Payroll returns: EMP201, EMP501 and IRP5

Running payroll in South Africa is not just paying salaries. Every month the employer declares and pays tax and contributions to SARS, and every year the employer reconciles those declarations and issues certificates to employees.

The deductions inside it

• PAYE: income tax withheld from salary.
• UIF: 1 percent from the employee and 1 percent from the employer.
• SDL: 1 percent of payroll, for employers whose annual payroll is above R500 000.
• ETI: an incentive that reduces PAYE for qualifying young employees.

How the chain fits together

Each EMP201 you submit is one month of the year. The EMP501 adds those months up and checks them against the certificates you issue to employees. If the figures do not agree, SARS will not accept the reconciliation until you correct it. That is why a mistake in January can cost you a day in May.

What goes wrong

• A late EMP201 or a late payment, which SARS charges penalties and interest on.
• An EMP201 that does not match the payments you actually made, which breaks the reconciliation later.
• Missing or wrong employee details, such as an ID number or a tax reference.
• A correction made in the software without a matching correction in the declaration.
• Terminated employees left off the certificates.

Registering as an employer

An employer registers with SARS for PAYE, and for SDL and UIF where they apply, and gets a reference number that appears on every EMP201. Contributions to UIF are also declared to the Unemployment Insurance Fund, which has its own online service. Employers are also expected to register with the Compensation Fund under COIDA and file a Return of Earnings each year. Your payroll software holds these numbers, so check that each is entered and correct before the first pay run.

The rhythm of the year

1. Every month: run payroll, pay staff, submit the EMP201 and pay SARS by the 7th.
2. Around the end of October: the interim EMP501 reconciliation for the first six months of the tax year.
3. At the end of the tax year in February: check every employee's details and fix any open corrections.
4. By the end of May: the annual EMP501 reconciliation, and the IRP5 and IT3(a) certificates.

e@syFile

e@syFile is the SARS desktop application that payroll output is commonly loaded into for EMP501 reconciliations and certificate submissions. A product that transfers into e@syFile or eFiling saves you retyping. One that does not forces a manual capture, which is where the errors happen.

When a declaration is wrong

Mistakes happen: an employee is paid the wrong amount, an increase is back dated or a deduction is missed. The correction has to be made in the payroll and then reflected in the next declaration, in line with SARS's rules. Ask your payroll vendor how its software records a correction, whether it keeps the original figure beside the new one, and what it exports, so that the EMP501 can still be reconciled. Software that overwrites history makes the reconciliation harder, not easier.

Why timing matters

The declaration and the payment are due together, and SARS charges penalties and interest on what is late. A payroll that is run late cannot produce an EMP201 in time, and so the date to protect is the day staff are paid, not the 7th. Build in a day or two of slack, and read load shedding and business software if your office loses power.

What good payroll software does

• Calculates PAYE, UIF and SDL from tax tables that update when SARS changes them.
• Produces the EMP201 figure that matches what you pay.
• Holds the data for the interim and annual reconciliations, so nothing is recaptured.
• Issues IRP5 and IT3(a) certificates in the form SARS accepts.
• Keeps a record of every change, so you can explain a correction.

The register records which payroll products handle these returns, taken from each vendor's own page. See the payroll sector page, and use a payroll software checklist when you compare. The compliance calendar shows when each return falls.