How to Set Up Payroll for Your Company or Close Corporation in South Africa

You successfully founded a company or close corporation, and now you need to put payroll in place. Congratulations! If you need to pay employees, it means you’re officially the boss.

However, the good feeling often wears off for new business owners once they begin to face the legal requirements and other payroll challenges associated with this stage of their business foundation. It doesn’t ease the pressure to realise that mistakes in calculations, registrations, or submissions can lead to SARS fines and undermine staff morale.

Let’s guide you through the steps and need-to-know so you can establish correct payroll processes like a boss.

Do you need to set up payroll before paying employees?

Yes. Before paying any salaries, your business must "jump through legal hoops", such as registering with SARS for PAYE (Pay-As-You-Earn), UIF (Unemployment Insurance Fund), and SDL (Skills Development Levy) and ensuring you have all the correct employee documents and authorisations.

How do you correctly implement payroll?

Follow these steps for smooth and compliant salary payments from the outset.

Step 1: Create accurate employee records 

Your payroll can only be as accurate as your employee records. This means you need to maintain detailed documents of anyone on payroll, including:

• Full names and ID numbers
• Employment contracts (The Basic Conditions of Employment Act requires written employment particulars for anyone working more than 24 hours per month, covering job role, pay, hours, leave, and termination terms)
• Bank account details
• Contact information

Beyond simplifying monthly SARS submissions, accurate records also protect your business during audits or employee disputes.

Step 2: Register with SARS and COIDA

Before paying employees, all employers must register with SARS to prevent fines and ensure their business is compliant from the start. The main requirements are:

• PAYE: A tax on employee salaries, which the employer deducts and directly submits to SARS.
• UIF: Provides income to employees in case of unemployment or maternity leave. UIF contributions are 2% of gross salary – 1% deducted from the employee and 1% paid by the employer, up to a monthly cap.
• SDL: Supports training programs for employees to upskill your workforce. This only applies to employers with an annual payroll exceeding R500,000.

These employer statutory contributions must be submitted to SARS by the 7th of the month following payment. Late submissions attract penalties and interest.

In addition to SARS registrations, employers must register with the Compensation Fund under the Compensation for Occupational Injuries and Diseases Act (COIDA). This fund protects employees if they are injured at work or contract an occupational disease. Contributions depend on your payroll and the risk level of your industry.

Step 3: Choose the right payroll system

While small businesses may handle payroll manually, most benefit from dedicated payroll software to calculate PAYE, UIF, and SDL, generate payslips, and produce monthly reports for SARS submissions.

This reduces human errors and saves time, especially as your team grows.

Step 4: Establish pay cycles and payment methods

Decide whether to pay employees weekly, bi-weekly, or monthly, and communicate this clearly. Consistent pay schedules build trust and reduce confusion.

Bank transfers are the most secure and straightforward payment option, but always obtain signed authorisations for payments.

Step 5: Understand record-keeping requirements

South African law requires you to retain payroll records, payslips, and tax filings for at least five years. Proper documentation ensures compliance and protects your business during SARS audits and employee disputes.

Common mistakes to avoid during payroll setup

In summary, avoiding these payroll pitfalls will help ensure your payroll is accurate and compliant:

• Delaying SARS or COIDA registration
• Incomplete or inaccurate employee records
• Manual calculation errors
• Neglecting to obtain signed authorisations from employees for payments into their bank accounts
• Ignoring record-keeping rules

Ongoing payroll management

Setting up payroll correctly establishes a strong foundation for compliance and efficiency, but this is only the first phase. Once payroll is operational, the next step is ongoing management, which we will cover in the next blog.

Professional vs problematic payroll

Looking after employees is a big responsibility, and even a small payroll mistake can snowball into a big problem for you and them.

With the right guidance, though, payroll becomes just another part of your routine. Huysamen Westraad helps companies and close corporations get it right from the get-go with expert payroll setup and management services to keep everything compliant, accurate, and stress-free. Payroll is part of our broader offering to companies and close corporations. We can take care of everything from financial management and tax administration to business advice for informed, optimised decision-making.

Even bosses need a break. Let’s help you with your payroll and more. Feel free to reach out to our highly qualified team for the support you need.