The Skills Development Levy (SDL) is a compulsory payroll tax that helps fund skills development and training across South Africa. Governed by the Skills Development Levies Act (SDLA), Act 9 of 1999, the SDL is one of three statutory deductions employers must manage alongside PAYE and UIF. Unlike UIF, SDL is paid entirely by the employer — nothing is deducted from the employee's salary.
This guide covers who must pay SDL, how to calculate it, the exemptions that apply, how to claim grants back through your SETA, and the reporting requirements you need to meet.
What Is the Skills Development Levy?
The SDL was introduced to fund South Africa's national skills development strategy. The levy is collected by SARS and distributed to Sector Education and Training Authorities (SETAs) and the National Skills Fund (NSF). The money is used to fund training programmes, learnerships, apprenticeships, and skills development initiatives aimed at addressing the country's critical skills shortages.
The distribution of SDL funds is as follows:
- 80% is allocated to the relevant SETA (based on the employer's industry classification)
- 20% is allocated to the National Skills Fund
From the 80% that goes to SETAs, a portion is available for employers to claim back as grants — provided they meet certain training and reporting requirements. This is a significant incentive for employers who invest in their employees' development.
Who Must Pay SDL?
Every employer who is registered for PAYE with SARS and whose total annual payroll exceeds R500,000 is required to pay SDL. The R500,000 threshold is based on the employer's total remuneration bill for the year — not per employee.
Important: The R500,000 threshold is based on your expected annual payroll. If your monthly payroll is approximately R41,667 or more (R500,000 / 12), you are likely above the threshold and must pay SDL. Once you exceed the threshold, you pay SDL on the full payroll amount — not just the amount above R500,000.
Who Is Exempt from SDL?
The following employers are exempt from paying SDL:
- Employers with an annual payroll of R500,000 or less — this is the primary exemption and benefits most micro and small businesses
- Public service employers that fall under a SETA established by the Public Service SETA (PSETA) — national and provincial government departments
- National or provincial public entities that receive 80% or more of their funding from the government
- Religious or charitable organisations that are exempt from income tax under section 10(1)(cN) of the Income Tax Act — but only if the organisation's sole purpose is religious worship, education, or charity
- Municipalities with annual payroll below R500,000
If you are unsure whether you qualify for an exemption, consult your accountant or contact SARS directly. Incorrectly claiming an exemption and not paying SDL can result in penalties and interest.
What Is the SDL Rate?
The SDL rate is 1% of the total remuneration paid to all employees. This rate has remained unchanged since the levy was introduced in 2000.
"Total remuneration" for SDL purposes aligns closely with the definition used for PAYE and includes:
- Basic salary and wages
- Overtime pay
- Bonuses and 13th cheques
- Commission
- Allowances (travel, cell phone, etc.)
- Fringe benefits (taxable value)
- Directors' remuneration
- Leave pay
How to Calculate SDL
The calculation is straightforward:
Monthly SDL = Total monthly remuneration x 1%
Calculation Examples
| Scenario | Monthly Payroll | Annual Payroll | SDL Payable (Monthly) | SDL Payable (Annual) |
|---|---|---|---|---|
| Small business (5 employees) | R75,000 | R900,000 | R750.00 | R9,000.00 |
| Medium business (20 employees) | R250,000 | R3,000,000 | R2,500.00 | R30,000.00 |
| Larger employer (50 employees) | R750,000 | R9,000,000 | R7,500.00 | R90,000.00 |
| Below threshold (3 employees) | R35,000 | R420,000 | Exempt | Exempt |
Quick check: If your total monthly payroll is below R41,667, you are likely below the R500,000 annual threshold and exempt from SDL. Use our SDL calculator to confirm your obligation.
How to Pay SDL
SDL is declared and paid monthly to SARS together with PAYE and UIF on the EMP201 return. The process is:
- Calculate total remuneration for the month
- Apply the 1% SDL rate
- Enter the SDL amount on your EMP201 return on SARS eFiling
- Pay the combined PAYE, UIF, and SDL amount to SARS by the 7th of the following month
SDL is reported alongside PAYE and UIF — you do not submit a separate return for SDL. The EMP201 has a dedicated field for the SDL amount.
At the end of the tax year (February/March), you file the EMP501 reconciliation which reconciles all PAYE, UIF, and SDL paid during the year against the individual employee tax certificates (IRP5s).
SDL on Different Types of Remuneration
Understanding which payments attract SDL is important for accurate calculations. Here is a breakdown:
| Type of Remuneration | Subject to SDL? | Notes |
|---|---|---|
| Basic salary | Yes | The foundation of SDL calculation |
| Overtime | Yes | Included in gross remuneration |
| Bonuses / 13th cheque | Yes | SDL is payable in the month the bonus is paid |
| Commission | Yes | Included in the month it is paid or accrued |
| Travel allowance | Yes | The full allowance is subject to SDL (even if part is non-taxable for PAYE) |
| Fringe benefits | Yes | The taxable value of fringe benefits (company car, housing, etc.) |
| Directors' fees | Yes | If the director receives remuneration |
| Independent contractors | No | Only employees on the payroll are included |
| Retirement fund contributions (employer) | No | Employer contributions to pension/provident/RA funds are excluded |
| Reimbursive travel claims | No | Actual business expense reimbursements are excluded |
SETAs and How to Claim Grants Back
One of the most significant — yet underutilised — benefits of paying SDL is the ability to claim training grants back from your SETA. There are 21 SETAs in South Africa, each covering a specific sector of the economy. Your SETA is determined by the primary nature of your business.
How the Grant System Works
Of the 80% of SDL allocated to SETAs, the grants are typically split as follows:
- Mandatory grants (20% of total SDL paid): Available to employers who submit a Workplace Skills Plan (WSP) and Annual Training Report (ATR) to their SETA by 30 April each year.
- Discretionary grants (up to 49.5% of total SDL paid): Allocated by the SETA for specific projects, learnerships, bursaries, and programmes aligned with the sector's skills priorities. Employers must apply for these grants.
- SETA administration (10.5%): Retained by the SETA for its own operations.
Example: If your annual SDL payment is R30,000, you can claim back a mandatory grant of up to R6,000 (20%) simply by submitting your WSP and ATR on time. Discretionary grants could add significantly more, depending on your SETA's available funding and the training programmes you implement.
Steps to Claim Your Mandatory Grant
- Register with your SETA: Identify which SETA covers your industry and register as a levy-paying employer. Your SETA can be identified using your SIC code (Standard Industrial Classification).
- Appoint a Skills Development Facilitator (SDF): This person is responsible for developing your training plan and submitting the required documents. The SDF can be an employee or an external consultant.
- Submit a Workplace Skills Plan (WSP): This document outlines the training you plan to provide to your employees in the coming year. It must be submitted to your SETA by 30 April each year.
- Submit an Annual Training Report (ATR): This reports on the training that was actually delivered during the previous year. It is usually submitted together with the WSP.
- Receive the mandatory grant: If your submission is approved, the SETA will pay the mandatory grant directly to the employer — usually within 3 to 6 months of the submission deadline.
Common SETAs
| SETA | Sector |
|---|---|
| BANKSETA | Banking and microfinance |
| CATHSSETA | Culture, arts, tourism, hospitality, sport |
| CETA | Construction |
| CHIETA | Chemical industries |
| EWSETA | Energy and water |
| FASSET | Financial and accounting services |
| FP&M SETA | Fibre processing and manufacturing |
| HWSETA | Health and welfare |
| INSETA | Insurance |
| LGSETA | Local government |
| MERSETA | Manufacturing, engineering, related services |
| MICT SETA | Media, information, communication technology |
| MQA | Mining qualifications |
| PSETA | Public service |
| SERVICES SETA | Services sector |
| TETA | Transport |
| W&R SETA | Wholesale and retail |
Reporting Requirements
Employers subject to SDL have the following reporting obligations:
- Monthly EMP201: Declare and pay SDL alongside PAYE and UIF by the 7th of each month
- Bi-annual EMP501: Reconcile all SDL payments for the tax year (interim in October, final in May/June)
- WSP and ATR: Submit to your SETA by 30 April each year to claim mandatory grants
- Record-keeping: Maintain payroll records, training records, and SDL payment confirmations for at least 5 years
Penalties for Non-Compliance
Failing to pay SDL or submitting late returns has consequences:
- Late payment penalty: SARS charges a 10% penalty on late SDL payments
- Interest: Interest accrues daily on outstanding SDL amounts at the prescribed rate
- Audit risk: SARS may audit employers who under-declare or fail to pay SDL, potentially leading to additional assessments
- Loss of grants: Non-payment of SDL means you cannot register with your SETA or claim grants — you lose the opportunity to recover up to 20% of your levy through mandatory grants
- Criminal prosecution: In extreme cases of non-compliance, criminal charges may be brought under the Skills Development Levies Act
SDL vs UIF: Key Differences
Employers sometimes confuse SDL and UIF because both are declared on the EMP201 return. Here's how they differ:
| Feature | SDL | UIF |
|---|---|---|
| Rate | 1% of total remuneration | 2% (1% employer + 1% employee) |
| Who pays? | Employer only | Employer and employee (split equally) |
| Threshold | R500,000 annual payroll | No threshold — all employers with employees |
| Earnings ceiling | No ceiling | R17,712 per month (2025/2026) |
| Purpose | Skills development and training | Unemployment, illness, maternity benefits |
| Appears on payslip? | No — employer cost only | Yes — employee portion is deducted from salary |
| Claim-back mechanism | Yes — via SETA grants | No — benefits are claimed by employees |
Practical Tips for Managing SDL
- Track your payroll threshold: If your business is growing, monitor when your annual payroll crosses R500,000. Once it does, you must start paying SDL immediately.
- Register with your SETA early: Don't wait until the WSP deadline. Register as soon as you start paying SDL so you can plan your training and maximise your grant recovery.
- Invest in training strategically: Align your training spend with your SETA's sector skills plan. This improves your chances of securing discretionary grants in addition to the mandatory grant.
- Appoint a competent SDF: The quality of your WSP and ATR submission directly affects whether you receive your mandatory grant. Consider using an external consultant if you don't have internal HR capacity.
- Keep detailed training records: Document all training — formal courses, workshops, on-the-job training, mentoring. You'll need evidence to support your ATR submission.
The Skills Development Levy is not just a cost — it's an opportunity to invest in your workforce and recover a significant portion of the levy through SETA grants. Use our SDL calculator to determine your monthly obligation, and generate compliant payslips with our free payslip generator that automatically calculates PAYE, UIF, and SDL. For more on the other statutory deductions, read our guides on PAYE calculations and UIF contributions.