South Africa is considered the commercial hub and gateway to the rest of Africa. As such, the government wants to utilise this advantage for foreign companies expanding into the country and foreign investors. Foreign Direct Investment (FDI) is considered the engine to power economic recovery and resurgence post-pandemic. The AfCFTA – the African Continental Free Trade Area – founded in 2018, provides a mutually beneficial environment for its members through trade and investment without tariffs or red tape and is expected to boost revenues in the area by US$450 billion, increasing exports and manufacturing by US$560 billion by 2035, growing jobs and raising income.
South Africa is renowned for tourism hotspots, from its many game reserves and National Parks to World Heritage sites such as Tabletop Mountain. The beaches are famous for windsurfing, and the warm Indian Ocean waters attract millions of tourists yearly. The government is aware of lousy recruitment practices in the country, which leave many employees working illegally, so employers should take care as the onus for compliance lies with them. Many companies use the expertise of a Professional Employer Organisation (PEO), such as Bradford Jacobs, who has 20 years of experience with recruitment and work documentation, moving on to their Employer of Record (EOR) services dealing with everything from visas to paycheck.
The different types of Visas and Work Permits for South Africa
Foreigners (not visa-exempt) wanting to travel to South Africa for less than 90 days have around 12 categories of Visitor Visas to choose between, from tourism to sporting events and from business trips to conferences. They can be extended for a further three months. But this is not guaranteed, so applicants should consider if they can qualify for the Long-Term Visa before they travel to South Africa as they cannot apply for it while on a Visitor Visa, although there are exceptions.
There are Long-Term Visitor Visas in several qualifying categories for stays longer than three months. Categories include Study, Work, Treaty, Business, Relatives, Medical Treatment, Retirement, and Exchange permit.
Types of Temporary Work Visas (previously known as Work Permits)
Four types of Visas are available to those looking for employment in South Africa, and each has requirements and eligibility, so employees and employers must decide which one applies. These are also the equivalent of Temporary Residence Visas.
General Work Visa (GWV)
Critical Skills Work Visa (CSWV)
Intra-company Transfer Work Visa (ICT)
Note: The salaries and benefits offered to foreign workers should not be inferior to those of South African citizens and residents with similar jobs. Also, beware of employing illegal workers or bad recruitment practices, which the government is aware of and trying to deter. The onus is on the employer in the eyes of the law.
General Work Visa (GWV)
The application for the work visa is submitted to an embassy/consulate/authorised visa centre in the home country.
This is the usual work visa for companies employing staff from abroad or from their home country. However, conditions include that the job vacancies are made available to South African locals and residents before being offered to foreigners. Therefore, vacancies must be advertised locally and checked by the Department of Employment and Labour (DEL).
The South African Qualifications Authority checks the employee’s qualifications (SAQA).
The Department of Home Affairs grants and issues work visas. Employees must have an employment contract to determine how long the Work Visa is issued, which can be up to five years. However, employees are advised not to confirm travel arrangements until the work visa has been approved.
Companies wanting to employ foreigners in South Africa must be legally incorporated and registered.
The work visa process can take 8-16 weeks, depending on whether the employer is registered to sponsor foreign workers.
Salaries have to equal those of local citizens doing the same job and holding the same position.
A clean police record is required from each country where the applicant has resided for more than 12 months since 18.
Proof of good health, e.g., medical report; an X-ray may be required.
Critical Skills Work Visa (CSWV)
Applied for from abroad through the consulates/embassies or authorised Visa Centres.
A critical skills list is published by the Department of Home Affairs of occupations where skills are in ‘short supply. The Department of Higher Education and Training (DHET) decides on high-demand skills. Employers are allowed to hire foreigners to fill these positions.
Eligibility relies on having the appropriate qualifications for the position.
The Visa is valid for up to five years.
A job offer and employment contract are required to apply for this Visa since a new Directive (No.1) from the Director-General Department of Home Affairs in 2022.
The process for the Visa can take up to 40 days; however, when qualifications have to be verified, it can take much longer.
Foreigners already in South Africa can apply for the CSV provided they do not have a Visitor Visa or Medical Visa, but they require a job offer and employment contract to do so.
One eligibility criterion is that the South African Qualifications Authority (SAQA) checks the employee’s qualifications. They also need to meet NQF levels for the position.
If there is a professional qualification involved with the job position, this has to be verified by the relevant authority. Applicants can find a list of professional bodies on the SAQA website.
Intra-company Transfer (ICT)
This Visa sought after by companies bringing their staff from their home company is valid for four years but cannot be renewed or extended. They can apply for a new ICT Visa or choose a different route into the country.
There are eligibility issues, e.g., being employed by the parent company for at least six months; they must be paid overseas; report to their parent company.
When seconding an employee, employers must implement a ‘Skills Transfer Plan’ to transfer those skills to a South African worker.
Applicants who the South African subsidiary will pay must instead apply for the General Work Visa.
This Visa can be applied for through the authorised Visa Center (VFS Global).
Medical and police reports are needed, plus sufficient funds to return home, i.e., a return ticket.
Allows companies to pre-order visas they need for workers in the skilled/semi-skilled and unskilled sectors. These are applied for through embassies/consulates or VFS Centres abroad.
The company completes application forms that the prospective employees have signed.
The company has to go through several procedures and eligibility checks.
Upon approval, the company receives a corporate visa, and the employees apply for corporate workers’ visas in line with the employer’s corporate Visa for three years. Check out the following links regarding eligibility, the process, disadvantages, and advantages for companies.
Independent Financial Permit
For people wanting to live permanently in South Africa and set up a business. This permit allows applications for permanent residency without delay and will enable applicants to study, live, work and manage their own companies in the country. There are certain conditions and eligibility issues to be met.
Note: The Draft Bill for National Labor Migration Policy and Employment Services Amendment.
Legislation in early 2022 gave authorities the power to apply and determine QUOTAS for the employment of foreigners in specific sectors or occupations – nationally or regionally. Employees must be vigilant when or if it is brought into force.
How to apply for Visas and Work Permits for South Africa?
First, employees and employers work together to determine which Work Visa is required. They produce the required documentation, and the employer confirms they are eligible to employ staff or operate in South Africa. The law surrounding immigration and work documentation is closing loopholes and may change intermittently. Both parties should be aware of how this affects their obligations.
Generally, the documentation is similar for all Work Visas:
General Work Visa (GWV)
Critical Skills Work Visa (CSWV)
Intra-company Transfer (ITC) Visa
Note: When a Work Visa is applied for through an employer who issues the employment contract, changing the employer requires a new visa application.
General documentation required for Work Visas
All submitted documents should be translated into an official language, notarized, and affirmed by an authorised translator.
Application form for the appropriate Visa – completed and signed.
A passport with 30 days validity beyond the Visa’s expiry.
Proof of funds to cover the duration of the stay until receiving a paycheck.
Medical reports, which may include an X-ray.
A police report from any country applicant who has lived for longer than 12 months in South Africa since 18 years old.
Vaccination certificate as applicable.
The fee to cover the Visa application and processing.
Approval of qualifications through the South African Qualifications Authority (SAQA).
Employment contract signed by the employee and the employer.
A letter from the employer agreeing to pay for the deportation or repatriation of the employee and family if necessary.
Any company documentation from the employer to prove legal in South Africa, such as a company registration certificate.
All paperwork regarding any dependents joining the applicant.
For the General Work Visa – additional
Certificate from the Department of Employment and Labour (DEL) confirming the employer advertised the job position in the local market and the approval of the employee’s documents and qualifications for the contracted job offer.
Employer agrees to inform the Director-General of DEL of changes in employee’s role or if they leave.
For Critical Skills Work Visa (CSWV) – additional
Approval by an ‘accredited professional body’ regarding qualifications such as a doctorate is required for the job. This can be found on the SAQA website.
Intra-company Transfer Visa – additional
A letter from the employer in South Africa stipulates the employee’s duties and length of employment up to a maximum of four years. It confirms the transfer from the home company to the affiliate or subsidiary in South Africa. The applicants are still on contract with the home company, are paid by them and report to them.
Dealing with tax in South Africa while being overseas can be a tricky process and pose complications that would demand expert guidance. Bradford Jacobs is in the front rank of international taxation, payroll and recruitment specialists. Over 20 years of experience in the field ensures our clients comply with every aspect of taxation legislation wherever they operate worldwide. The combination of local ‘know-how’ plus global expertise is essential for foreign companies moving into South Africa, a gateway to further expansion throughout the African continent.
The experience that Bradford Jacobs brings to the table will answer all your questions regarding South African taxes, guaranteeing compliance across the board for personal and payroll taxes; several levels of corporate taxes, alternative turnover taxes; dividends tax; capital gains tax; Value Added Tax (VAT) and various indirect tax applications as well as customs and excise duties. We also guide companies through the limited responsibilities towards social insurance taxes. Our dedicated specialists take the burden off your shoulders while you focus on establishing your business to access the massive potential in your new territory. From locating the brightest talent to running your payroll and answering all your taxation questions, our Professional Employer Organisation (PEO) and Employer of Record (EOR) specialists are with you every step of the way.
Overview of Tax in South Africa
Personal Income Tax (PIT):
Progressive tax rates apply in seven bands, with residents taxed on worldwide income and non-residents liable only for South Africa-sourced income, with the same percentage rates applying to both. Annual earnings up to ZAR 226,000 (EUR 13,508, USD 13,750) are taxed at 18% to a top rate of 45% for the excess over ZAR 1,731,601 (EUR 103,588, USD 105,380). These rates apply to February 28 2003.
Social Insurance Taxes:
South Africa has no comprehensive national health or social security system. Employers and employees each contribute 1% of payroll and salary towards the Unemployment Insurance Fund (UIF).
Corporate Income Tax (CIT):
Until March 31 2023, a rate of 28% applies to the taxable income of both resident and non-resident companies, with the rate down to 27% for subsequent tax years after that date. Until March 31 2023, lower rates apply to companies with gross income under ZAR 20 million (EUR 1,205,280, USD 1,237,040). There is also an alternative tax for small companies where turnover is under ZAR one million (EUR 59,840, USD 60,857).
The standard rate for Value Added Tax is 15% on goods and services plus imports. The zero-rated band includes some foodstuffs and exports. Tax is paid by all companies registered as vendors with the South African Revenue Service (SARS).
Withholding Tax on Interest (WTI):
A tax of 15% is withheld on interest paid to a foreign individual or company.
Capital Gains Tax (CGT):
Individuals, companies and trusts are taxed at various rates, with tax treated as income. The applicable rates for 2022 for individuals and special trusts is 18%; companies at 22.4% (reduced to 21.6% for the tax year beginning in 2023); other trusts at 36%.
The tax year is from March 1 until February 28 or 29, depending on Leap Years.
Joint tax returns for married couples are not permitted.
Individual employees’ tax is generally deducted and withheld at source by the employer and remitted to the South African Revenue Service (SARS) at progressive rates from 18% to 45%.
Individuals responsible for their taxation, not on pay-as-you-earn (PAYE) payroll, file returns to SARS according to government notices and pay in two instalments in August and February.
Individual tax liability covers all forms of remuneration, including cash payments, bonuses and allowances and benefits in kind, and employment income.
Individuals are tax residents if they are in South Africa for more than 91 days in a tax year for each of the preceding five years or a total of 915 days in the previous five years.
South African residents are exempt from taxes on the first ZAR 1.25 million (€74,920, US$76,210) of income from employment in a foreign country, providing they exceeded 183 days, including 60 consecutive days, outside South Africa in 12 months.
Employer’s Social Insurance and Statutory Contributions in South Africa
South Africa has no comprehensive national health or social insurance system, meaning there are no significant employer contributions required. Employers contribute 1% of payroll on behalf of their employees to the Unemployment Insurance Fund (UIF).
Foreign companies expanding international operations beyond their borders and shores can open a subsidiary overseas to establish a foothold for testing the market. This can be a risky move – costly both in time and money – with no guarantee of success from all that effort and financial investment.
South Africa is a prime target for such expansion, with its highly-developed business and financial services sector adding to the nation’s attraction as a ‘Gateway to Africa’. Opening a subsidiary is the first step for incoming companies that intend to hire staff and operate their payroll. The most straightforward and popular choice is a private company, with registration overseen by the Companies and Intellectual Property Commission (CIPC). It operates under the Companies Act of 2008 and according to its own Memorandum of Incorporation.
Beware! Expanding overseas is a significant step. If the move fails, companies face the added costs and bureaucracy of closing their operation, selling property and paying off employees. These are unwanted distractions while you also concentrate on building a business in your home country. The sensible alternative is to use a Professional Employer Organisation (PEO) and Employer of Record (EOR), such as Bradford Jacobs, to find the best local talent and administer your payroll in South Africa. Your company will be up-and-running in days rather than weeks or even months without running any risks.
How to Set Up a South African Subsidiary?
Are you planning your move into the South African market? Then the first decision is which business structure best suits those plans. Companies intending to hire staff and run their payroll must set up subsidiaries. The most popular choice is to open a private company, which offers protection against liability for its shareholders and the parent corporation.
As with all South African entities, registration is through the Companies, and Intellectual Property Commission (CIPC) and the Companies Act governs it. Incorporation procedures include:
Registering the company name with the CIPC, which in the case of a private company carries the suffix ‘Proprietary’ or ‘Pty.’
Registering the Memorandum of Incorporation and Articles of Association with the CIPC.
Obtaining the company’s Registration Certificate (Cor14.3) from the CIPC.
Registering with the South African Revenue Service (SARS) for paying all categories of taxes and remitting employees’ deductions from payroll.
Registering with the Unemployment Insurance Fund (UIF) and the Compensation for Occupational Injuries and Diseases (COIDA) Act fund. Note: there is no comprehensive social insurance system or national health program, and therefore, no significant levies for social insurance taxes.
Registering foreign shareholders as ‘non-resident’ with the CIPC to comply with exchange control regulations and register at least one shareholder and one director with the CIPC.
Open a corporate bank account. There is no minimum share capital requirement generally, although sectors such as insurance and banking impose minimum limits. Foreign investment must comply with exchange control requirements.
Once incorporated, the company must follow other procedures before they can operate payroll for the staff of their subsidiary, including:
Registering employees with the South African Revenue Service (SARS) through the ‘eFiling’ system within 21 days of starting business operations.
Use ‘eFiling’ to obtain their Tax Reference Number (TRN) and the Notice of Registration (IT150) from SARS, which shows the TRN and South Africa ID or passport number.
In the formal economy, employees must be registered with the Unemployment Insurance Fund (UIF) and the Compensation for Occupational Injuries and Diseases Act fund (COIDA).
Non-South Africans must have a valid work visa before starting work and must have an employment contract from the employer to apply for the visa.
Benefits of Setting Up a South African Subsidiary
The foreign-owned subsidiary in South Africa operates under the Companies Act as a separate legal entity, entirely independent from the parent company. As such, all liabilities are the responsibility of the subsidiary and not the parent company. Shareholders and directors are similarly free of obligations, except in the circumstances specified by the Companies Act or by the subsidiary’s own Memorandum of Incorporation.
South Africa is viewed as the continent’s most sophisticated economy in business, insurance and financial services, adding to the attraction for companies looking for a ‘Gateway to Africa’. Additionally, the subsidiary can ‘test the market’ by following its business ideas and entering into different areas of operation for the owning company. The subsidiary can also draw up its contracts and agreements with clients.
Other benefits for a subsidiary include the following:
Easier to obtain potential benefits and incentives and enter into contracts with other South African and African companies.
More impact with clients and suppliers, as subsidiaries imply more permanency than branches.
Employees feel there is more stability and job security than from being with a branch, which in South Africa is known as an ‘external company.’
However, there is a more straightforward option to the risks and costs of setting up a subsidiary in South Africa working with Bradford Jacobs. Using our global PEO networks means staff can be sourced, placed in their roles and be up and running within days, not the months it could take to open a subsidiary. All the difficulties of payroll, taxation and compliance are under control thanks to our Employer of Record (EOR) services. Meanwhile, your employees are totally under your control.
Subsidiary Laws in South Africa
Subsidiaries in South Africa operate under the Companies Act (2008) and are registered and monitored through the Companies Intellectual Property Commission (CIPC). The Companies Act was amended by the Financial Sector Laws Amendment Act (2021) and the Financial Markets Act.
Registration and Documentation:
Register a unique company name with the Companies Intellectual Property Commission (CIPC). The word for a private company carries the suffix ‘Proprietary’ or ‘Pty.’
Register the Memorandum of Incorporation (MOI) and the Articles of Association with the CIPC. The MOI must comply with all measures of the Companies Act
Register certified ID documents (or passports of non-South Africans) with the CIPC
Register an office with the CIPC or principal office if more than one, which must be continuously maintained
Up-to-date accounts must be held at the registered office
Register with the Unemployment Insurance Fund (UIF) and the Compensation for Occupational Injuries and Diseases Act (COIDA) fund
Accounts and Taxation:
Register for paying, deducting and remitting all categories of taxes with the South African Revenue Service (SARS), as set out by the Income Tax Act
Companies incorporated or effectively managed in South Africa are tax residents
Resident companies are liable for Corporation Tax at the prevailing rate, 28%, until February 28 2023, when it is due to be cut to 27% from March 1 of that year
Taxes must be paid as per notices issued by SARS.
Up-to-date accounts must be maintained at the registered office, with returns filed to the CIPC every year
Open a corporate bank account
Register foreign shareholders as ‘non-resident’ with the CIPC to comply with exchange control regulations
Register at least one shareholder and one director with the CIPC. There are no residency requirements
Shareholders and directors are not generally responsible for liabilities or obligations of the private company
Unless specified in the MOI, a private company need not hold an annual general meeting (AGM)
Shareholders’ meetings must be held if required under the Companies Act or when one or more shareholders make a written request.
Board meetings can be called by a single director or 25% of directors in companies with more than 12 directors.
Entering the South African market can offer your business various new opportunities. South Africa’s sophisticated and highly-developed economy attracts front-rank multinational corporations that identify it as a gateway to other African economies. Gross Domestic Product (GDP) was assessed at US$415.3 billion, 33rd in the world and second only to 31st-placed Nigeria in Africa. Effective logistics and infrastructure support a developing economy, according to the South African government’s Statistics Department., which saw an increase of 1.9% in the first quarter of 2022 to pre-pandemic levels. Growth was reflected in manufacturing, petroleum production, chemicals, food, metals and machinery. Consumer and household purchases increased, along with growth in the hospitality sector.
South Africa is an attractive target for foreign investment, with many incentives. Still, there are always considerations regarding compliance with relevant legislation, including the Labour Relations Act that lays down the obligations of employers and protects the rights of their employees. South Africa is the largest producer of gold, platinum and chromium globally and has significant coal deposits. Mining is at the core of South Africa’s economy through the country’s rich reserves of natural resources, most famously from the De Beers diamond mines. Additionally, there are large deposits of gold, iron ore, manganese, chromium, copper, uranium, silver and titanium.
Starting a business in South Africa
Entering the South African market can bring challenges. Moving staff across the world involves complications surrounding work visas. When employees are in place, who will handle payroll? How will your company deal with regulations on taxation, entitlements and benefits, termination and severance? Drawing up an expansion blueprint is not enough. Your business plan will have to deal with all these issues.
South Africa is an attractive target for foreign investment, with many incentives, but there are always considerations regarding compliance with relevant legislation, including the Labour Relations Act that lays down the obligations of employers and protects the rights of their employees.
Foreign companies planning to build on this potential and enter the South African market can make their move by opening a subsidiary, which is essential for hiring staff in the country and running payroll. The most popular choice is a private company, with registration overseen by the Companies and Intellectual Property Commission (CIPC). The subsidiary operates under the Companies Act of 2008 and according to its own Memorandum of Incorporation. Registration procedures include:
Registering the unique company name with the CIPC, which in the case of a private company carries the suffix ‘Proprietary’ or ‘Pty’, along with the Memorandum of Incorporation and Articles of Association
Obtaining the company’s Registration Certificate (Cor14.3) from the CIPC
Registering with the South African Revenue Service (SARS) for paying all categories of taxes and remitting employees’ deductions from payroll
Companies and employees must register with the Unemployment Insurance Fund (UIF) and the Compensation for Occupational Injuries and Diseases Act (COIDA) fund.
Foreign shareholders must be registered with the CIPC as ‘non-resident’ to comply with exchange control regulations and register at least one shareholder and one director with the CIPC.
Open a corporate bank account. There is no minimum share capital requirement generally, although sectors such as insurance and banking impose minimum limits. Foreign investment must comply with exchange control requirements.
But there are other issues, too. Where will you find manufacturers, offices and distributors? By partnering with a Professional Employer Organisation (PEO) and Employer of Record (EOR) such as Bradford Jacobs, you can plot a time-efficient and cost-effective route to locating and employing staff in South Africa.
Expanding your business into South Africa
South Africa has a fully developed infrastructure and solid financial system, offering incentives to local and international companies. It is the second-largest economy in the continent. Although it is considered an ‘upper-middle income’ nation with a GDP of US$415.3 billion, its GDP per capita is only US$6,891, highlighting the existing inequalities. However, Africa is up-and-up with a vast consumer market and many business growth opportunities. Companies are eager to join this burgeoning market and take a foothold in South Africa.
The Companies Act of 2008 says that companies must maintain at least one office in South Africa, registered with the Companies and Intellectual Properties Commission (CIPC). This office is where legal issues are concluded and legal notices are served. So, where to establish your office in South Africa?
Gauteng: This may be the smallest province, but it has the most significant percentage of the country’s population, excelling in telecommunications, manufacturing (45% of South Africa’s capacity), commercial services, trade and logistics. Its primary industries include iron and steel, electrical supplies and machinery, food, and motor vehicle parts. Its growth area is within the Special Economic Zones (SEZ).
Special Economic Zones (SEZ) in South Africa
To promote specific economic activity in designated areas with financial targets.
Provide a highly developed infrastructure and efficient utility services framework to enhance efficiency and development
Special rules and regulations to cut through bureaucracy and enhance trade
Create jobs and regional development
It allows the government to implement and monitor priority programs, providing financial benefits for new, expanding companies and Start-ups, such as:
Preferential rates for Corporate Tax
Allowances on premises
Controlled Customs Areas
Industrial Development Zones (IDZ) in South Africa
They are purpose-built industrial areas to promote national and foreign investment, value-added manufacturing, exports and services.
AtlantisSEZ in Cape Town – green tech manufacturing hub.
NkomaziSEZ eastern Ehlanzeni, ideally located between Swaziland and Mozambique; it is an industrial cluster.
Coega IDZ services the east-west trade corridor in Eastern Cape Province, promoting manufacturing and exports with investment in agro-processing, energy, automotive industry and more.
Richards Bay IDZ on the North-East coast on the N2 business corridor linking the seaports of Durban and Richards Bay designed around manufacturing and mineral storage.
East London IDZ – an important Industrial Park in Buffalo City in the Eastern Cape Province, offering industries such as the automotive, aquaculture and agro-processing specialized solutions and manufacturing platforms
Some South African Facts
Capital – Pretoria (administrative), Cape Town (legislative), Bloemfontein (judicial)
Population – 60.6 million
Provinces – Eastern Cape, Free State, Gauteng, KwaZulu-Natal, Limpopo, Mpumalanga, Northern Cape, North West, Western Cape
Official language – English, Afrikaans, Xhosa, Zulu, Southern Sotho, Northern Sotho, Tswana, Tsonga, Venda, Swati, Ndebele
Economy – US$415.3 billion, 33rd in the world (2021)
Leading sectors by GDP –
Services 64.57%, industry and manufacturing 23.42%, and agriculture 2.53% (2021)
Primary exports include – Precious and base metals, agricultural goods, military equipment, and coal.
Leading imports include – Chemicals and related products, motor vehicles and parts, crude and refined petroleum, and broadcasting equipment.
Main trading partners – China, the US, Germany, Japan, India, the UK, and Saudi Arabia.
Government – Constitutional and parliamentary republic.
Currency – Rand (ZAR)
Advantages and Challenges when entering the South African Market
Some advantages of entering the South African market include the following:
Logistics: Well-established and modern infrastructure.
Business environment: Excellent financial, legal, banking and business services, widespread use of English and an established manufacturing base. The most significant number of multinationals on the African continent.
Natural resources: Huge reserves of precious and base metals, plus considerable supplies of coal and oil.
Regional economics: Successfully integrated into Africa’s economic infrastructure through the African Continental Free Trade Area. Other trade agreements include the European Union plus membership in the informal BRICS group (Brazil, Russia, India, China and South Africa). South Africa is a gateway to sub-Saharan economies.
Consumerism: A growing middle class of different ethnic groups.
Some challenges of entering the South African market include:
Security: South Africa has high crime levels outside tourist areas, including murder, car-jacking and robbery.
Tenders: Lack of transparency in awarding contracts.
Bureaucracy: Concerns over adverse regulatory and political factors; complex tax payment procedures.
Workforce: Skills shortages among technical and professional sectors despite high unemployment. Diverse cultures and ethnic groups complicate entering the market for foreign companies.
Companies extending their operations into South Africa need a complete grasp of South African employment contract laws. A successful business largely depends on its employees. By creating work contracts that include the right terms and benefits there will be no misconception and the perfect work-life balance can be created for your workforce.
Thanks to our Professional Employment Organisation (PEO) and Employer Of Record (EOR) services, we can provide compliant labour contracts for your employees in South Africa, including local benefits. Our team keeps track of South African laws and regulations daily to be duly aware of updates that can be implemented in working contracts and to ensure a smooth entry for your business into the South African economy.
The different types of South African Employment Contracts
The minimum requirement is for employees working more than 24 hours a month to be given a written list of the critical elements of their role from the first day of employment. There is no legal requirement for a formal written contract, although written agreements are generally in place. Contracts are covered by a combination of the Labour Relations Act (LRA) and the Basic Conditions of Employment Act (BCEA). Specifics in the agreements include full details of the parties; a description of the role; salary and payment schedule; basic conditions such as overtime, hours, and paid vacation.
Indefinite, permanent employment contracts: Remains in force until the employee’s retirement or resignation, or dismissal by the employer. Otherwise, no end date is specified.
Fixed-term employment contracts: Tied to a specific end date or project (also known as a Project Employment Contract) and includes Temporary Employment Contracts.
Collective Bargaining Agreements (CBAs): These apply at the company, factory or plant level in single-employer bargaining; at the sector level through bargaining councils under the Labour Relations Act in multi-employer bargaining.
South African Employment Contracts Requirements
When ‘decision time’ arrives, companies must make the right choices. Foreign companies entering the South African employment market and economy have to decide which business structure best suits their plans when it comes to hiring employees. The popular choice is to open a subsidiary as a private company, which offers protection against liability for shareholders and the parent entity. As with all domestic companies, the subsidiary is governed by South Africa’s Companies Act (2008) and by its own Memorandum of Incorporation (MOI) and complies with the regulations of the Companies and Intellectual Properties Commission (CIPC).
Opening a subsidiary is a legal requirement to hire staff and operate their payroll. In addition to registering the subsidiary, employers face other conditions when hiring. These include the following:
Contracts can generally be written or oral, but employees must at least receive a written agreement listing the essential aspects of their role.
If hiring on a fixed-term contract, these must be in writing for employees below a threshold set by the terms of the Basic Conditions of Employment Act (BCEA).
Fixed-term contracts must specify the length and the reason why they are necessary.
Part-time or temporary employees must also have a written contract.
Probation periods must be for a reasonable time to assess suitability for the role, generally between three and six months.
Employers are required to ensure that the terms of a written contract or agreement are in the language understood by the employee, or subsequent disciplinary matters may be considered unfair.
Employee Benefits in South Africa come under the Labour Relations Act (LRA), the Basic Conditions of Employment Act (BCEA), the Employment Equity Act (EEA) and supplementary Codes of Good Practice. Other Acts also apply to minimum wages and occupational health and safety. Foreign companies must comply with every aspect of legislation as it applies to their employees once they have opened a subsidiary in the country, usually in the form of a private company.
Once the staff have been onboarded, employers must comply with the strictly-applied legislation that provides safeguards and minimum guarantees for employees. This emphasizes that foreign companies’ responsibilities go beyond simply complying with South African tax and payroll regulations – although these still present a heavy workload.
Employers must have a firm grasp of what is guaranteed for their employees to ensure a successful working relationship. Stepping out of line with specific compensation and benefits rules runs the risk of cumulative fines and further sanctions. This is where Bradford Jacobs points you in the right direction, drawing on over 20 years of experience as a Professional Employer Organisation (PEO) and Employer of Record (EOR). We deal with the complexities while your staff focus on work.
What are the Compensation Laws in South Africa?
The main pillars of employment legislation in South Africa establishing compensation laws for employees are the Labour Relations Act (LRA), the Basic Conditions of Employment Act (BCEA) and the Employment Equity Act (EEA). The BCEA deals with most categories of employment law, supplemented by specific statutes and Codes of Good Practice. At the same time, the LRA is more concerned with unfair dismissal, contracts and workplace regulations. Not all BCEA regulations apply to employees earning above certain thresholds or those working less than 24 hours a month.
Maternity Leave and Benefit: Maternity leave is four months, which can begin four weeks before the due date, or earlier if medically required and certified by a doctor. A minimum of six weeks must be taken after the birth. The employer is not legally required to pay benefits, but the employee can claim from the Maternity Benefit Fund element of the Unemployment Insurance Fund (UIF). The benefit is a maximum of 60% of the salary, depending on the income level, for a maximum of 121 days. Fathers are entitled to 10 days of paternity leave, paid by the UIF. Under the BCEA, employees who have worked for at least four months are entitled to three days of delivered family responsibility leave every 12 months, including the birth of a child, among other family events. This applies to one of the parents.
Sick Leave and Benefit: During an ‘ill leave cycle of 36 months, an employee in the private sector is entitled to 30 days of paid leave. During the first year’s employment, the employee is entitled to one day’s paid leave for every 26 days of work. The employer does not have to pay if the employee fails to produce a medical certificate after two days from work or if they could not do so on two occasions during eight weeks.
National Minimum Wage: The Department of Employment and Labor increased the recommended national minimum in the private sector for the tax year March 1 2022, to February 28 2023, to ZAR 23.19 (EUR 1.40, USD 1.43) an hour, equating to ZAR 3,710 (EUR 223, USD 230) per month. Some sectors set rates above the national minimum, while collective or union agreements can also charge higher minimums.
Paid Vacations: The BCEA allows employees 21 days of paid vacation after completing one year’s service or one day’s leave for every 17 days worked. Employees receive an additional day if a public holiday falls during their vacation. The employer awards annual vacation pay equal to the amount the employee would have earned during that period, either at the start of leave or, by agreement, on the usual payment schedule. Employees working fewer than 24 hours a month have no entitlement.
Working Hours: Article 9 of the BCEA stipulates a maximum of 45 hours a week and nine hours a day (excluding lunch break) in working weeks of five days or less; and eight hours a day (excluding lunch break) in working weeks of more than five days. After five hours’ work, employees must have one hour’s break, which is unpaid. Hours can be extended by agreement, particularly in the service industry.
Overtime: The BCEA restricts overtime to 10 hours per week or three hours per day at a minimum 50% premium over their regular hourly pay. There must be an agreement regarding overtime. Also, employers can pay the employee their standard wage for overtime but award at least 30 minutes off on full pay for each hour’s overtime OR mention at least 90 minutes of paid time out for each overtime.
Probation Periods: Trial periods are usually between three and six months, with the term confirmed in the contract or agreement of an open-ended contract
Notice Periods: Notice must be given in writing for periods between one and four weeks, depending on contractual arrangements or collective agreements. Notice cannot be issued during any period of leave.
Termination / Severance / Redundancies: All employees are protected from unfair dismissal, which can only be due to misconduct, incapacity to work or operational requirements. Severance pay applies only for layoffs due to functional requirements, with a mandatory minimum of one week’s salary per year of service. At the same time, any additional payments are part of the compulsory consultation process. The Labor Relations Act applies strict consultation procedures where companies employing more than 50 plan mass redundancies or ‘retrenchment’ and will also consider any redundancies or dismissals over the previous 12 months. The Commission for Conciliation, Mediation and Arbitration will be involved in the process.
Discrimination: The Promotion of Equality and Prevention of Unfair Discrimination Act from 2000 prohibits discrimination by the government, private institutions and individuals. The Employment Equity Act adds to this and denies discrimination in employment on grounds including gender, sexual orientation, pregnancy, marital and family status; ethnic or social origin; religious or political beliefs; language.
Guarantees and Restrictions on Employee Benefits in South Africa
Employment contracts and Collective Bargaining Agreements (CBAs) can enhance statutory minimums but cannot reduce them to the detriment of employees. Employees in South Africa can rely on benefits and entitlements guaranteed by a combination of the Labour Relations Act (LRA) and the Basic Conditions of Employment Act (BCEA).
Maternity / Paternity Leave: Maternity leave of 16 weeks is guaranteed, usually starting four weeks before the due date unless medically advised to start earlier. A minimum of six weeks is taken after the birth. Employees can claim from the Maternity Benefit Fund element of the Unemployment Insurance Fund (UIF) a maximum of 60% of their salary, depending on their income level, for up to 121 days.
Working Hours and breaks: Article 9 of the BCEA sets a maximum of 45 hours a week and nine hours a day in working weeks of five days or less; and eight hours a day in working weeks of more than five days, excluding lunch breaks. After five hours’ work, employees must have one hour’s break, which is unpaid.
Paid Vacations: The BCEA sets 21 days of paid vacation as the minimum for employees who have worked an entire year or one day’s leave for every 17 days worked. Employees receive annual vacation pay equal to the salary they would have received during the holiday.
Maternity Benefit: Employees must have contributed to the Unemployment Insurance Fund (UIF) to receive benefits from its Maternity Benefits Fund, and they must receive less than their regular salary from their employer.
Unemployment Benefit: Individuals must apply to the Department of Labor within six months of losing their job, provide their last six pay slips, supply a confirmation letter from their former employer and be registered as a job seeker to qualify for benefits of up to 34 weeks from the UIF.
Social Security in South Africa
South Africa does not have a comprehensive social insurance program. In the formal economy, employees are registered for the Unemployment Insurance Fund (UIF) and the Compensation for Occupational Injuries and Diseases (COIDA) Act fund. Employers and employees each contribute 1% of payroll and salary to the UIF.
Currently, a significant proportion of healthcare budgets go towards the private sector. There are government plans to introduce a National Health Insurance Fund, before which state funding is aimed at helping citizens on the lowest incomes, with others taking out private healthcare insurance, regulated by the Medical Schemes Act, to access higher quality medical care.
Recruiting in South Africa is not a straightforward route. Significant amounts of red tape have to be unravelled, plus strictly-applied legislation sets out the obligations of employers and protects the rights of their employees. More recruitment complications could be on the way. Employers must also be aware of potential changes to employment law and quotas under the Draft National Labour Migration Policy and Employment Services Amendment Bill. The Ministry of Employment and Labour proposes setting maximum limits on employing foreigners in any sector.
Quotas may be set by sector, region or occupation. Employers will have to apply for an exemption from the quota requirement. Alternatively, if the foreigner fills a position with a critical skills shortage they may be exempt. South Africa has high unemployment. According to the World Bank, the highest-ever 35.3% unemployment was reached by the end of 2021, with 66.5% applying to the 15-24 years old age group. Yet despite the sizeable labour pool seeking work, skills shortages will hinder finding the right talent.
The legislation imposes statutory minimums on their employees’ compensation and benefits. South African employment legislation is based on the Labour Relations Act (LRA) and the Basic Conditions of Employment Act (BCEA). These can also be affected by trade unions and Collective Bargaining Agreements (CBAs), which can improve statutory minimums, but not reduce them. This highlights that recruiting in South Africa is complicated; especially for foreign companies who are not familiar with the employment market.
This is where Bradford Jacobs’ global experience is vital for taking the smartest recruitment route into South Africa. Our platforms as a Professional Employer Organisation (PEO) have worldwide reach. You can trust us to put the brightest talent in place for your company.
Recruiting in South Africa
International companies plotting their path through the recruitment process in South Africa not only have to cope with the bureaucracy but also plan for the likelihood that quotas will be applied to hiring non-South African employees in various sectors, regions and nationally. Employment legislation is also strictly used, based on the Labour Relations Act (LRA) and the Basic Conditions of Employment Act (BCEA), to protect the rights and benefits of workers.
The recruitment process is the vital stage in making your company competitive in South Africa. However, complications surround moving staff in and obtaining residence permits and work visas. To avoid these issues, knowing where to locate the finest recruits for your company’s International Expansion is vital.
Once employees are recruited and onboarded, the process continues with meeting these responsibilities:
Employers register with the South African Revenue Service (SARS) within 21 days of starting operations.
Register employees with SARS’ ‘eFiling’ system to automatically begin obtaining their Tax Reference Number (TRN).
Obtain the employees’ Notice of Registration (IT150) from SARS, which shows their TRN, displaying South African ID or passport number.
Employees in the formal economy are registered for the Unemployment Insurance Fund (UIF) and the Compensation for Occupational Injuries and Diseases Act (COIDA) fund. Note: There are no significant social insurance contributions as there is no comprehensive social insurance system in South Africa.
Non-South Africans must have a valid work visa before starting work and must have an employment contract from the employer to apply for the visa.
Employees’ Legal Checks in South Africa
Generally, checks are allowed, but only with permission from the applicant. Employers must comply with the Protection of Personal Information Act (POPIA) and the National Credit Act (2005). Checks should be relevant to the position being applied for. Employees’ background checks can include the following:
Criminal Record: Known as ‘Criminal History Searches’, permission is required, and the candidate must supply a copy of their fingerprints through the Automated Fingerprint Identification Service (AFIS). A Police Clearance Certificate may be required for immigration and visa purposes.
Credit: These checks are prohibited without the permission of the applicant. Further, checks should only be conducted where the position requires handling cash or other financial responsibilities or in positions of trust.
Medical: The employer requires permission to conduct these checks. Foreign applicants may need to provide a medical report; a Yellow Fever Certificate if from, or having travelled through, a relevant location; an X-ray or radiology report.
Education Qualifications and References: The National Qualifications Framework Amendment Act permits the South Africa Qualifications Authority to maintain records of fraudulent employee claims regarding their qualifications. The candidate must enable the prospective employer to verify their previous position and that they are available to hire.
Required: Compliance with all immigration and work visa regulations.
Basic Facts when Recruiting in South Africa
Employment legislation is governed by the Labour Relations Act (LRA) and the Basic Conditions of Employment Act (BCEA). These set statutory minimums for employees, although Collective Bargaining Agreements and individual contracts can improve terms but not diminish them. Other Acts cover minimum wages, occupational health and safety, supplemented by various Codes of Good Practice.
Employers cannot ignore basic employment requirements that apply to their employees, including:
They must be registered with the South African Revenue Service (SARS) through the ‘eFiling’ system to obtain their Tax Reference Number (TRN).
Contracts can be oral or written, but employees working more than 24 hours a month must have a written agreement detailing the essential aspects of their role.
Part-time or temporary employees must also have at least a written agreement.
Fixed-term contracts are allowed for specified circumstances and duration and must be in writing for employees below a certain BCEA-established earnings threshold.
Probation periods, generally between three and six months, must be for a reasonable period to assess suitability.
After hiring new staff and onboarding them onto the company payroll, employers must ensure they make no mistakes on statutory entitlements for their employees. Mandatory standards include minimum wages, sick leave, working hours, maternity allowances, paid vacations, termination and severance, notice periods and social insurance payments. All of the statutory minimums can be improved by contracts or CBAs. Examples include:
The BCEA restricts working hours to 45 a week and nine a day (excluding lunch break) in five-day working weeks or less; and eight hours a day (excluding lunch break) in working weeks of more than five days. Hours can be extended by agreement, particularly in the service industry. After five hours’ work, employees must have one hour’s unpaid break.
Employees are entitled to 21 days paid vacation after working for one year with an employee under BCEA regulations or one day’s leave for every 17 days worked. Vacation pay is equal to the amount the employee would have earned during that period, either at the start of leave or, by agreement, on the usual payment date.
The BCEA restricts overtime to 10 hours each week or three per day at a minimum of 50% extra pay over their standard hourly rate. There must be a written agreement regarding overtime. Employers can pay employees their regular wage for overtime but award a minimum of 30 minutes of time off on full pay or mention at least 90 minutes of paid time off for each hour’s overtime.
To succeed in your expansion into South Africa, employers and employees must have a strong understanding of the South African work culture. A highly developed and sophisticated business environment has earned South Africa a reputation as the ‘Gateway to Africa’ for international companies planning an expansion into the continent and operating in the country itself.
Mining is the core of South Africa’s economy, which is rich in mineral resources, most notably provided by the De Beers diamond mines. There are also reserves of gold, iron ore, manganese, chromium, copper, uranium, silver and titanium. Strong manufacturing sectors feature food processing, textiles, metals and chemicals, plastics and resins. Modern, world-class business and financial services come with structures that still tend to be hierarchical and bureaucratic. Incoming companies – especially those bringing staff into South Africa – must adjust to a nation with diverse and individual sub-cultures.
As a global Professional Employment Organisation (PEO), we aim to be familiar and updated with the business culture in the country we work with and in. By sharing our knowledge about the South African work culture, we want to support your Global Expansion plans.
The Basics of the South African Work Culture
Now is the time to get down to business. So here are a few tips on how to clear those cultural hurdles and business etiquette issues.
Language: English is the most commonly spoken language in the business environment.
Punctuality: Attitudes differ among ethnic groups. White and South Asians tend to value punctuality the most.
Business Meetings and Negotiations: Communication with South Africans, especially of Afrikaans heritage, tend to be direct and to the point. Agendas will be planned for a structured meeting. Listen attentively, show respect and do not interrupt. Anticipate a slow negotiation pace as building trust is essential towards mutual understanding, although generally, the other team will not be looking to make friends. Decisions will come down from the top in a traditionally hierarchical business setup. Away from the meeting room, face-to-face meetings are still preferred via video-conferencing rather than relying on emails.
Greetings: Handshake, smile, make eye contact, and take time to exchange friendly, introductory chats. Men should wait for a female member of the other team to offer her hand first. Initially, address opposite numbers by title and surname.
Gift Giving: Not expected, although personalized gifts are acceptable, such as pens, diaries, and desk accessories with the company name.
Business Cards: Exchanged without ceremony at introductions.
Dress Code: Varies between sectors, with a business suit and tie for men, and suits or dresses for women, while the IT sector can be more relaxed with casual-smart the norm.
Out of Hours: A host of cultures adds up to a vast choice of cuisine, and hosts will be keen to guide guests through the menus for lunch and dinner.
Avoid: Discussing the country’s politics or past.
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