The skills development levy is 1% of payroll and it applies to far more employers than expect it to. Every so often somebody is told their organisation does not have to pay, acts on it, and finds out later that the exemption they were relying on has conditions nobody mentioned.
This is the actual list, and what each entry requires.
When does an employer become liable for the levy?
SARS puts the test prospectively. Where an employer expects total salaries to be more than R500 000 over the next twelve months, that employer becomes liable to pay the levy and has to register for it.
Two details in that sentence do real work. It is an expectation about the coming year, not a reckoning of the year just gone, so a company that is growing becomes liable before its historical figures show it. And the R500 000 is total remuneration, which includes wages, overtime, leave pay, bonuses, fees, commissions and lump sums, not just basic salaries.
Employers who calculate the threshold on basic pay alone routinely conclude they are under it when they are not.
Not sure where your own submission stands? Send us a payroll summary and we will tell you what you have been entitled to and what has actually been claimed.
Request a call backWho is exempt from the skills development levy?
Public service employers in national or provincial government
Exempt from paying the levy, but not from the obligation it represents. These employers are required to budget an equivalent amount for the training and education of their employees.
National or provincial public entities funded mainly by Parliament
Where 80% or more of the entity's expenditure is paid directly or indirectly from funds voted by Parliament. The same condition applies, an equivalent amount must be budgeted for training and education.
Note the threshold. An entity at 70% is not covered by this.
Certain public benefit organisations, with a letter
This is the one that catches non-profits, and it is much narrower than it is usually understood to be.
The exemption applies to a public benefit organisation exempt from income tax under section 10(1)(cN) of the Income Tax Act, which carries on only certain public benefit activities, specifically educational, welfare, humanitarian, health care, religion, belief or philosophy activities, or which only provides funds to such organisations. And it requires a letter of exemption issued by the Tax Exemption Unit.
So there are three conditions stacked together. Income tax exempt status under the right section. Activities confined to the listed categories. And a letter actually issued.
A non-profit that fails any one of those pays the levy like anybody else. Being registered as an NPO, holding a tax number, or simply not making a profit does not do it. Organisations frequently discover this after operating for some time on the assumption that non-profit status settled the question.
Municipalities holding a Ministerial certificate
A municipality to which a certificate of exemption has been issued by the Minister of Higher Education and Training. Worth being precise here, because this one is often paraphrased as applying to public entities generally. It does not. It is municipalities, and it requires the certificate.
Employers under the R500 000 threshold
An employer whose total leviable remuneration across all employees will not exceed R500 000 over the next twelve months. Where this is the reason for exemption, the employer is not required to register for the levy at all.
Four of the five exemptions require a specific status, a specific funding profile or a specific document. Only the last one is simply a matter of being small.
What if your payroll is near the R500 000 threshold?
This is the position most small employers are actually in, and it moves.
Because the test looks forward twelve months, a business that hires two people or pays a good bonus round can cross R500 000 without anything feeling different internally. Liability starts when the expectation changes, not when an accountant notices at year end.
The practical habit is to run the calculation on total remuneration, including the variable elements, at least annually and whenever headcount changes materially. It takes a payroll export and a few minutes.
If you are exempt, does skills development still matter?
An employer who genuinely does not pay the levy is outside the mandatory grant system, because that grant is a proportion of levies paid. There is nothing to claim back.
Skills development itself does not become irrelevant, though. B-BBEE is a separate framework with its own requirements, and an organisation pursuing a scorecard still has to spend and evidence training regardless of levy status. Small employers sometimes conclude that being under the threshold means skills development is not their concern, and that holds for the levy and not for the scorecard. We cover how the scorecard element works in the piece on the twenty points.
How is the skills development levy calculated?
Worth setting out precisely, because most disputes about liability turn out to be disputes about the calculation.
The levy is 1% of the total amount paid in salaries to employees. SARS is explicit about what that includes, and the list is wider than basic pay. Wages, overtime payments, leave pay, bonuses, fees, commissions and lump sum payments all form part of it.
An employer calculating the R500 000 threshold on basic salaries alone can be some way under it on paper and over it in fact. A December bonus round is frequently what pushes a business across without anybody noticing.
When is the skills development levy due?
The levy is declared and paid monthly, through the Monthly Employer Declaration, the EMP201. That is the same declaration on which PAYE and UIF are declared, which is why the levy is usually invisible to everybody except the person who runs payroll.
Payment is due within seven days after the end of the month in which the amount was deducted. Where that seventh day falls on a weekend or a public holiday, payment must be made on the last business day before it.
The EMP201 carries a pre-populated payment reference number that links the payment to the declaration. Getting that reference wrong is a common cause of a payment that was made but does not appear to have been.
The registration obligation, which is separate from the payment
Liability and registration are two different things and employers conflate them.
Where an employer expects total salaries to exceed R500 000 over the next twelve months, they become liable and must register for the levy. Registration is not automatic, and it does not happen because you already have a PAYE number.
The exception is the small-employer exemption. An employer whose leviable amount will not exceed R500 000 over the next twelve months is not required to register at all, which is why the threshold matters twice, once for liability and once for the administrative obligation.
Where one year of your skills development levy goes
SARS collects 1% of your payroll every month. This is what happens to it, as a share of the total levy paid.
- 20%Mandatory grant. Returned to you on a compliant WSP and ATR lodged by 30 April.
- 49.5%Discretionary pool. Applied for competitively, in windows the SETA sets. Not proportional to what you paid.
- 10.5%SETA administration. Does not come back.
- 20%National Skills Fund. Funds national priorities. Does not come back.
What crossing the threshold actually triggers
More than a monthly payment, which is the part that surprises growing businesses.
- Registration for SDL with SARS, and monthly declaration on the EMP201
- Allocation to a SETA, determined by the SIC code on that registration
- The obligation to appoint a Skills Development Facilitator if you intend to claim anything back
- Eligibility for the mandatory grant, which requires a WSP and ATR submitted by 30 April
- Eligibility to apply for discretionary funding, gated behind that submission history
A business that crosses the threshold and only does the first of those is paying the levy and collecting none of it, which is the most common position we see. Which SETA you land in is set by a code most owners have never looked at, and that is worth checking.
The exemptions in practice, and how each is proved
Four of the five require something you can be asked to produce. Only the threshold exemption is simply a matter of arithmetic.
| Exemption | What actually establishes it |
|---|---|
| Public service employer | Being one, in the national or provincial sphere. An equivalent amount must still be budgeted for training. |
| Public entity funded by Parliament | The 80% test on expenditure. An entity below that threshold is not covered. |
| Qualifying public benefit organisation | Income tax exemption under section 10(1)(cN), activities confined to the listed categories, and a letter from the Tax Exemption Unit. |
| Municipality | A certificate of exemption issued by the Minister of Higher Education and Training. |
| Under the threshold | Leviable amount not exceeding R500 000 over the coming twelve months. |
Do non-profits pay the skills development levy?
This comes up often enough to be worth stating plainly. A non-profit with a payroll above R500 000, which does not hold a Tax Exemption Unit letter, or whose activities fall outside the listed categories, pays the levy exactly like a commercial employer.
And it can claim exactly like one. Non-profits in that position are frequently the least likely to submit a WSP, partly because nobody has told them the money is recoverable and partly because the compliance work sits on somebody already doing three jobs. The twenty percent is as available to them as to anybody else, and for an organisation running on grant funding it is not a trivial sum.
What the levy is and where it goes is set out in our breakdown, and who has to file to claim it in the piece on the Workplace Skills Plan.
If you have been paying and think you should not have been
Take it to your tax adviser rather than simply stopping. Exemption in most of these categories depends on a document or a status that has to be established, and ceasing payment on an assumption is the expensive version of being right.
Conversely, if you have been paying correctly and claiming nothing back, that is the more common situation and it is fixable this cycle rather than retrospectively. What the levy funds and how the two routes back to you work is set out in our breakdown of the levy, and who has to file to claim it in the piece on the Workplace Skills Plan.
If you are unsure which side of the threshold you sit on, ask for a call back and we will work it out from your payroll figures.
Sources used: SARS on the skills development levy, which publishes the exemption categories in full.