Income Tax and Leave Calculations in South Africa – Employer of Record in Africa

Income Tax and Leave Calculations in South Africa – Employer of Record in Africa

Hiring workers in South Africa will indicate that your company will have to learn the appropriate income tax calculations, both for compliance reasons and also to ensure that your employees are receiving the compensation they anticipate. Sometimes differences in tax rates and deductions in your home state, will indicate that you must fix salary and payroll amounts.


If this is your first time hiring in South Africa, how are you going to learn how to calculate and pay the ideal tax every month from payroll?

SARS is the taxation authority in South Africa and all workers will have to enroll by visiting a local branch in person to confirm identity and bank details. The rest of the following steps can be done online on the SARS website.

Who Must Pay Tax in South Africa?

Any worker that earns a salary in South Africa on a local payroll must pay taxes at normal prices. Residents pay tax on worldwide income and non-residents pay tax only on South African earnings. Fortunately, most expats won’t qualify as tax residents, but will still have to rely on a tax treaty to avoid double taxation in your home.

The individual income tax rates in South Africa range from 18 percent to a maximum of 45 percent for all workers. This also applies to allowances and benefits, and we had a customer with a worker who wanted to understand why their tax was greater than anticipated.


We explained the reason was because the worker was reimbursed for medical insurance through the payroll, and that’s a taxable benefit in South Africa.

The MTC is a lien given to taxpayers for fees paid to a registered medical scheme. The prices are R310 per month to the citizen and R310 for the first dependent. Additional dependents bring a charge of R209 a month.

South Africa uses the PAYE system for tax exemption, but your workers just have to file a tax return if they earn more than R350,000.

When applying abroad HR departments will need to be aware of the host nation laws about sick leave and annual vacation leave, to be certain statutory minimums are being fulfilled. Consequently, if leave is being contained in the contract, the amount of times must meet local minimums even if those are more than at home.

Sick and Annual Leave

Sick leave totals the amount of days a worker would work in a 6-week period (30 days), and that’s the whole amount available to use over three decades.

The complete amount is only available after 6 months of employment, and before the worker only accrues a single day of sick leave for every 26 days worked.

Any sick days taken during the first 6 weeks could be subtracted from the 30-day/3 year complete.

Those days that aren’t provided upfront and may only be obtained as they accrue, so the worker begins at zero and accumulates leave time throughout the year.

Our customer wanted to offer their worker 20 days annually, so we advised them they could do this and use the accrual method as opposed to supplying the depart up front. This would indicate that 1.667 days would accrue during each month of employment.

The customer also wanted to know whether unused leave was rolled over to the subsequent calendar year, or did it need to be obtained in the year it was accrued. There’s absolutely no statutory rule on this, so we advised them that it was their choice, so long as the employee has been given a chance to utilize the leave.

More about tax and payroll in Africa: EOR Africa Ltd


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