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The Importance and Risks of PAYE to Employers
BY MICHAEL STEIN
INTRODUCTION
Employers who are residents and the representative employers of
employers who are not residents who pay or become liable to pay
remuneration to an employee are obliged to deduct or withhold
employees’ tax (PAYE) from the remuneration.
WHY PAYE MATTERS TO EMPLOYERS
that the employer will invariably be saddled
The employer, which I shall assume is a
with the liability.
company, is then required to pay the PAYE
deducted or withheld to SARS within seven days
An employer company that has not been
after the end of the month during which the
absolved from liability for the tax still has a right
amount was deducted or withheld.
of recovery against the employee for the tax
paid by it. This right exists in addition to any
Severe sanctions are imposed on employers
other legal rights that it may have, but there is
who neglect these duties. Except in certain
a catch. It may deduct the tax from future
circumstances, an employer who fails to deduct
remuneration that becomes payable to the
or withhold the full amount of PAYE as required
employee concerned only ‘in such manner as
will be personally liable for the PAYE. Even
the Commissioner may determine’. It must,
though it has not deducted or withheld the full
therefore, obtain a directive from SARS as to
amount required to be deducted, it must pay
how to deduct the tax from the employee’s
the correct amount to SARS by no later than the
future remuneration.
date on which the PAYE should have been paid
over if it had in fact been properly deducted or
But the employee will not be entitled to receive
withheld.
an IRP 5 employees’ tax certificate from the
employer, unless and until the tax has been
recovered from him or her.
When the Commissioner is satisfied that the
employer’s failure to deduct or withhold PAYE
was not due to an intent to postpone payment
Any tax that the employer who has failed to
of the tax or to evade its obligations under the
deduct or withhold PAYE is required to pay to
law, he may absolve the employer from its
SARS
liability for the PAYE, but only if he is satisfied
deemed to be a penalty due and payable by the
that there is a reasonable prospect of ultimately
company. It should therefore be noted that any
recovering the PAYE from the employee. The
penalty imposed under the Income Tax Act is
recovery of previously under-deducted PAYE
not deductible in the determination of the
from an employee is a very difficult exercise, so
payer’s taxable income. The result is that a
and entitled to recover from employees, is
defaulting employer is not only liable for the
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The Importance and Risks of PAYE to Employers
BY MICHAEL STEIN
PAYE
not
deducted
from
its
employee’s
employees are ‘residents’ of South Africa,
remuneration, but will also be unable to claim a
either because they are ordinarily resident here
tax deduction for the amount in question.
or
meet
the
physical
presence
tests
of
residence, and the amounts payable to them
To add to its problems, the employer who fails
therefore constitute gross income and, for that
to pay the PAYE due within the prescribed seven-
reason, ‘remuneration’ as defined.
day period will be liable for a penalty equal to
10% of the amount not paid, but SARS may
Some employers think that, provided that the
remit the penalty in certain circumstances.
payments of remuneration take place offshore,
PAYE need not be deducted, but this is
Interest at the ‘prescribed rate’ (9,25% at the
incorrect. It does not matter how the payments
time of writing) is also payable on outstanding
are labelled, as long as they accrue to a
PAYE,
resident, they are taxable here and the local
unless
the
Commissioner
otherwise
directs having regard to the circumstances.
employers paying them must deduct PAYE.
THE EMPLOYEE’S POSITION WHEN THE PAYE
EX-PATS WORKING IN SOUTH AFRICA
IS WRONG
The remuneration payable to ex-pats working
When PAYE has been under-deducted, the
here is subject to the deduction of PAYE since
employer may recover the shortfall from the
the amounts will be derived from a source in
employee concerned, but to the extent that it is
South
recovered from future remuneration payable to
Africa
therefore,
him or her by the employer, it must be
for
local
constitute
services
gross
and
will,
income.
His
statement is correct under our law, but a
deducted from that remuneration in a manner
relevant double tax agreement may affect the
agreed with the Commissioner. The employee
situation, depending upon its terms.
is not entitled to receive an IRP 5 tax certificate
for PAYE that has not yet been recovered from
him or her and therefore will not be entitled to
How PROVISIONAL TAX FITS IN
a ‘credit’ for this tax when he or she is assessed
Many people think that PAYE and provisional tax
to tax for the relevant year of assessment.
are
(Para 5(3)). The employee is not entitled to
incorrect.
receive an IRP 5 tax certificate for PAYE that has
‘remuneration’ to an employee, it is obliged to
not yet been recovered from him or her.
deduct or withhold PAYE, regardless of whether
(Para 5(4) and therefore will not be entitled to
the employee happens also to be a provisional
a ‘credit’ for this tax when he or she is assessed
taxpayer. In fact, there is special provision for
to tax for the relevant year of assessment.
a provisional taxpayer to reduce his or her
somehow
As
mutually
long
as
exclusive.
an
This
employer
is
pays
provisional tax payments by any employees’
tax deducted or withheld from amounts paid or
OFFSHORE EMPLOYEE
An
employer
who
pays
remuneration
payable to him or her in the period covered by
to
his or her provisional tax estimate.
offshore employees must deduct PAYE if the
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