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Start-up Guide

The New Companies Act

A basic guide to the new Companies Act and how it applies to you.

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The new Companies Act, which came into being earlier this year, has meant that South Africans are starting businesses in a more legislated environment. The Act brought with it many changes that affect not only existing businesses but start-ups as well.

The Companies Act, 2008 has been modernised and brought into line with international best practices. It was drafted in plain language with many of the sections and rules being simplified.

Some of the main features of the Act include:

  • Fewer statutory forms are required to incorporate a company. Instead of a memorandum of articles of association, a company’s constitutional documents consist of one document only, the Memorandum of Incorporation (MoI). The MoI sets out the rights, duties and responsibilities of shareholders, directors and others in relation to the company.
  • Companies are allowed to change certain requirements according to their own circumstances.
  • Different types of companies must comply with different rules. This means smaller companies have less arduous responsibilities than large public companies when it comes to corporate governance and financial reporting. For example, smaller companies will be subject to less taxing financial reporting standards than larger companies.
  • The regulatory burden on companies has been reduced but there are stricter accountability and transparency requirements for state-owned and public companies.
  • High standards of corporate governance are encouraged, with minimum accounting standards having been set for annual reports. There are also stricter provisions governing directors’ conduct and liability, and their common law duties and liabilities have now been codified. A company is prohibited from reckless, negligent or fraudulent trading, and persons who were knowingly party to such conduct are guilty of an offence.
  • The Act contains new structural arrangements, with the introduction of new regulatory institutions and the transformation of others. Companies are now classified as either profit or non-profit companies.
  • The concept of business rescue is broadened and formalised, and provision is made for a modern business rescue regime.
  • There is a move towards the decriminalisation of company law and the establishment of bodies for the effective enforcement of the legislation. Minority shareholders and other stakeholders, including employees, will have better protection, powers and remedies under the Act, including the ability to bring class actions.

1. A new institution

The Companies Act saw the migration of the Companies and Intellectual Property Registration Office (CIPRO) into the Companies and Intellectual Property Commission (CIPC). The Commission not only replaces CIPRO but it has additional functions and powers.

The main functions of the Commission include:

  • Registering companies, co-operatives and intellectual property rights and maintaining such register;
  • Disclosing information on its register;
  • Promoting education about, and awareness of, company and intellectual property law;
  • Promoting compliance with the relevant legislation;
  • Ensuring the efficient and effective enforcement of relevant legislation;
  • Monitoring compliance with and contraventions of financial reporting standards, and make recommendations in this regard; and
  • Reporting to, conducting research for, and advising the Minister of Trade and Industry on matters of national policy relating to company and intellectual property law.

2. The Act and company formation

Applying the principle that the incorporation of a company is a right, rather than a privilege, the Act places minimal requirements on the act of incorporation.

A company is incorporated by the adoption of a MoI, which is the sole governing document of the company. It imposes certain specific requirements on the content of a MoI which are necessary to protect the interests of shareholders in the company.

3. Meetings and notices

The new Companies act regulates meetings. In terms of attendance of meetings, it requires that shareholders can be represented by way of a written proxy, which is valid for one year. Physical attendance is not mandatory, and meetings may be conducted entirely by electronic communication. The Act requires that shareholders must be able to communicate simultaneously.

The notice periods for meetings are as follows:

  • 15 business days for public companies
  • 10 business days for private companies

4. Duties of directors

It is essential that directors know their rights and are aware of what is expected of them. They are subject to the common law as found in court rulings and judgements. The Act has introduced a partial codification of directors’ duties, including both a fiduciary duty and duty of reasonable care, which operate in addition to the existing common law duties.

A director is required to act in good faith and for a proper purpose in the best interests of the company. They should act with the degree of care, skill and diligence that may reasonably be expected of a person carrying out such functions and having the same skill and experience of that director (the reasonable man/woman test).

Furthermore, directors are required to disclose any personal financial interests. They may not use their position as director or information gained as a director to make a secret profit or gain advantage for themselves or someone else or to cause harm or detriment to the company.

The new Act deals comprehensively with the election, disqualification, vacancies, removal, meetings, resolutions and liabilities of directors:

  • Appointment: In a private company, there has to be a minimum of one director, while for a public or non-profit company, the minimum is three. Each incorporators of a company becomes its first directors. Directors are thereafter appointed by the majority of shareholders entitled to vote on their election, for an indefinite term or as the MoI stipulates. Any vacancies on the board may be filled temporarily by election of other board members or as the Memorandum of Incorporation provides.
  • Disqualification: A person is disqualified from acting as a director when they are declared delinquent by a court, a juristic person, an un-emancipated minor, an un-rehabilitated insolvent, prohibited by public regulation, removed from office of Trust due to dishonesty, convicted of a crime of dishonesty without option of a fine or if they do not meet the qualifications set out in the MoI of the company.
  • Removal: A director may be removed by an ordinary resolution of shareholders entitled to vote, or by board meeting (when alleged that director is disqualified, incapacitated or negligent in duties). The director must be given the opportunity to be heard at a meeting before the board can vote on removal. The removed director has the right to apply to court for damages for loss of office.
  • Board meetings: The board authorised director may call a meeting at any time. They must call a meeting when 25% of directors (when the board has at least 12 members) or two directors in any other case, request a meeting. The company must keep minutes of all board meetings and every resolution taken at a meeting. Each director has one vote and majority vote approves a resolution.
  • Liability: A director could be held liable to shareholders for fraudulent acts of gross negligence or to a third party who has suffered damages due to the acts of the directors. Amongst previously mentioned liabilities, they are also liable for breach of fiduciary duty, or delictual act, acting without authority, party to supplying false or misleading information about the company or making an untrue statement in a prospectus.
  • Indemnification and Insurance: A company may not indemnify a director for wilful misconduct or breach of trust, or for a director acting without proper authority from the company or undertaking a prohibited act, or for perpetuating a fraudulent act. A company may take indemnity insurance on behalf of its directors in order to aid in any lawsuit against the director as related to the company. A company may purchase insurance to protect a director against permitted liability.

While the Act has removed many of the criminal offences which were found in the previous Companies Act, the potential for civil claims against directors in terms of the New Companies Act is far greater. Members of the board, and audit committees, have the same liability as directors, even if the members of the board committees are not directors and even though they have no voting rights on matters considered by the board committees.

5. Accountability and transparency

The Companies Act, 2008 has set certain common requirements for all companies. However, differentiated requirements depend on the company’s wider responsibility to the public and the social and economic impact that the company’s operations have.

The requirements include:

  • All companies must prepare annual financial statements (AFSs), unless a company can satisfy the Commission that it meets certain criteria.
  • All companies have to file annual returns with the Commission.
  • Certain private companies with a greater responsibility to the wider public as a consequence of their significant social or economic impact may be required to have their AFSs audited. All other companies must be either voluntarily audited or independently reviewed.
  • All financial statements must satisfy the prescribed financial reporting standards. These standards may vary for different categories of companies but must be consistent with International Financial Reporting Standards as set by the International Accounting Standards Board.
  • All public and certain private companies must appoint an auditor.

6. Business Rescue

The Act has replaced the previous regime of judicial administration of failing companies with a modern business rescue (BR) regime. The regime is largely self-administered by the company, under independent supervision within constraints set out by the Act, and subject to court intervention at any time on application by any of the stakeholders.

The Act protects the interest of employees and workers by:

  • Recognising them as creditors of the company with a voting interest to the extent of any unpaid remuneration before the commencement of the rescue process;
  • Requiring consultation with them in the development of a BR plan;
  • Permitting them an opportunity to address creditors before a vote on the plan; and
  • Giving them, as a group, the right to buy out any uncooperative creditor or shareholder who has voted against approving a rescue plan.

BR proceedings begin when the board passes a resolution that the company voluntarily begins BR proceedings, or when an affected person, such as a shareholder, creditor, employee or organised labour, applies to court for BR proceedings.

The BR process includes the following steps:

  1. Within five days after passing the necessary resolution, the company must appoint a BR practitioner and publish the notice as prescribed.
  2. The company must then file the appointment of the BR practitioner with the Commission and inform all affected parties of the appointment.
  3. During BR proceedings, no legal proceedings may commence or proceed against the company in any form.
  4. BR proceedings end when a court sets aside a resolution or order that began BR proceedings or converts BR proceedings to liquidation proceedings; the BR practitioner files a termination notice of BR proceedings; the BR plan has been rejected; or the BR practitioner has filed a substantial implementation of the plan.
  5. During BR proceedings, all directors of the company can only act by authority of the BR practitioner.

Useful resources

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Start-up Guide

What You Should Include In The Partnership Agreement

How to create a formal written partnership agreement.

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When taking on a business partner, it is critical to have a formal, written partnership agreement. While this is not a legal requirement, it does provide a framework for the partnership in terms of everyone’s obligations, settling conflicts, disagreements and other issues that could occur. The agreement is needed for the wellbeing of the business.

Create your written partnership agreement with the assumption that anything that can go wrong with your partnership will. Friction between partners over things such as money, power or ego frequently undoes business relationships.

Related: Developing Partnerships With Fintech Innovators

Your partnership agreement should prepare you for all possible “what-if” situations, and set methods for resolving them.

You can save money by drafting your own version of the key parts of your agreement, then taking it to your firm’s attorney to be reviewed, clarified, modified and finalised. It is important to have an attorney review the contract.

These are some of the key areas you should include in your written partnership agreement:

writing-a-business-plan

1Partnership Agreement Basics

  • What is the name of the partnership?
  • What is the purpose of the partnership?
  • What is the duration of the partnership?

2Responsibilities, performance and remuneration

  • What is each partner’s role?
  • What are each partner’s responsibilities within the company, and what level of performance is expected?
  • Are partners expected to make a full-time commitment to the venture, or are business activities permitted?
  • What will be the income of each partner, and how will profits or losses be distributed?

3Contributions

  • What will each partner be contributing to the partnership in terms of cash, assets, loans, investments, and/or labor?
  • If a partner loans the company money, what will be the terms or repayment?
  • Will the business partners be expected to make additional contributions to the partnership, and if so, how will that be handled?
  • Withdrawal of partners/admission of new partners
  • What guidelines should be followed if one partner wants to leave the partnership?
  • Will partners be allowed to sell their interests in the business to outsiders?
  • On what grounds can a partner be expelled from the partnership (misconduct, non-performance of duties)?
  • How will new partners be admitted to the partnership?

Related: 10 Questions To Ask Before Committing To a Business Partner

4Buy-out procedures

  • What guidelines should be followed if one partner wants to retire or leave the business partnership?
  • What happens if a partner is incapacitated or dies?
  • Will the partnership take out “key man” life insurance to ensure the surviving partner is able to buy the deceased partner’s shares from his/her heirs?
  • Will partners who leave have to sign a non-compete agreement?

5Dispute resolution

  • What methods will be used to settle disputes that can’t be otherwise resolved?
  • What procedures should be used in the event of a tie vote between partners on crucial partnership decisions?
  • Will you use mediation or binding arbitration?
  • If disputes can’t be resolved, is there a mechanism in place for dissolving the business partnership?

6Financial arrangements

  • What banking arrangements will be made for the partnership?
  • Which partners will have check signing privileges?
  • Who will be authorised to draw on the partnership’s accounts?
  • How will the books be kept?

Related: Essential Elements of Working with a Business Partner

7Method for dissolving the partnership

  • When can the partnership be dissolved?
  • What happens to the partnership if the partners decide they can’t work together?

8Valuation

  • What methods will be used to determine the value of the business in the event of a sale, dissolution, death, disability or withdrawal of a partner?

9Useful resources

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Start-up Guide

Do You Speak Start-up?

The start-up dictionary for every budding entrepreneur.

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Venture capital in South Africa is starting to take hold. With a host of venture funds, section 12J companies, incubators and start-up clubs being launched, start-ups are becoming more popular and investors are encouraged to consider these new opportunities.

Chris Ball, an investment analyst at AlphaWealth and a co-founder of Fincheck.co.za, a financial comparison fintech start-up, explains the colloquial jargon of venture investors and start-up entrepreneurs.

Chris wrote this ‘dictionary’ initially to educate AlphaWealth’s high net worth clients about the start up world so that they could consider becoming investors.

[dropcap]A[/dropcap]

Angel investor

An angel investor is generally someone who provides seed capital to a start-up in its infancy. In South Africa, there are a few well known angel investors. However, most entrepreneur’s first funds are generally received from family and friends who believe in the idea.

Resource: How to find an angel investor to back my business idea? 

[dropcap]B[/dropcap]

B2B, B2C, P2P

Business to business – This describes a business that is targeting another business with its product or services. This type of service is also known as enterprise technology. Salesforce would be a great example of this technology.

Business to consumer – describes a start-up that sells directly to consumer.

Peer to peer – is a platform concept, where the technology matches buyers and sellers. One of the earlier peer to peer technologies was Ebay. Today, the peer to peer platform has evolved to incorporate finance institutions such as Lendico.

Bootstrapping

This is a concept where founders pool their own capital resources to get the start up as far as possible before looking for external funding.

The term comes from “pulling oneself up by one’s bootstraps”. This mindset links directly into the lean start up methodology.

Related: 6 Tips For Bootstrapping

[dropcap]D[/dropcap]

Disruption

Both technology and business models can be disruptive and is defined when a start-up disrupts the current market place by displacing old businesses and winning market share. Outsurance and Uber have disrupted the insurance and personal transport businesses.

[dropcap]E[/dropcap]

Entrepreneur

This is someone who starts a business or venture, assuming all potential risk and reward for his or herself.

[dropcap]G[/dropcap]

Ground floor

This is the start of a venture where a founding team have enough to illustrate the concept but are yet to execute the initial steps of their plan.

[dropcap]L[/dropcap]

Lean start-up methodology

The lean start-up methodology, is a business thesis that was founded by Eric Reis. The business methodology is based on the practice of testing multiple small iterations in an effort to find the product, design or user experience or even business model that is best adopted by the end consumer.

Read more on the Lean start-up methodology here.

[dropcap]I[/dropcap]

Incubator

An organisation that helps develop early stage companies. Generally this help is offered in exchange for equity. The Israeli start-up ecosystem has some of the best incubators where they offer workspace, networks and guidance.

[dropcap]M[/dropcap]

Moonshot

‘Go big or go home’ – this is the impossible idea that a team wants to accomplish. The term was originally coined when John F Kennedy challenged American scientists to get a human to the moon.

[dropcap]P[/dropcap]

Pivot

A company that changes its business direction as a result of a dead end or the ability to use their technology in a more significant way. Instagram was originally a location check in service before pivoting to become a photo sharing application.

Pre-money and post-money

Post-money = Pre-money valuation + new funding.

Valuing a start-up has become a bit of an art, but more and more funds are starting to adopt a common methodology as the industry matures. In essence, the pre-money value is the monetary value of the company before a new investment is made.

Proof of concept

After the idea comes the execution. One of the first hurdles entrepreneurs need to clear is the proof of concept. This is a point where the start-up proves that the business model is feasible.

[dropcap]S[/dropcap]

Saas

Software as a service. These businesses are hosted in the cloud and the software can be rented out as a service.

Related: 10 Steps To Starting Your Business For Free (Almost)

Seed, A Round, B Round…

Start-ups raise capital in several tranches because raising it all at once would dilute the founder’s share before they have even had a chance to build the business. The seed round is done to prove proof of concept. The A round is raised once proof of concept has taken place. There can be several rounds before an exit or IPO is achieved. Some of these companies have grown so large through several rounds of investment that they are termed a unicorn business.

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Start-up Guide

Understanding Your Responsibility As An Employer

Now that you have your own employees, here is what you should know about your new responsibilities.

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Hiring employees requires more work from you as the employer than simply placing a job ad, hiring the right person and training them on their role.

You need to be aware of the Labour Law requirements in terms of the various funds and other stipulated registrations. The law does not differentiate between different size organisations, and therefore it is imperative that SME’s fully understand the implications of all aspects of Labour legislation.

Related: 5 Factors That Make a Great Boss

Salary deductions

Employers may only deduct money from a worker’s salary if the worker agrees or if they are required to do so. The provisions for deductions do not apply to workers who work less than 24 hours a month.

Employers may not deduct money from a worker’s pay unless –

  • the worker agrees in writing to the deduction of a debt, or
  • the deduction is made in terms of a collective agreement, law (e.g. UIF contributions), court order or arbitration award.

Deductions for damage or loss caused by the worker may only be made if –

  • the employer has followed a fair procedure and given the worker a chance to show why the deduction should not be made,
  • the worker agrees in writing, and
  • the total deduction is not more than 25% of the worker’s net pay.

Employers must pay deductions and employer contributions to benefit funds (pension, provident, retirement, medical aid, etc.) to the fund within 7 days.

What is UIF

UIF-Logo

UIF stands for Unemployment Insurance Fund and you need to register for it, whether or not you employ staff. It applies to all employers and workers (except those working less than 24 hours a month), learners, public servants, foreigners working on contract, workers who get a monthly State (old age) pension and workers who only earn commission. The fund makes short-term provision for individuals who become unemployed, or are unable to work because of illness, maternity or adoption leave. It also provides financial relief to the dependants of deceased contributors.

As an employer it is your responsibility to register with UIF and make the monthly payments. These include a 1% payment from you (based on your employees’ individual salaries).

Each individual employee needs to make a further 1% payment, but it is your duty to deduct this amount from their salary and pay it to UIF, together with your contribution, on a monthly basis to SARS if you are registered for PAYE or directly to the UIF if you are not.

You can register your business by completing a UF8 form and each new employee needs to be registered using a UI-19 form. These can be obtained from the Department of Labour.

Related: Why Your Business Needs Employment Contracts

What is COIDA

disability-south-africa

COIDA stands for the Compensation for Occupational Injuries and Diseases Act and being registered for it works in your favour. It is based on a no-fault system which means employees are entitled to compensation regardless of who caused the injury or illness.

But it also exempts you from liability for injuries or diseases contracted by your employees in the course of their work. In other words, employees can’t claim damages from you in those events. Instead, COIDA allows them to claim compensation for total or permanent disablement and death as well as reasonable medical expenses arising out of injury for two years.

You are required to pay the employee 75% of their normal salary for three months during the time that they are injured or ill but the fund pays you back this entire amount and covers all the relevant medical expenses.

If you are not registered, however, you are not indemnified. Getting registered involves submitting a WAs2 form, together with a copy of the registration certificate from the Registrar of Companies, or your ID document, if you are a sole proprietor. Every year before 31 March you will need to submit a statement of earnings paid to your employees. You will also be required to pay an assessment tariff, which is fixed according to your class of industry.

If an employee gets injured during the course of their work or falls ill as a result of their work, they can claim from the Worker’s Compensation fund. Dependants of employees can claim if a family member dies from an accident or disease. Employees wishing to claim will need to be furnished with one of the WG30, WAs2 or WAc1(E) forms, which they need to submit to the Compensation Commissioner for compensation.

How Does Maternity Leave Work?

maternity-leave

The law protects women against unfair discrimination arising from any form of prejudice. An employer may not ask a candidate who applies for a job if she is pregnant, nor if she is planning to start a family at any stage.

If you do, she could argue that you are discriminating against her. Equally, she is in no way obliged to disclose her pregnancy when applying for a position. The bottom line is that it has nothing to do with the candidate’s ability to meet the requirements of the position. And nothing stops her from resigning once she has returned to work after taking maternity leave. She has rights regardless.

The Basic Conditions of Employment Act stipulates that an employee is entitled to four months unpaid maternity leave. All that is required is a notification by the employee that she is pregnant, accompanied by a doctor’s certificate. This leave should start four weeks before the expected date of birth, or when a doctor or midwife certifies that leave is necessary for the health of the mother or child. An employee must notify her employer in writing of the date on which she wants to start maternity leave. She may not work for six weeks after delivery, unless she is declared fit to do so.

Related: Richard Branson on Why Hiring Should Be Your No. 1 Job

An employee who has a miscarriage during the last three months of pregnancy or who bears a stillborn child is also entitled to six weeks maternity leave, whether or not she has started maternity leave at the time. Companies in South Africa are not obliged by law to provide paid maternity leave. A female employee who works for a company that does not offer maternity benefits can claim from the Maternity Benefit Fund if she has been contributing to the Unemployment Insurance Fund (UIF).

An employer who pays maternity leave does have some rights, however. Paid maternity leave is a benefit, and the company is within its rights to conclude a contract with the employee stating that if she does not return to work for at least one year following her confinement, she will be obliged to return the salary she earned during her maternity leave.

South Africa has no paternity leave provisions in place, but workers who have been employed at a company for longer than four months may take three days’ paid family responsibility leave during each year of employment.

Family Responsibility Leave

Workers may take up to three days of paid leave a year to attend to certain family responsibilities. The provisions for family responsibility leave do not apply to workers who work less than:

  • Four months for their employer
  • Four days a week for one employer
  • 24 hours a month.

Family responsibility leave expires at the end of the annual cycle. Employees may take family responsibility leave:

  • when their child is born
  • when their child is sick
  • in the event of the death of a:
    • spouse or life partner
    • parent or adoptive parent
    • grandparent
    • child or adopted child
    • grandchild
    • sibling.

Employers may require reasonable proof of the birth, illness or death for which a worker requests leave.

Related: What Young People Want From Work

Overtime

The amount of overtime a worker may work is limited. Workers must get 1,5 times their normal hourly pay or paid time off in exchange for overtime. Alternatively, a worker may agree to receive paid time off or a combination of pay and time off.

The section of the Basic Conditions of Employment Act that regulate working hours does not apply to:

  • workers in senior management
  • sales staff who travel and regulate their own working hours
  • workers who work less than 24 hours in a month
  • workers who earn more than R115 572 per year
  • workers engaged in emergency work are excluded from certain provisions.

Workers may not work:

  • overtime, unless by agreement
  • more than 10 hours’ overtime a week (collective agreement may increase this to 15 hours per week for up to two months a year)
  • more than 12 hours on any day.

Employee Pay Slips

Employee-pay-slip

Each time workers are paid, employers must give them a pay slip containing certain details. Employers must give workers the following information in writing when they are paid:

  • Employer’s name and address
  • Worker’s name and occupation
  • Period for which payment is made
  • Total salary or wages
  • Any deductions
  • The actual amount paid
  • If relevant to the calculation of pay:
    • Employee’s pay and overtime rates
    • Number of ordinary and overtime hours worked
    • Number of hours worked on a Sunday or public holiday

The total number of ordinary and overtime hours worked in the period of averaging, if a collective agreement to average working time has been concluded

Public Holidays

Workers must get paid time off for public holidays, but if they agree to work, they must be paid double their normal daily wage. The provisions for public holidays do not apply to –

  • senior management
  • sales staff who travel
  • workers who work less than 24 hours a month

Workers must get paid time off for any public holiday that falls on a working day. Working on a public holiday is by agreement only. A public holiday can be exchanged with another day by agreement. A public holiday cannot be counted as annual leave.

Related: Sick and Tired of Employees being Sick and Tired?

Employee Sick Leave

Workers may take the number of days they would normally work in a six-week period for sick leave on full pay in a three-year period. Employers may insist on proof of illness before paying a worker for sick leave. The provisions for sick leave do not apply to:

  • workers who work less than 24 hours a month
  • workers who receive compensation for an occupational injury or disease
  • leave over and above that provided for by the Act.

During the first 6 months of employment, workers are only entitled to one day of paid sick leave for every 26 days worked. An employer may require a medical certificate before paying workers who are absent for more than two consecutive days, or who are often absent (more than twice in an eight-week period).

Staff Working Hours

overtime

Basic Conditions of Employment laws set maximum working hours and minimum rest and break periods for workers. The section of the Act that regulate working hours does not apply to:

  • workers in senior management
  • sales staff who travel and regulate their own working hours
  • workers who work less than 24 hours in a month
  • workers who earn more than R115 572 per year
  • workers engaged in emergency work are excluded from certain provisions.

The maximum ordinary hours per day for someone who works one to five days per week is nine, the maximum amount of hours per week is 45. For those who work more than five day per week should work a maximum of eight hours per day and 45 hours per week. Workers may agree, in writing, to work up to 12 hours a day without getting overtime pay. However, these workers may not work more than:

  • 45 ordinary hours a week
  • 10 hours’ overtime a week
  • five days a week

Workers must have a meal break of 60 minutes after five hours’ work. A written agreement may:

  • reduce meal intervals to 30 minutes
  • eliminate meal intervals for workers who work less than 6 hours a day

Workers must have a rest period of 12 hours each day; and 36 consecutive hours each week (must include Sunday, unless otherwise agreed).

Workers working between 18h00 and 06h00 must:

  • get an allowance, or
  • work reduced hours, and
  • have transport available to them.

Skills Development Levies

Employers must pay 1% of their workers’ pay to the skills development levy. The money goes to Sector Education and Training Authorities (SETAs) and the Skills Development Fund to pay for training. The Skills Development Levies Act applies to all employers except–

  • the public service;
  • religious or charity organisations;
  • public entities that get more than 80% of their money from Parliament; and
  • employers:
    • whose total pay to all its workers is less than R 250 000 per year; and
    • who do not have to register according to the Income Tax Act

Employers who are required to pay the skills development levy must register with the South African Revenue Services (SARS). Employers must pay 1% of all their workers’ pay to the skills development levy every month. Employers must pay the levy to the South African Revenue Services (SARS) by the seventh day of each month. Employers who do not pay will have to pay interest on the money they owe and may also have to pay a penalty.

What is PAYE

All employers are required to deduct Employees’ Tax from their salaries. The amounts deducted must be paid by the employer to SARS on a monthly basis. The process of deducting or withholding tax from remuneration as it is earned by an employee is referred to as Pay-As-You-Earn (PAYE).

Employers are required to:

  1. Deduct the correct amount of tax from employees’ remuneration.
  2. Pay this amount to SARS monthly, ensuring SARS receives a Monthly Employer Declaration (EMP201).
  3. Reconcile these deductions and payments with the completion of the interim and annual Employer Reconciliation Declarations. During the reconciliation periods, employers are required to submit an Employer Reconciliation Declaration (EMP501) confirming or correcting the PAYE, SDL and UIF declarations per EMP201s submitted, the payments made and the tax values of the Employee Tax Certificates [IRP5/IT3(a)].
  4. Issue tax certificates to employees
  5. An employer must issue an employee with an IRP5/IT3(a) where remuneration is paid or has become payable and from which Employees’ Tax was deducted. The IRP5/IT3(a) discloses the total employment remuneration earned for the year of assessment and the total deductions. IRP5/IT3(a) certificates must be issued to employees during the annual Employers tax season.

Related: 5 Ways to Make Your Payroll & HR Solution Pay for Itself

Seek professional advice

There is a lot to keep track of once you become and employer. It is advisable to call in an expert. You can use the services of a suitable experienced and qualified HR consultant who can help to set up the principles and processes of the above, and then work on an ad hoc basis only as and when needed reducing the cost of a full-time HR manager.

Useful resources

Related: 10 Ways to Pump Up Your Employees

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