SDL exemptions for PBO and public-sector clients

Which South African payroll clients are exempt from paying the skills development levy, why exempt employers still register, and how a bureau sets them up.

By Achekam · 11 October 2026 · 4 min read · For Accountants & audit firms in South Africa

A bureau takes on the payroll of a hospice, a provincial agency and a private school in the same month. The hospice says it does not pay the skills development levy. The agency says it is exempt too. The school assumes that, as a non-profit, it must be as well. Only some of them are right, and the reasons are different for each.

The skills development levy has a short list of exemptions, and each has its own conditions. A bureau that applies them by assumption risks under-declaring for one client and over-declaring for another. This article goes through the exemptions SARS describes, explains why exempt employers still register, and suggests how to record the decision for each client.

The levy and the general threshold

SARS says the skills development levy is payable by employers at 1% of total remuneration paid to employees, and that employers paying annual remuneration of less than R500 000 are exempt from paying it, at the time of writing. SARS also says an employer becomes liable for the levy where it expects total salaries over the next 12 months to be more than R500 000.

That threshold applies to every employer, including non-profits. It is the first test, and many small organisations fall below it regardless of any special exemption. The threshold itself, and how to monitor it, is covered in the SDL threshold.

PBOs with a Tax Exemption Unit letter

For public benefit organisations above the threshold, SARS says a PBO exempt from income tax under section 10(1)(cN) that only carries on certain educational, welfare, humanitarian, health care or religious activities, and holds an exemption letter from SARS's Tax Exemption Unit, is exempt from SDL.

Three conditions sit in that sentence, and all have to hold:

1. the organisation is an approved PBO exempt from income tax;
2. it carries on only the kinds of activities SARS lists;
3. it holds the exemption letter.

The hospice in the opening example may well qualify. The private school might, if it is an approved PBO carrying on only qualifying educational activities and has the letter, but being a non-profit is not enough. Ask to see the letter before treating any client as exempt on this ground, and keep a copy on file.

Public service employers, public entities and municipalities

SARS's employer guide says that public service employers in the national or provincial sphere, public entities funded 80% or more by Parliament, qualifying PBOs, and municipalities holding an exemption certificate are exempt from paying SDL.

The guide adds that public service employers and such public entities must budget an equivalent amount for training their employees. The exemption from paying does not remove the training commitment.

For the provincial agency, the question is which category it falls into. If it is a public entity, the funding test applies: 80% or more from Parliament. Ask for evidence of its funding sources rather than accepting the description "government-funded". A municipality needs the exemption certificate.

Exempt from paying, not from registering

The same guide states that these exempt employers are not absolved from registration. Exemption is about the payment, not about whether the employer exists on SARS's records for the levy.

For a bureau, that means a client's SDL registration is checked separately from its exemption. An exempt employer that never registered has a gap to close, even though it owes no levy. When a new client says it is exempt, ask for its SDL registration details in the same breath as the exemption evidence.

Setting each client up as its own employer

In Achekam, a firm sets up its own staff and each client whose payroll it runs as separate employers, each with its own employees, earnings, deductions and pay settings. People can be imported from a spreadsheet, and the import writes rows only when every row passes.

Because each client is its own employer, the SDL decision belongs to that employer's set-up. Record, for each one:

Review the record when anything changes: a PBO's activities widen, an entity's funding mix shifts, or remuneration grows past the threshold. For the wider pattern of running clients as separate employers, see payroll clients as employers.

Confirming the tax table before the first run

There is a second set-up check before any run. Achekam's PAYE calculation has no tax rates written into it: a pay run is refused until a named person at the firm has confirmed that year's tax table, with a note of what they checked. The 2026 South African table ships as unconfirmed, and confirming it makes the firm's own copy.

Achekam prepares the monthly EMP201 figures and PDF from approved runs, and a person files them on eFiling. For a newly exempt client, review the first month's EMP201 figures before filing to confirm that the SDL line reflects the decision on file. A mismatch there is the cheapest place to catch a set-up error.

The levy in SARS's words

SARS's skills development levy page explains who must pay, the threshold and the PBO exemption. Read it alongside the client's exemption letter or funding evidence before the first run, and diarise a yearly review of every exempt employer.

General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.