Directors’ PAYE, UIF and SDL in South Africa: What should Companies Register For
You’ve started your small business, and at the moment you may be the director, employee, salesperson, admin department and finance team all in one. So what happens when the company starts paying you?
Many small business owners assume that because they are the owner, or because there are no other employees, payroll taxes do not apply. Unfortunately, SARS does not only look at ownership, it looks at how money is paid out of the company.
At Eqeight Accounting, we often see owner-managed businesses get caught here. If your company pays you as a working director, that payment may be treated as remuneration, which can bring PAYE, UIF and monthly EMP201 obligations into the picture.
Understanding your tax obligations is essential to remaining compliant. Here’s a look at what your small business should be registered for and how this affects you as the director.
Short Answer
If your company pays a working director a salary or other remuneration, PAYE may apply. UIF may also apply where there is a qualifying employment relationship and remuneration is paid. SDL usually only applies once the company expects total salaries to exceed R500 000 over the next 12 months.
In Plain English: Being the owner does not automatically keep you outside payroll rules.Understanding PAYE, UIF and SDL
What is PAYE?
Pay As You Earn (PAYE) is the tax deducted from an employee’s income and paid to the South African Revenue Service (SARS). Employers are responsible for withholding PAYE from employees’ salaries each month, paying it over to SARS, thereby ensuring tax obligations are met throughout the year.
In plain English: PAYE is not an extra tax that belongs to the company. It is tax withheld from remuneration paid to an employee or director and then paid over to SARS by the company.
PAYE applies to:
Salaries and wages
Bonuses and commissions
Certain forms of director remuneration
What is UIF?
The Unemployment Insurance Fund (UIF) provides financial support to workers who lose their jobs or cannot work due to maternity, illness, or adoption leave. Both employers and employees each contribute 1% each month, making the total contribution 2%, which is submitted alongside PAYE.
Important:UIF is calculated at 1% from the employee and 1% from the employer, but only up to the UIF earnings ceiling. This means UIF is not always simply 2% of the full salary where the salary is above the monthly ceiling.
What is SDL?
The Skills Development Levy, commonly called SDL, is a levy paid by employers to support skills development and training in South Africa.
SDL is generally calculated at 1% of total remuneration. However, it does not automatically apply to every small company. A company is usually required to register for SDL when it expects its total salaries and wages to exceed R500 000 over the next 12 months.
In plain English:SDL is usually not the first payroll tax a very small business needs to worry about. PAYE and UIF can become relevant as soon as remuneration is paid, but SDL generally only becomes relevant once the payroll grows beyond the threshold.
How does this affect directors of small companies or businesses?
There’s a common misconception that “I’m the owner, not an employee, so I don’t need to pay these taxes.”
On the contrary, If a director earns a salary, wage, or structured remuneration through the company’s payroll system, the business is required to deduct employee’s tax from the amounts paid to its directors. Additionally, the company is also required to make monthly EMP201 submissions to SARS.
This same concept will apply in the case of “owner-managed” businesses, where there is just a director and no employees, as the sole director might be seen as an employee, depending on whether remuneration is paid out or not.
Therefore, from SARS point of view, the focus is less on ownership and more on how the income is paid out. If the payment looks like and functions like a salary, it is often treated as taxable remuneration, regardless of shareholding.
Expert Box:
This also highlights some important distinctions that need to be made. There can be differences between working directors, executive directors and non-executive directors, so it’s important to assess the exact role and payment structure involved.
However, in many small companies where the owner is actively involved in the day-to-day running of the business and earns a salary, PAYE and UIF obligations will generally need to be considered.
The next question then becomes: “But I don’t pay myself a regular salary — how does tax work if my income changes each month?” Here’s how SARS looks at it:
Let’s say your director remuneration changes from month to month. In one month you draw less because cash flow is tight, and in another month you draw more because the company has collected from clients.
Payroll still needs to be calculated correctly for each period. A low-income month does not automatically make the whole year tax-free, and a high-income month can increase the PAYE withheld for that month. At the end of the tax year, your total income is reconciled through your personal income tax assessment.
What small companies must register for
Small companies in South Africa may be required to register for several payroll-related obligations depending on how they pay directors and employees, including PAYE, UIF, and SDL where applicable.
PAYE
A company may need to register for PAYE once it pays taxable remuneration to a director or employee. This includes:
Salaries
Wages
Commissions; and
Certain forms of director remuneration, even if not fixed
Key Takeaway: For a working director, SARS is generally more concerned with how the individual is remunerated than with the fact that they own the company. If the payment looks like remuneration, PAYE must be considered.
UIF
It doesn’t matter how big or small your business is; if your company pays someone a regular salary, then UIF rules apply, including to directors who are legally classified as employees.
Key Takeaway: In this case, the company is treated as a separate legal entity from you in your capacity as a director. So even if you are the only person in the business, UIF rules can still apply depending on how you pay yourself.
For example, if you pay yourself R25 000 per month, UIF is not calculated on the full R25 000 if your salary is above the UIF earnings ceiling. This UIF ceiling is the maximum monthly salary amount used to calculate both your UIF contributions and your future payouts.
Using the current monthly UIF ceiling of R17 712:
Employee contribution: R177.12
Employer contribution: R177.12
Total UIF: R354.24 per month
SDL
The Skills Development Levy is only triggered when the annual payroll exceeds R500 000. If you’re the sole employee, and you do not meet the threshold applied by SARS, then this may not apply.
Key takeaway:SDL is the payroll obligation most closely linked to the size of your payroll. PAYE and UIF can apply even in a very small company, but SDL generally depends on whether the company expects its total remuneration to exceed R500 000 over the next 12 months.
Common Mistakes Small Companies Make
Navigating your tax obligations as a small business owner can be confusing, which often leads to a few of these common mistakes:
Assuming directors are not employees
Many small business owners assume that because they are directors or the only “employees” in the company, they fall outside the normal payroll rules and obligations. In reality, the company is a separate legal entity. Once the company starts paying remuneration to a working director or employee, it may have employer obligations even if there is only one person involved in the business.
Confusing salary vs. dividends
comes to tax obligations. A salary is the most straightforward way to pay a director, but as previously mentioned, this can be subject to PAYE and UIF.
In contrast, dividends do not go through PAYE, but follow a two-step tax process:
The company pays corporate income tax at 27%
Shareholders pay dividends tax at 20% on the amount distributed
When you combine those two layers, the overall tax burden works out to roughly 41.6% of the original profit, close to the highest individual marginal tax rate in South Africa. This means that choosing this form of remuneration is not “tax-free” or cheaper, it’s just structured differently.
Note:
The exact result can differ depending on the type of taxpayer, whether the company qualifies as a small business corporation, whether turnover tax applies, and whether the shareholder qualifies for a dividends tax exemption or reduced rate.
This is why salary-versus-dividend planning should not be based solely on headline tax rates. It should be properly calculated before any money is taken out of the company.
Missing EMP201 monthly submissions
Once registered, the company must submit EMP201 declarations monthly. These declarations are generally due within seven days after month-end, or the previous business day if the seventh falls on a weekend or public holiday.
Common mistakes include submitting late, forgetting to submit a nil return where required, and not updating payroll when remuneration changes.
Frequently asked questions
Do I need PAYE if I only pay myself as a director?
In many cases, yes. If your company pays you a salary or other taxable remuneration as a working director, PAYE may apply even if you are the only person in the business. The company is separate from you personally, so SARS may treat the company as the employer and you as the person receiving remuneration.
Is UIF compulsory for directors?
UIF is not determined only by company size or whether a person is a director. It depends on whether there is a qualifying employment relationship and remuneration is being paid. In many cases, if a director earns a salary through the company’s payroll, UIF contributions may be required, subject to the UIF rules and monthly earnings ceiling.
When do I need to register for SDL?
SDL generally becomes compulsory when the company expects its total salaries to exceed R500 000 over the next 12 months.
What happens if I don’t register for PAYE/UIF?
It is the responsibility of the employer to register the business and make the necessary deductions. If this is not done, it could lead to serious implications with SARS and the Department of Employment and Labour. Backdated tax liabilities, penalties and interest, and in some cases, imprisonment for a period of two years may be applicable.
How is a director’s PAYE calculated if the salary is not fixed?
The old deemed-remuneration formula for private-company directors should not be used for current payroll years. In practice, PAYE should be calculated through payroll based on remuneration paid or payable, with variable remuneration generally dealt with when paid. The director’s final tax position is then reconciled through the annual personal income tax assessment.
Can a director be both an employer and an employee?
More accurately, the company is the employer. The director may be treated as a person receiving remuneration for payroll tax purposes, depending on their role and how they are paid.
Why is director remuneration treated as a salary?
Because SARS classifies director payments as employment income for PAYE purposes, regardless of ownership status.
Staying compliant as your business grows
Understanding PAYE, UIF and SDL obligations is an important part of running a small company, especially where director remuneration is involved. However, keeping up with calculating the correct deductions and submitting EMP201 declarations on time can be an administrative nightmare. Not complying with the tax obligations SARS has set out can lead to hefty fines and interest.
Professional guidance when it comes to ensuring your company is properly registered and everything is submitted on time can help you focus on what matters most – growing your business.
This also highlights some important distinctions that need to be made. There can be differences between working directors, executive directors and non-executive directors, so it’s important to assess the exact role and payment structure involved. However, in many small companies where the owner is actively involved in the day-to-day running of the business and earns a salary, PAYE and UIF obligations will generally need to be considered.
