Why payroll compliance matters
Payroll is one of the most heavily regulated areas of business. SARS requires employers to calculate, deduct, and submit several taxes every month. Mistakes can result in penalties, interest, and compliance notices. The consequences are not limited to the business. Employers who fail to comply with payroll obligations may face personal liability.
The 2026 tax year (1 March 2025 to 28 February 2026) is approaching its end. This article covers what every employer must check before year-end and the deadlines that follow.
The three components of payroll compliance
PAYE: Pay-As-You-Earn
PAYE is the income tax deducted from employees’ salaries. The employer calculates the tax based on SARS tax tables and deducts it from the employee’s gross pay before paying the net amount.
Key requirements:
- Use the correct tax tables for the current tax year (2025/2026)
- Apply the correct tax thresholds for each employee
- Deduct PAYE on a monthly basis
- Submit PAYE to SARS by the 7th of the following month
- Issue IRP5 certificates to employees by the end of May each year
Common mistakes:
- Using outdated tax tables
- Not updating employee tax codes when circumstances change
- Failing to apply for a tax directive when employees have other income
- Not submitting the EMP201 return on time
SDL: Skills Development Levy
SDL is calculated at 1% of each employee’s remuneration (capped at R17,712 per month for 2025/2026). It is paid to SARS along with PAYE and UIF.
Key requirements:
- Register for SDL with SARS
- Calculate SDL on total remuneration (not just salary, but including bonuses, commissions, and certain benefits)
- Submit and pay SDL by the 7th of the following month
- Submit the SDL return (EMP201) together with PAYE and UIF
Exemptions:
- Employers with annual payroll below R500,000 are exempt from SDL
- Employers who contribute to a SETA-approved learnership may claim SDL set-off
UIF: Unemployment Insurance Fund
UIF contributions are calculated at 1% of each employee’s remuneration (capped at R17,712 per month), matched by a 1% employer contribution. The total UIF contribution is 2% of remuneration.
Key requirements:
- Register with UIF (through SARS for monthly contributions)
- Calculate UIF on each employee’s remuneration up to the monthly cap
- Submit and pay UIF by the 7th of the following month
- Submit the UIF return (EMP201) together with PAYE and SDL
UIF benefits:
- Unemployment benefits
- Maternity benefits
- Adoption benefits
- Dependants’ benefits
- Illness benefits
Year-end checklist
1. Verify employee tax codes
Check that every employee has the correct tax code. Tax codes determine how much PAYE is deducted. If an employee has multiple income sources, a tax directive from SARS may be required.
2. Reconcile PAYE for the year
Compare the total PAYE deducted during the year with the total PAYE submitted to SARS. Any differences must be investigated and corrected before the year-end reconciliation.
3. Reconcile SDL and UIF
Compare total SDL and UIF contributions with total submissions. Ensure all employees were included in the calculations and that the correct remuneration base was used.
4. Prepare IRP5/IT3a certificates
Every employee must receive an IRP5 certificate showing their total earnings and deductions for the tax year. These certificates must be issued by the end of May 2026.
5. Submit the EMP501 reconciliation
The annual EMP501 reconciliation must be submitted to SARS. This reconciliation matches the total PAYE, SDL, and UIF deducted with the total submitted during the year. The deadline is typically in May or June.
6. Check fringe benefit taxation
If employees receive benefits such as company cars, low-interest loans, or accommodation, these must be included in the PAYE calculation as fringe benefits. Verify that all fringe benefits have been correctly valued and taxed.
7. Review travel allowances
Travel allowances must be included in the PAYE calculation. If employees claim travel deductions on their income tax returns, the employer must issue the correct certificates and retain the necessary records.
8. Check medical scheme contributions
Employer contributions to medical schemes are subject to PAYE in certain circumstances. Ensure that medical scheme contributions have been correctly included in the PAYE calculation.
9. Verify UIF registration for new employees
Any employee who started during the year must be registered with UIF. Check that all new employees were registered and that contributions started from the date of employment.
10. Plan for the new tax year
The new tax year starts on 1 March 2026. SARS will publish updated tax tables and thresholds. Ensure your payroll system is updated before the first payroll run of the new year.
Common penalties and how to avoid them
Late submission penalty: R250 per month for each month the EMP201 is submitted late. This applies to PAYE, SDL, and UIF.
Late payment penalty: 10% of the unpaid amount for each month (or part of month) the payment is outstanding.
Incorrect reconciliation penalty: Up to R16,000 for failing to submit the EMP501 reconciliation on time or for submitting an incorrect reconciliation.
Non-compliance with IRP5 requirements: Penalties for failing to issue IRP5 certificates to employees by the deadline.
The best way to avoid penalties is to submit and pay on time, every month. Set up calendar reminders or use payroll software that automates submissions.
The bottom line
Payroll compliance is not optional. Every employer must deduct PAYE, SDL, and UIF, submit the returns, and pay the amounts by the 7th of the following month. The year-end reconciliation and IRP5 certificates must be issued on time to avoid penalties.
If your payroll processes are not up to date, the approaching year-end is the time to fix them. SARS penalties accumulate, and the longer you wait, the more you owe.
SC Audit is an IRBA-registered audit firm based in Bellville, Cape Town. SC Audit’s partners Niel Schoeman, Simone Coetzee, and Hennie Meyer support employers with payroll compliance, PAYE submissions, year-end reconciliations, and SARS queries. Contact SC Audit to discuss your payroll compliance.
Frequently Asked Questions
What is the deadline for submitting PAYE to SARS?
PAYE, SDL, and UIF must be submitted and paid to SARS by the 7th of the following month. For example, PAYE deducted in February 2026 must be submitted by 7 March 2026.
What are the UIF contribution rates for 2025/2026?
UIF is calculated at 1% of each employee’s remuneration, matched by a 1% employer contribution. The total is 2% of remuneration, capped at R17,712 per month. The maximum monthly UIF contribution is R354.24.
When must I issue IRP5 certificates to employees?
IRP5 certificates must be issued to employees by the end of May following the end of the tax year. For the 2025/2026 tax year, IRP5 certificates must be issued by 31 May 2026.
What happens if I submit the EMP501 reconciliation late?
A penalty of up to R16,000 may be imposed for late submission of the EMP501 reconciliation. The penalty applies per employer, not per employee.
Can I correct a payroll submission after it has been made?
Yes. If you discover an error in a previous submission, you can submit a corrected EMP201. However, any underpaid amounts will attract interest from the original due date. Correct errors as soon as possible to minimise interest charges.