How to do payroll in South Africa: a small business guide

Payroll is the monthly job of paying your employees, working out their tax and benefit deductions, paying the South African Revenue Service (SARS) what you owe, and giving each person a payslip. It sounds simple. In South Africa it isn't. Get one date or one calculation wrong and SARS adds penalties and interest, fast.

This guide walks through one full month of payroll for a South African small business: what to register for first, what to calculate, what to submit, what to give your employees, and where most owners trip up. Plain language, real numbers, no jargon.

Govchain runs your monthly payroll for you. We calculate PAYE (Pay-As-You-Earn tax), UIF (Unemployment Insurance Fund) and SDL (Skills Development Levy), produce compliant payslips, file your EMP201 with SARS by the 7th, and issue IRP5 tax certificates at year-end. One subscription, fully managed, in days, not weeks.

What payroll actually involves

Every month, for each employee, you must:

Work out the gross salary (basic pay plus overtime, bonus, allowances)
Deduct PAYE (the income tax SARS collects via your business)
Deduct UIF at 1% of the salary
Add the employer-side contributions: 1% UIF and, if you qualify, 1% SDL
Pay the net amount to your employee
Issue a written payslip
Submit the EMP201 return to SARS and pay what's due, by the 7th of the next month
Keep records of everything for five years

Twice a year you reconcile (the EMP501). Once a year you issue an IRP5 (a tax certificate) to each employee. That's the cycle.

Before you start: register as an employer

Before you can run payroll, you need to be registered with SARS as an employer. There are three registrations:

PAYE: required if any employee earns above the tax threshold (around R8,250 a month for the 2026/2027 tax year). Register for PAYE.
UIF: required for almost all employees, even part-time. Register for UIF.
SDL: required if your annual payroll is above R500,000.

You also need to be registered for COID (the workplace injury scheme) and renew your Letter of Good Standing every year. Register for COID.

SARS gives you 21 days from the day you hire your first employee to register. Backdating happens, with penalties.

The monthly payroll cycle, step by step

Step 1: Calculate gross salary

Start with the basic pay agreed in the contract. Add overtime (1.5x normal pay weekdays, 2x on Sundays and public holidays). Add any bonus, commission or allowance for the month. That total is the gross salary.

Step 2: Calculate PAYE

PAYE is the income tax SARS collects through you. The amount depends on the employee's annual salary and the SARS tax tables for the year (these change every March). You calculate the annual tax owed, divide by 12, and that's the monthly PAYE deduction.

For example, an employee earning R20,000 a month earns R240,000 a year. Using the 2026/2027 tax tables, all of that sits in the first bracket (18% on income up to R245,100), so the annual tax is R43,200. After the primary rebate of R17,820 (for under-65s), it's R25,380 per year, or R2,115 per month in PAYE.

If the employee is over 65 or 75, additional rebates apply. To skip the maths, plug the salary into our PAYE and UIF calculator and it works out the take-home pay for you.

Step 3: Deduct UIF

UIF is a fixed 1% of the salary, deducted from the employee. It's capped on the first R17,712 a month (the UIF earnings ceiling for 2026/2027). So even on a R20,000 salary, the deduction is 1% of R17,712 = R177.12.

Step 4: Add the employer side

You pay another 1% UIF on top, capped the same way. If your annual payroll is over R500,000, you also pay 1% SDL on the full salary. For our R20,000 example: R177.12 UIF + R200 SDL = R377.12 that comes out of your business, not the employee.

Step 5: Pay the employee

Pay the net amount via EFT (electronic funds transfer):

Gross: R20,000
Less PAYE: R2,115
Less UIF: R177.12
Net pay: R17,707.88

Step 6: Issue a payslip

Every employee must get a written payslip on payday. By law (the BCEA), it must show their name and ID, the pay period, the gross pay, every deduction line by line, the employer's contributions, and the net amount paid. Email is fine if the employee has access to email.

Submitting to SARS

EMP201: every month

By the 7th of the following month, you submit an EMP201 return on SARS eFiling. It declares the total PAYE, UIF and SDL for all employees combined, and you pay that total to SARS by the same deadline.

For our example with one employee:

PAYE: R2,115
UIF (employee 1% + employer 1%): R354.24
SDL (1%): R200
Total to pay SARS: R2,669.24

Late EMP201s get a 10% penalty plus interest at the prescribed rate. Missing it twice running is the single most expensive mistake first-time employers make.

EMP501: twice a year

The EMP501 is the reconciliation. You file it in October (interim, covering March to August) and May (annual, covering the full tax year March to February). It reconciles every monthly EMP201 you filed against the actual IRP5 certificates for each employee. SARS uses it to check you didn't underpay or overpay across the year.

IRP5: once a year

By the end of May each year, every employee must get an IRP5 (tax certificate) showing their total earnings, deductions and PAYE for the year. They use it to file their personal income tax return with SARS. If you don't issue IRP5s, your employees can't file, and SARS holds you responsible.

What a compliant payslip needs

Under the Basic Conditions of Employment Act (BCEA), every payslip must contain:

Employer name and address
Employee name and occupation
Pay period covered
Hours worked (if relevant)
Gross pay
Each deduction listed separately (PAYE, UIF, pension, medical aid, etc.)
Net pay
Employer contributions (UIF, SDL)

Most payroll software, and any managed payroll service, produces these by default. A spreadsheet payslip works only if it covers all the fields above and you remember to update the format every time the law changes.

What it costs to run payroll yourself

The hidden cost of DIY payroll is your time and the penalty risk. Concrete monthly costs:

Payroll software: R200 to R600 per month for one to five employees
Your time: 2 to 6 hours a month, every month, on calculations, payslips and the EMP201
Annual cost of one missed EMP201 deadline: typically R500 to R2,000 in penalties and interest, per missed month
Annual cost of one missed EMP501 reconciliation: starts at 1% of total PAYE and climbs

A managed payroll subscription typically costs less than the time and penalty risk combined, and the SARS work is done by people who do it every day.

Where small businesses get stuck

Treating freelancers as not-employees. A regular monthly payment to one person who works set hours under your direction looks like an employee to SARS, even if you both call it freelance. SARS can reclassify and backdate the PAYE bill.

Using last year's PAYE tax tables. SARS updates the tables every March. Old tables under-deduct, and you owe SARS the shortfall plus penalties.

Forgetting the employer-side UIF. Many owners deduct the 1% from the employee and forget the matching 1% from the business. The shortfall surfaces in the EMP501 reconciliation.

Paying late, by even one day. The 7th-of-the-month deadline is hard. There's no grace period. The penalty triggers from day one.

Not registering for SDL when payroll crosses R500,000. Easy to miss as the business grows. SARS backdates the registration plus all the missed payments.

Skipping IRP5s. If your employees can't file their personal tax returns because you didn't issue an IRP5, that's on you, not them. SARS issues penalties to the employer.

FAQ

Can I do payroll on a spreadsheet? Technically yes. The PAYE tables change every year, the UIF cap changes, the EMP201 deadline is fixed, and one wrong cell costs more than a year of payroll software or a managed service. Most owners switch within a few months.

Do I need payroll software if I have one employee? Software is overkill for one or two employees if you're confident with the SARS tax tables and the EMP201 process. From three employees up, software (or a managed service) saves real time and removes the calculation risk.

What if my employee earns under the tax threshold? You don't deduct PAYE, but you still deduct UIF (1%) and pay the matching 1% from the business. You may not need to register for PAYE at all, but you do need to register for UIF.

What's the difference between EMP201 and EMP501? EMP201 is the monthly return: how much PAYE, UIF and SDL you owe SARS this month. EMP501 is the twice-yearly reconciliation: it ties all your EMP201s together and checks they match the IRP5s for each employee.

How do I pay SARS the EMP201 amount? Through SARS eFiling, by EFT to SARS's bank account, or via your business banking app's "SARS payments" function. Reference must be the unique payment reference SARS gives you.

Do I need a separate bank account for payroll? No, but most owners find it cleaner to keep payroll cash flow in a dedicated business account. Open a business bank account.

Ready to hand payroll over?

Govchain runs your monthly payroll, calculates PAYE, UIF and SDL, files your EMP201 with SARS, and issues year-end IRP5s. One subscription, no SARS deadlines to remember, no penalty risk.

Set up PAYE with Govchain · Register for UIF · Register for COID