Your first employee brings tax and legal obligations you didn't have as a sole operator. Paying someone without registering as an employer or signing a contract leads to penalties, backdated liabilities and labour disputes. This guide covers what has to happen, what your first hire costs and the mistakes to avoid.

The moment you become an employer

The instant you pay someone a salary, you're an employer in the eyes of both SARS and the Department of Employment & Labour. That brings three tax obligations — PAYE, UIF and, once you're big enough, SDL — plus the whole of South Africa's labour framework. The registrations need to be in place before the first payday. Registering late means backdating the registration and filing every missed EMP201, with penalties.

Register as an employer

There are two registrations, in two places, and you need both:

  1. Register as an employer with SARS for PAYE (and UIF alongside it) — this gives you the payroll tax numbers you file under
  2. Register for UIF with the Department of Employment & Labour, via uFiling, which is a separate obligation from the SARS side
  3. Set up payroll so you can produce compliant payslips and calculate PAYE and UIF correctly from the first pay run
  4. Diarise the 7th of each month for the EMP201 and payment

PAYE and the monthly EMP201

Once registered, you deduct income tax from your employee's pay each month and pay it over to SARS with an EMP201 return by the 7th of the following month. Twice a year you file an EMP501 reconciliation — an interim one and an annual one — which ties the year's deductions together and produces each employee's IRP5 certificate. Miss the 7th and SARS applies a late-payment penalty plus interest automatically.

7th
EMP201, and the PAYE, UIF and SDL you deducted, are due to SARS by the 7th of each month.

UIF contributions

UIF totals 2% of the employee's remuneration — 1% deducted from the employee and 1% paid by you as employer — on earnings up to R17,712 a month (R212,544 a year) for the 2026 tax year, a cap SARS adjusts annually. Earnings above that cap don't attract more UIF. You pay it over with the EMP201, and you register for it with both SARS and the Department of Employment & Labour.

The Skills Development Levy

SDL (the Skills Development Levy) is 1% of your total payroll, but it only kicks in once your annual payroll exceeds R500,000. A single first employee may keep you below that level. SDL applies automatically from the point you cross it, so check your annual payroll total as you add people or raise wages. SARS does not send a reminder.

The employment contract

South African labour law gives employees strong protections, and the Basic Conditions of Employment Act (BCEA) sets the floor. You need a written contract of employment. Where a term isn't written down, the BCEA minimum applies. Cover at least:

  • Job title, duties and place of work
  • Pay, how it's calculated and when it's paid
  • Ordinary hours of work and overtime arrangements
  • Leave — annual, sick and family responsibility leave, at least at BCEA minimums
  • Probation, if you want it, agreed in writing at the start, because it cannot be added later
  • Notice periods and how the employment can be ended

Calling an employee an "independent contractor" does not remove these obligations. If SARS decides they were an employee, you become liable for the PAYE and UIF you should have deducted — backdated, with penalties and interest. See our guide on contractor versus employee.

Labour law obligations

PAYE, UIF and SDL are the tax side. Hiring also brings you under the labour framework. Before day one, have these in place:

  • You must give payslips showing pay and every deduction
  • Leave, working hours and overtime all carry legal minimums under the BCEA. You can offer more than the minimum but not less.
  • Ending employment requires a fair process. A dismissal without one can lead to a CCMA claim.
  • Some workplace obligations sit with the Department of Employment & Labour and are separate from SARS

Set these up at the start. Correcting an employment relationship after it has begun costs more time and money.

What your first hire costs

The monthly cost of an employee is the salary plus your employer contributions. Budget for the full amount before you commit.

The full cost of an R18,000 employee

You hire someone at R18,000 a month. On top of the salary you pay employer UIF of 1% — but UIF is capped at earnings of R17,712, so your employer UIF is about R177. If your total annual payroll is over R500,000, add SDL of 1% — roughly R180. Your monthly outlay is about R18,357, before equipment, workspace and the time you spend on payroll. The employee's PAYE and their 1% UIF come out of the R18,000. Your employer contributions are paid on top.

The same hire once you're over the SDL threshold

Say that R18,000 salary takes your annual payroll to R620,000 across the team. Now SDL applies to your whole payroll at 1% — about R6,200 a year, or ~R517 a month across everyone — on top of employer UIF. Your cost per employee rises once total payroll crosses R500,000.

Mistakes to avoid

  • Registering as an employer after the first payday. Backdating and catching up on missed EMP201s brings penalties. Register first.
  • No written contract. A short BCEA-compliant contract records the agreed terms if a dispute arises.
  • Missing the R500,000 SDL threshold. Once payroll passes R500,000 a year, SDL is due from that point.
  • Missing the 7th. The EMP201 deadline stays the same in busy months and holidays, and the penalty and interest are automatic.
  • Calling an employee a contractor to skip payroll. The tax bill lands on you if SARS reclassifies them.
  • Forgetting the EMP501 reconciliation. The twice-yearly recon and IRP5s are as compulsory as the monthly return.

Outsourcing payroll

You can run payroll yourself for one or two employees. The penalties for a late EMP201 or an incorrect EMP501 apply to small employers in the same way as large ones. Payroll is due every month on a fixed date, including months when you are busy or away. An outsourced payroll service files on time, checks the thresholds and starts SDL when payroll crosses R500,000. The first hire is a convenient point to set this up.

A clean first-hire checklist

  1. Register as an employer with SARS for PAYE and UIF
  2. Register for UIF with the Department of Employment & Labour via uFiling
  3. Put a written employment contract in place that meets BCEA minimums
  4. Set up payroll so you can produce payslips and calculate PAYE and UIF correctly
  5. Diarise the 7th of each month for the EMP201 and payment
  6. Keep records for the twice-yearly EMP501 reconciliation and the IRP5s
  7. Watch the R500,000 payroll line for when SDL starts

Keep the records — for five years

Being an employer comes with a paper trail SARS expects you to hold for five years: signed employment contracts, monthly payslips, your EMP201 submissions and proof of payment, the twice-yearly EMP501 reconciliations and every employee's IRP5. If SARS ever queries your payroll — or an employee disputes what they were paid — this is what proves you did it right. Set up a folder per employee from day one and file each document as you pay. Rebuilding these records years later, after a laptop fails or a bookkeeper leaves, takes far longer.

Once set up, these tasks repeat each month. Talk to us and we'll register you as an employer, set up your payroll, run the monthly submissions and the twice-yearly reconciliations, and check the thresholds.