DEDUCTIONS - THE RISKS ASSOCIATED WITH NON-PAYMENT OF STATUTORY DEDUCTIONS

This article explains which employee deductions and employer levies salons must collect and pay (PAYE, UIF, SDL, pension & sick-pay fund contributions, bargaining-council levies), and the legal and practical risks of failing to pay them on time — including SARS penalties and interest, civil claims, criminal exposure, personal liability for directors, enforcement by the HCSBC and other bodies, and business reputational/operational harm. It ends with a short, practical compliance checklist for salon owners and managers.

What deductions and levies are relevant to salons/spas in South Africa

Key statutory deductions and employer payments that apply to employers in the hair & beauty personal-care sector include:

1. PAYE (Pay-as-You-Earn): income tax withheld from employees' earnings and declared/paid to SARS via the monthly EMP201.

2. UIF (Unemployment Insurance Fund): employee and employer contributions; employers must register and pay UIF using the correct UIF reference (some small employers pay UIF directly to the UIF).

3. SDL (Skills Development Levy): payable to SARS (if total payroll exceeds threshold) and funds skills development; late/non-payment attracts interest and fines under the SDL Act.

4. Retirement fund/Pension contributions: whereas the Main Collective Agreement requires employers to deduct and pay employees' retirement contributions to the fund in accordance with the Pension Funds Act and the fund rules (usually within 7 days after month end). Failure to pay can lead to fund action and heavy penalties. Employers that fail to pay will be held personally liable for non-payment.

5. Bargaining-council contributions and Subscriptions/social funds (HCSBC): the National Bargaining Council for the Hairdressing, Cosmetology, Beauty and Skincare Industry (HCSBC) requires registration and payment of membership/levies, contributions to sick-pay funds, non-parties' agency shop fee/UASA and other social funds where applicable.

Legal and financial consequences of non-payment (the main risks)

1. SARS interest, penalties and administrative assessments

If you deduct PAYE, SDL or withhold UIF (where SARS collects UIF via EMP201) but fail to pay them to SARS by the due date, SARS will charge interest and penalties and may issue assessments and garnishee orders — increasing the employer's liability significantly. Employers must submit EMP201 returns and link payments correctly. In severe non-compliance cases SARS has the right request direct debits for any outstanding money from your business or personal bank account.

Why it matters: late payments mean extra cost (interest + penalties) and leave the employer exposed to extended enforcement action.

2. Civil recovery claims by funds, employees or trustees (pension & sick-pay)

Retirement funds (and their trustees) can demand unpaid contributions, and case law shows courts can hold employers personally liable for arrears. Pension funds may also claim interest on late payments and recover through litigation. The Pension Funds Act gives trustees powers to recover contributions; non-compliance can lead to fines and, in extreme cases, criminal charges.

Why it matters: unpaid retirement/sick-pay contributions are employee entitlements; long delay can lead to large legal claims and damage employee trust. Employers can be held liable to pay the benefits that were due to the employee if the monthly contributions are not up to date.

3. Personal liability of directors and managers

Where statutory obligations are not met, directors or those in control of the company's finances can be personally liable for unpaid contributions the courts have held officers personally responsible in certain circumstances. For pension contributions, failure to comply with section-type obligations can lead to fines or imprisonment for responsible persons.

Why it matters: liability can extend beyond the business — to the pockets of directors/owners.

4. Bargaining-council enforcement & sanctions (HCSBC)

The HCSBC (and other sectoral bargaining councils) may:

• impose fines or penalties for non-compliance with collective agreements and pension fund rules;

• refer matters to conciliation/arbitration or labour inspectors;

• restrict access to the council's benefits (e.g., sick-pay, dispute resolution) for non-compliant employers; and

• in some cases, seek extension orders so collective terms bind non-parties and enforce contributions.

Why it matters: for a salon, being non-compliant with HCSBC rules means loss of employee access to their benefits and exposure to council sanctions — and in practice may lead to labour disputes and fines.

5. Criminal exposure

Certain contraventions (for example extreme non-payment or deliberate breach of statutory obligations relating to retirement funds) attract criminal sanctions under the Pension Funds Act or related legislation — fines and imprisonment are possible for serious breaches.

6. Operational, commercial and reputational harm

Beyond legal penalties:

• Employees can bring CCMA/Bargaining Council or civil claims for unpaid entitlements (wages, contributions, benefits);

• Non-compliant employers may be barred from government tenders or be publicly named;

• Staff morale, retention and recruitment suffer; and

• Banks, insurers or service providers may view the business as higher risk.

Typical enforcement paths (how non-payment usually gets enforced)

• SARS issues assessments and uses debt-collection powers (garnishee, distraint).

• Pension funds/trustees can demand payment and litigate; they can also report criminal offences to authorities.

• Bargaining council (HCSBC) enforce collective agreements, collect levies, and can take employers to arbitration/CCMA for non-compliance.

• Labour inspectors/Department of Employment & Labour may investigate and institute enforcement action where labour law breaches are found.

Practical compliance steps for salons/spas

1. Register correctly: with SARS (PAYE/SDL), UIF, and the HCSBC (or prove an approved exemption). Confirm UIF reference numbers and SARS employer registration.

2. Payroll processes: run payroll monthly, deduct PAYE, UIF and report and pay via EMP201 on time. Reconcile EMP201/EMP501 annually

3. Pay retirement & sick-pay funds on time: follow fund rules (many require payment within 7 days after month end). Keep proof of payment.

4. Pay SDL monthly and capture it on EMP201 where required. Build a buffer for monthly payments to avoid late payment interest.

5. Keep accurate records (payslips, EMP201s, bank confirmations, council returns) for at least the legally required period.

6. Communicate with staff about deductions and provide payslips showing amounts deducted and allocations.

7. If you fall behind, engage early: approach the fund/council/SARS to arrange payment plans — proactive engagement often reduces escalation (note: some councils/funds may have relief options or agreed-upon arrangements).

8. Get professional help: an accountant or payroll specialist familiar with HCSBC rules and sectoral specifics can prevent costly mistakes.

Examples (real-world consequences — simplified)

1. A salon deducts employees' pension contributions but does not pay them to the pension fund. The fund pursues recovery; the trustees may report the matter; the employer could be ordered to pay arrears, interest, legal costs and responsible officers may face personal liability. Monthly non-compliant salons are reported to Financial Sector Conduct Authority (FSCA). FSCA has started publishing publicly non-compliant companies.

2. A salon fails to register and pay HCSBC levies; the council may levy penalties against the salon's return and suspend benefits; extension orders can make the collective agreement binding on non-parties.

Salon Payroll Compliance Checklist

(For Salon/Spa Owners & Managers – South Africa)

Purpose: Use this checklist monthly to ensure your salon complies with all payroll, tax, and statutory obligations required by law and the HCSBC.

1. Employee Information

_ All employees are registered and have signed employment contracts

_ Each employee has a valid ID and tax number (for PAYE). All Employees must have a tax number before employment.

_ Employee details match the HCSBC Monthly Return.

_ Employment type is clearly defined (full-time, part-time, or temporary).

2. Monthly Payroll Processing

_ All hours worked, commissions, tips, overtime, and bonuses are accurately recorded.

_ Deductions (PAYE, UIF, Pension, Sick Pay, Council Levies, etc.) are correctly calculated and visible on payslip, including company contributions.

_ Payslips are issued showing gross pay, commission / tips deductions, contributions, any incentives and net pay.

_ Any unpaid leave or unpaid days are correctly reflected / deducted.

3. Statutory Monthly Deductions & Payments

Deduction / Payment	Employer Action	Due Date
PAYE	Deduct & pay to SARS via EMP201	By 7th of each month
UIF	Deduct 1% + contribute 1%; pay to SARS/UIF	By 7th of each month
SDL	Pay 1% (if payroll > R500k per year) pay to SARS/SDL	By 7th of each month
Pension Fund (VERSO)	Deduct employee & pay employer contributions to HCSBC	By the 7th of each month
Sick Pay Fund (HCSBC)	Deduct & pay to HCSBC	By 7th of each month
HCSBC Levies / Fees / UASA	Pay all council levies, fees ,EOHCB / Agency / UASA & contributions etc to HCSBC	By 7th of each month

4. Submissions & Records

_ EMP201 return submitted to SARS every month.

_ EMP501 reconciliation submitted twice yearly (Feb & Aug) to SARS.

_ Proof of payment kept for all SARS, UIF, Pension, and HCSBC payments.

_ Payroll records & payslips stored for at least 5 years or longer.

_ Council returns submitted with correct employee details.

_ Removal of any Employee’s communicated before the 7^th of the new month to statuary body for capturing.

5. Communication & Compliance         

_ Employees understand deductions shown on their payslips.

_ All new staff registered with the HCSBC within 7 days of employment.

_ Any changes in employment (resignation, new hire, maternity, etc.) reported to the HCSBC and other statutory body.

_ Pension and Sick Pay Fund arrears are monitored and addressed immediately.

_ Maintain an open line with your accountant or payroll administrator for updates.

6. Risk Reminder

Non-payment of statutory or bargaining-council deductions is a serious offence.

It can lead to:

• SARS penalties & interest;

• Council fines and loss of membership benefits;

• Legal action or personal liability for owners;

• Damaged staff trust and reputation.

Ensuring that all statutory and bargaining council deductions are correctly calculated, declared, and paid over to the relevant authorities is not only a legal duty but also a reflection of sound business ethics and professionalism within the hairdressing and beauty industry. Employers who fail to comply with these obligations place themselves and their businesses at serious financial and legal risk — including penalties, interest, possible prosecution, and reputational harm.

By contrast, consistent compliance with SARS, UIF, pension, sick pay, and HCSBC requirements builds trust with employees, demonstrates respect for labour laws, and contributes to a sustainable and credible industry. Salon owners are therefore urged to prioritise accurate recordkeeping, timely payments, and proactive communication with their accountants, funds, and the HCSBC.

Final Tip: Treat deductions as trust money — always pay them before any other business expenses. Staying compliant protects your business, your staff, and your peace of mind.