As South Africa makes its way through another challenging tax year, a subtle but serious financial pressure is beginning to affect more employees across the income spectrum. For the third consecutive year, the South African Revenue Service (Sars) did not adjust the individual income tax tables in line with inflation, a decision with far-reaching implications for both employers and employees.

This lack of inflationary relief, commonly referred to as bracket creep, is creating a “silent tax” that is slowly reducing take-home pay across the board. This is starting to show in employee expectations, frustration, and payroll pressures.

When the Tables Don’t Move, Everyone Pays More

While Sars has held tax rates steady, the real cost to employees continues to climb. As salaries increase modestly each year, whether through performance bonuses, annual inflationary adjustments, or fringe benefits, more income is pushed into higher tax brackets.

But since the tax brackets have not moved, employees are paying more tax on income that has not truly increased in purchasing power. This phenomenon, bracket creep, is largely unnoticed by most employees, until their take-home pay starts shrinking despite apparent pay increases.

Sars itself has projected an additional R19.5-billion in collections for the 2025/2026 tax year, directly attributable to this approach. That is a staggering number, and it is coming from the pockets of working South Africans, many of whom are already thinly stretched.

A New Reality for Low-Income Workers

Perhaps the most profound impact is being felt by lower-income earners, particularly those who previously earned just under the tax threshold and never paid PAYE. With static thresholds and modest pay increases over the past few years, more of these individuals are now subject to PAYE for the first time.

This can be both confusing and demoralising. Employees who have not had any significant lifestyle change or meaningful raise are suddenly taking home less net pay than expected. The sense of loss is amplified by the sharp increases in the cost of essentials like transport, food, electricity, and school fees.

The Employer’s Dilemma

This situation places employers in a difficult position. Many are operating in cost-conscious environments, with tight salary budgets and limited room for above-inflation increases. Yet, as employees face shrinking pay cheques, they are understandably looking to their employers to bridge the gap.

The consequence is mounting pressure on HR and payroll teams to explain why net pay is decreasing and to justify why the company is not simply “topping up” packages.

For employers, this highlights an urgent need to:

• Understand the basics of personal taxation, particularly how bracket creep works.
• Proactively communicate with staff, especially lower-income earners, to explain the impact of the unchanged tax tables.
• Explore structural solutions, such as flexible benefit packages or voluntary remuneration restructuring, to offer employees more control and optimise take-home value.

The Hidden Tax That Is Hurting Everyone (Except Sars)

The decision not to adjust the tax brackets effectively allows Sars to collect more revenue without increasing tax rates. From a policy perspective, this may seem like a win. But this “hidden tax” is placing additional pressure on employees and creating unseen risks for employers in the form of reduced morale, higher staff turnover, and renewed demands for financial relief.

While bracket creep is not new, the compounding effect over several years is becoming hard to ignore. The reality is that most of us have already “jumped” a tax bracket or two in recent years, without feeling any wealthier for it.

What Employers Can Do Now

To mitigate the impact and manage expectations, employers should consider taking the following steps:

• Educate managers and HR teams on how to communicate tax impacts clearly and empathetically.
• Run payroll simulations to help employees understand how changes in salary or benefits will affect their net pay.
• Consider flexible compensation models that give employees more choice in how their total package is structured (e.g., trading benefits for cash or vice versa).
• Reinforce non-cash value in the employee experience, such as learning opportunities, hybrid work, or wellness benefits.

Final Thought

In these tough economic times, employees are feeling the squeeze, and employers cannot afford to be caught off guard. As bracket creep continues to eat into pay cheques, and Sars collects record revenue off the back of unchanged tables, it is critical that organisations respond with transparency, strategy, and empathy.

Understanding the impact—and helping employees understand it too—is not just a payroll issue. It is a people issue. In 2025, those who address it proactively will be better placed to retain talent, manage expectations, and maintain trust in an increasingly strained labour market.

Written by Tanya Tosen, Tax and Remuneration Specialist at Tax Consulting SA