EMP201s, IRP5s, all in one place, fully managed, in days, not weeks.