Employing staff members indicates healthy growth of your business, but it also comes with added responsibility – and this is true in relation to your tax responsibilities as well. As an employer of staff, SARS requires that you register for employees’ tax.
Effectively, this makes you, the employer, an agent of the Government, deducting from the earnings of your employees and paying this tax over to SARS each month. This functions as credit that is set off against the final tax liability of your employees, which is determined once a year.
SITE Tax & PAYE
Employees’ tax includes SITE (Standard Income Tax for Employees) and PAYE (Pay-As-You-Earn). SITE is not a separate tax, it is merely a method that means employees who earn less (not exceeding R120 000 annually) than a certain amount pay income tax as a full and final liability. The SITE liability of an employee must be determined by the employer at the end of the employee’s tax period or at the end of the tax year. The amount is determined using the annual tax table.
PAYE on the other hand is deducted and paid over to SARS on a monthly basis. For more on how to determine the amounts to be deducted refer to the Guide for Employers in Respect of Employees’ Tax.
You have to register as an employer for employees’ tax if you pay salaries that exceed the tax thresholds. In other words, your employees become liable for tax if their annual salary is R59 750 for individuals under 65 years, R93 150 for individuals over 65 years and R104 261 for persons 75 and older, and need to be taxed accordingly.
Taxation of Independent Contractors
If you have independent contractors working for you under subcontractor agreements, they can be made responsible for their own tax payments, thus relieving you of the hassle of having to send in monthly PAYE for people who work for you on a contract basis. But, make sure that you have proper contract agreements in place before you wash your hands of the responsibility of contractors’ PAYE.
SARS can still query why you haven’t paid PAYE for these contractors if it comes to light that they haven’t been paying tax themselves, and it pays to have all the paperwork in place. It’s also a good idea to ask small contractors to include their tax registration number on their invoice as an additional measure to ensure that they are indeed registered for, and paying tax. From a casual or part-time employee point of view, bear in mind that you have to deduct 25% tax from casual workers if you pay them more than R65 a day.
Also bear in mind that as a member and/or director of a company, you are classified as an employee. This means that your company or close corporation (CC) needs to register for PAYE even if you are the only employee. Failure to deduct and withhold PAYE on remuneration due to directors of companies and members of CCs will result in the imposition of penalties, currently imposed at a rate of 10%, as well as interest.
How To Register For Employees’ Tax
So how do you go about registering for employees’ tax? Firstly, you need to complete an EMP101 form and submit it to SARS. This form is available at your local SARS office or online (www.sars.gov.za, under Forms). In it you need to include information relating to your name and the name(s) of your partners if you operate in sole proprietorship or partnership, or the name of your CC or company.
You will also need to submit your street and postal address, business telephone numbers and the number of people that you employ. Registration as an employer is free. The Receiver will let you know when they have received the forms and may ask for additional information before registering you as an employer. They will let you know which Revenue office you are registered with and provide you with the latest EMP 10 – Guidelines for Employers book, which contains the relevant tax tables for you to work out how much tax you need to deduct from each employee’s salary every month.
Once you are registered, SARS will send you a monthly return (an EMP201) and it now becomes your responsibility to complete and submit this form, every month, together with the amount of tax you deducted from employees’ salaries. You need to do this within seven days after the end of the relevant month. SARS will send you a receipt which you need to keep on file. Once a year, you will be required to add up all the PAYE tax paid and fill in an IRP501 form and submit this to SARS. At the end of February each year, you will need to give each employee an IRP5 form which shows how much tax they have paid in that year.
Useful resources
- SARS: PAYE for Employers: http://www.sars.gov.za/home.asp?pid=187