Payroll tax compliance is one of the most important ongoing responsibilities of a South African business. Yet there is often confusion about who is responsible when PAYE is incorrectly calculated, deducted, declared or paid over to the South African Revenue Service (SARS).
Is it the employer’s responsibility, the employee’s responsibility, or both?
The answer is that both parties have tax responsibilities, but their legal obligations are not interchangeable.
The Employer’s Responsibilities
Under the Fourth Schedule to the Income Tax Act, an employer who pays or becomes liable to pay remuneration to an employee is generally required to deduct or withhold employees’ tax (PAYE) and pay it over to SARS.
An employer’s payroll compliance obligations include:
- Correctly calculating and deducting PAYE from employees’ remuneration.
- Registering for the applicable employer tax types.
- Submitting monthly EMP201 declarations.
- Paying PAYE, SDL and UIF contributions to SARS within the prescribed deadlines.
- Completing the required EMP501 reconciliations and issuing accurate IRP5/IT3(a) certificates to employees.
These are statutory obligations. An employer cannot contract out of its responsibility to deduct PAYE or UIF through an agreement with an employee.
What Happens When an Employer Gets It Wrong?
The consequences of payroll non-compliance can be significant, both financially and legally.
Where an employer fails to deduct or withhold the correct amount of PAYE, it may become personally liable to SARS for the amount that should have been deducted. Similarly, where PAYE has been deducted from employees but not paid over to SARS, the employer remains liable for the outstanding amount.
In addition to the outstanding tax liability, employers may face:
- Late-payment penalties and interest on outstanding tax amounts.
- Administrative penalties for late submission of EMP501 reconciliations, starting at 1% of the relevant annual PAYE liability per month, up to a maximum of 10%.
- Criminal consequences for certain non-compliance offences, which may include fines or imprisonment of up to two years upon conviction, where an employer wilfully or negligently fails to meet specific tax obligations.
Payroll non-compliance is therefore more than an administrative oversight – it can expose a business to unnecessary financial costs and serious legal consequences.
What About the Employee?
While employers are responsible for deducting and paying over PAYE, employees remain accountable for ensuring that their personal income tax affairs are accurate and up to date. This includes:
- Reviewing their IRP5/IT3(a) certificates to ensure that the information is accurate and correctly reflects their remuneration and PAYE deducted.
- Declaring all relevant taxable income and submitting an income tax return where required by SARS.
- Settling any outstanding income tax liability arising from their annual tax assessment.
It is important to understand that PAYE is a withholding mechanism towards an employee’s ultimate income tax liability. The fact that an employer deducts PAYE does not necessarily mean that the employee has fully settled their annual tax obligation.
Equally, an employee’s personal tax responsibilities do not absolve the employer of its statutory payroll obligations.
So, Who Is Liable?
The employer is responsible for correctly administering payroll, deducting and withholding the required amounts, submitting the relevant declarations and paying the amounts over to SARS.
The employee remains responsible for their own personal income tax affairs and any final tax liability determined on assessment.
Where payroll compliance fails, the employer may face direct financial and legal consequences, even where the underlying tax relates to an employee’s remuneration.
Keeping Your Business on the Right Side of SARS
Payroll compliance involves more than simply processing salaries at the end of each month. Accurate payroll calculations, timely submissions, regular reconciliations and proper record-keeping all play an important role in meeting your business’s statutory obligations and avoiding unnecessary penalties and interest.
Taking a proactive approach to payroll compliance can help identify and resolve issues early. Don’t wait for a SARS notification to find out whether your payroll is ticking all the right boxes. Our team has the expertise to guide you through your employer tax obligations and help keep your business compliant.
Payroll compliance involves more than processing salaries each month. Accurate calculations, timely submissions, regular reconciliations and good record-keeping help businesses meet their obligations and avoid unnecessary penalties and interest. If you would like help reviewing your payroll tax responsibilities or resolving a compliance concern, contact us at wau@wauko.com or on 021 882 8033. Our team can guide you through your employer tax obligations.
