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PAYE – Employees Tax

September 28, 2016

We continue our look at the various types of tax and turn our attention to Employee’s Tax or PAYE in particular. Whether you are an employee at a company and are paying PAYE, or are starting a new company and want to find out more about PAYE for your staff, this article will clarify exactly what PAYE is.

What is PAYE?

PAYE stands for ‘Pay As You Earn’ and as the name suggests, is exactly how this form of income tax works. An amount is deducted from any weekly, bi-weekly or monthly remuneration instead of paying a lump sum at the end of the tax year.

PAYE: As an employee

If you are working for someone and you have noticed that PAYE is being deducted from your total earnings, then there are a few points you should be aware of:

  • Your boss or employer is paying income tax on your behalf which is necessary to ensure you are meeting your potential tax obligations.
  • Whether you are being paid weekly or monthly, an amount representing your annual earnings is being calculated and then applied to SARS tax table to work out your contribution on each wage/salary payment.
  • As PAYE relies on paying tax on the assumption that you are working for the full year, you may be entitled to a refund if you have not worked the full year. Be sure to check if your total earnings were below the minimum level that would attract tax for that year. If so, your PAYE contributions should be paid back to you.

PAYE: As an employer

If you have just started a company or have been running one for some time but would like to be tax compliant, here are some useful points about PAYE:

  • Whether you pay your staff weekly, bi-weekly or monthly, you will then multiply a staff member’s earnings by 52 weeks, 26 weeks or 12 months to work out the annual amount you will be paying that staff member. This amount can then be applied to the SARS tax table to work out an annual tax total. This annual total is then divided by the frequency of staff payments (i.e. weekly, bi-weekly, etc) to work out the amount that you should deduct from each wage payment.
  • The deduction that you have calculated above should be displayed on an IRP5 SARS form and paid over to SARS within 7 days of the end of the month in which the amount was deducted.
  • The amount that is used to calculate PAYE should be based on your employee’s earnings that includes basic salary, any bonuses, allowances and or fringe benefits.
  • As an employer, you should complete an EMP201 SARS payment declaration form in which allocations including PAYE, SDL and UIF are listed.

If you would like to find out more about PAYE and how it relates to your business, contact Dirmeik Consulting today.
Cape Town: 021 421 4444,
Johannesburg: 010 007 3026,
Durban: 031 007 0881


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