The Skills Development Levy: Who Pays It, and How to Claim 20% Back

If you employ people in South Africa and your payroll is over roughly R41,700 a month, one per cent of it leaves your bank account every month and goes to a body most business owners could not name. Twenty per cent of that money is claimable back. Most employers never claim it, and the reason is usually that nobody told them the deadline.

The Skills Development Levy is the least understood of the payroll deductions, partly because it is not a deduction at all — it comes out of the employer's pocket, not the employee's — and partly because the number that decides whether you pay it does not appear in the Act that creates it.

What the levy actually is

The Skills Development Levies Act 9 of 1999 imposes it. Section 3(1) is short: every employer must pay a skills development levy, at 0,5% of the leviable amount from 1 April 2000, and one per cent of the leviable amount from 1 April 2001. That one per cent has not moved in twenty-five years.

It is not withheld from anyone's salary. It is a cost of employing people, calculated on what you pay them.

Where it goes is set by section 8(3): the Director-General must allocate 20 per cent to the National Skills Fund and 80 per cent to your SETA — the Sector Education and Training Authority whose jurisdiction your business falls into. There are twenty-one of them, split by industry, and which one you belong to determines who you claim from later.

The leviable amount catches more than you think

Section 3(4) defines the leviable amount as the total remuneration paid or payable by an employer to its employees during any month, determined under the Fourth Schedule to the Income Tax Act for the purposes of working out PAYE — and here is the critical phrase — "whether or not such employer is liable to deduct or withhold such employees' tax".

The Act's own footnote spells out the consequence: "the remuneration paid to employees below the Income Tax threshold must be incorporated into the remuneration for determining the leviable amount".

That is the trap. A small manufacturer, a restaurant, a cleaning company or a farm may have a dozen staff, none of whom earns enough to pay a cent of income tax, and still be well over the levy threshold. The tax status of the individual employee is irrelevant. Only the total matters.

SARS describes the base in plainer language: the total paid in salaries "including wages, overtime payments, leave pay, bonuses, fees, commissions and lump sum payments".

Section 3(5) carves four things out of the base:

• amounts paid to certain independent contractors and personal service providers holding an exemption certificate under paragraph 2(5)(a) of the Fourth Schedule
• any pension, superannuation allowance or retiring allowance
• amounts falling in paragraphs (a), (d), (e) or (eA) of the "gross income" definition
• amounts payable to a learner under a section 18(3) learnership contract

That last one is a small standing incentive: put someone on a registered learnership and their pay drops out of your levy base.

The R500,000 line, and why it is not in the Act

Section 4 lists the exemptions. Four categories are exempt: national and provincial public service employers; religious and charitable institutions under section 10(1)(f) or (fA) of the Income Tax Act; national or provincial public entities where 80% or more of expenditure comes from funds voted by Parliament; and — the one that matters to ordinary businesses — the small-payroll exemption in section 4(b).

Read the Act's own words and you will find a figure nobody quotes:

"during any month, there are reasonable grounds for believing that the total amount of remuneration … paid or payable by that employer to all its employees during the following 12 month period will not exceed R250 000, or such other amount as the Minister may determine by notice in the Gazette"

The operative figure today is R500,000, set by ministerial notice, and it is the figure SARS applies. In SARS's words: an employer whose leviable amount over the next twelve months "won't exceed R500 000" is exempt and is "not required to register to pay SDL". Conversely, "where an employer expects that the total salaries will be more than R500 000 over the next 12 months, that employer becomes liable to pay SDL."

Two practical points follow from the drafting.

The test is forward-looking. It is about reasonable grounds for believing what the next twelve months will bring, assessed during any month — not a look back at last year's payroll. A business that grows into the threshold mid-year becomes liable when the expectation changes, not at the next year-end.

The figure can move without Parliament. Because the Act delegates it to a gazette notice, the threshold can be adjusted administratively. If you are reading this some years after it was written, check the current figure on the SARS SDL page rather than assuming R500,000 still holds.

Note also that section 5(6) requires employers exempt under section 4(a), (c) and (d) — the public service, charitable and public-entity exemptions — to register anyway. The small-payroll exemption in section 4(b) is conspicuously absent from that list, which is consistent with SARS's position that a sub-threshold employer need not register.

Paying it: seven days, EMP201, and a 10% penalty

Section 6(2) sets the deadline: the levy must be paid to the Commissioner not later than seven days after the end of each month in respect of which it is payable, together with a statement in the form SARS requires. In practice that is the same EMP201 Monthly Employer Declaration that carries your PAYE, UIF and Employment Tax Incentive, and the same seven-day clock.

Miss it and two things happen, both automatic:

• Interest under section 11, at the "prescribed rate" defined in the Income Tax Act, running from the last day for payment to the day payment is received.
• A penalty of 10 per cent of the unpaid amount under section 12(1), in addition to the interest. Section 12(2) lets the Commissioner remit it having regard to the circumstances, but that is a discretion, not a right.

Section 13 then imports most of the Income Tax Act machinery — assessments, objections and appeals, recovery, refunds, representative taxpayers and the anti-avoidance provisions — so an SDL dispute runs on the same rails as an income tax one.

If you are setting up employer tax types for the first time, our guide to SARS eFiling for companies covers where SDL sits alongside PAYE and UIF, and hiring your first employee covers the registrations that come before it.

Getting 20% of it back

This is the part employers routinely leave on the table.

Under the SETA Grant Regulations, which took effect on 1 April 2013, an employer that submits a Workplace Skills Plan and an Annual Training Report to its SETA can claim a mandatory grant of 20% of the levies it paid. The deadline is 30 April each year.

The grant was previously 50%. It was cut to 20% by those 2013 regulations, with the balance redirected to discretionary grants and the National Skills Fund — which is why older advice overstates what you can recover.

Three things worth knowing about the claim:

• It is not means-tested or merit-tested in the ordinary sense. The WSP is a plan for the training you intend to do; the ATR reports what you actually did. You are not bidding for the money, you are accounting for it.
• Missing 30 April forfeits the year. Employers who miss the deadline forfeit the mandatory grant for that period, and in practice put their discretionary grant applications at risk too.
• It requires you to know your SETA. Section 5(2) of the Act says that where an employer falls within the jurisdiction of more than one SETA, the employer must select one, having regard to the composition of its workforce, the remuneration paid to different categories of employee, and their training needs. That selection is binding unless the Commissioner directs otherwise.

For a business paying, say, R800,000 a year in salaries, the levy is R8,000 a year and the mandatory grant is R1,600. That is not transformative. For a business with a R6m payroll it is R12,000 a year, recovered for the cost of two documents. Either way it is your money, already paid.

Where this sits next to your other obligations

SDL is one of four things that ride on the same monthly declaration, and they have different triggers:

• PAYE is triggered by paying anyone remuneration, regardless of amount.
• UIF is triggered by employing anyone for more than 24 hours a month, at 1% from the employer and 1% from the employee.
• COIDA is a separate registration with the Compensation Fund, not with SARS.
• SDL is the only one with a payroll-size threshold, and it is the only one that is purely an employer cost with a partial refund attached.

Small businesses often assume that being under the income tax radar means being under the levy radar too. It does not. A micro business paying turnover tax instead of normal income tax is still an employer for SDL purposes if its payroll crosses the line — see our guides to turnover tax for micro businesses and small business corporation tax relief for how those regimes interact with payroll obligations.

Frequently asked

Is SDL deducted from my employees' salaries? No. It is an employer cost calculated on the payroll. Nothing comes off the employee's payslip for it.

My staff all earn under the tax threshold. Am I exempt? Not automatically. The leviable amount expressly includes remuneration paid to employees below the income tax threshold. Add up total remuneration; if it will exceed R500,000 over the next twelve months, you are liable.

I registered for SDL and my payroll has since dropped below the threshold. What now? The exemption test is forward-looking, so if you have reasonable grounds to believe the next twelve months will stay under the threshold, you can approach SARS to deregister for the levy. Keep the workings that support the belief.

What happens if I have never registered and I should have? The levy is recoverable with interest under section 11 and a 10% penalty under section 12, and section 13 gives SARS the Income Tax Act's assessment and recovery powers. Regularising voluntarily is materially better than being assessed.

Do I have to use the training money on training? The levy itself is not earmarked to your own staff — 80% goes to your SETA and 20% to the National Skills Fund. The mandatory grant, though, is claimed against a plan and a report of actual training, so recovering it does require you to be doing something.