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PAYE calculator

October 30, 2017
How to calculate PAYE

As an employer, you have a tax obligation to deduct employee’s tax in the form of PAYE (Pay as you Earn) from any remuneration paid to employees and settle this amount with SARS on a monthly basis. In this blog article, we will focus on the steps you will need to follow to calculate PAYE.

Currently there are two standard methods for calculating PAYE, namely: Averaging/Annual and Periodic

We will be working with the averaging method whereby an employee’s annual total income for the entire tax year to date is used to calculate their PAYE liability. This method is often more accurate in cases where an employee has variable income.

How to calculate PAYE

  1. Work out your employee’s gross or total annual salary before deductions and including benefits:
    • In the case of fixed salaries, this is simple:
      Total monthly salary X 12
    • In the case of variable income, use a calculation to estimate the annual total income, e.g. If your employee has earned R10 000 in March, R12 000 in April and now R15 000 in May, you would add all amounts together, divide by the number of months you have figures for – in this case 3 – and multiply by 12 months in the year to receive an estimated total annual income:
      ((Add total monthly remunerations amounts to date) / number of remuneration amounts ) x 12
  2. Factor in deductions such as:
    • Contributions to RAF, pension or provident funds:
      Total Monthly RAF or pension or provident fund contributions x 12
      This deduction is limited to 27.5% of the employee’s total income. The ceiling is set at R350 000 for high incomes.
    • Travel allowance:
      (Total Monthly travel allowance x 12) x 20%
      As an employer, you need to decide if your employee travels at least 80% of the time for their work. If they do not, 80% of the travel allowance is charged PAYE. If they do, only 20% of the travel allowance is charged for PAYE. In the example above, the employee does not travel more than 80% of the time for their job, therefore only 20% of the travel allowance can be used as a deduction.
  3. Note the age of the employee to determine their tax rebate:
    • Are they under 65?
    • Are they 65 – 75?
    • Are they over 75

    Reference the PAYE tables here for the 2017/2018 tax year.

  4. Calculate the PAYE that should be paid by following the steps below and using your totals from each section above:
    • Taxable income = Total Annual Salary – (RAF or pension or provident fund deductions + travel allowance deductions)
    • View the tax thresholds here
      If the taxable income is below the tax thresholds, no PAYE is deductible. If the taxable income is above the thresholds, continue on.
    • View the PAYE statutory rates here
      Find out which tax bracket your employee’s taxable income falls into and work out the total tax payable.
    • View the tax rebates here and work out the rebates your employee is eligible for based on their age.
    • Finally calculate the PAYE your employee needs to submit for the month:
      PAYE = (Total tax payable – total rebates) / 12

This may seem like a lot to consider, but is fairly simple. Let’s look at an example:

Sipho is 29 years old and in 2017/2018 tax year earns a fixed monthly salary of R20 000. His provident fund contributions total R2000 per month and he receives a R1000 monthly travel allowance. He only travels approximately 15% of the total time he works.

Sipho’s annual income is: R20 000 x 12 = R240 000

His deductions are:

Total Provident fund contributions: R2 000 x 12 = R24 000
This is under 27.5% of his total income and also under the R350 000 limit so the full amount of R24 000 can be used as a deduction.

Total travel allowance deductions: (R1 000 x 12) x 20% = R2 400.

Therefore, his total deductions are R24 000 + R2 400 = R26 400.

His total taxable income is: R240 000 – R26 400 = R213 600

When reviewing the PAYE tables here for 2017/2018 we can see that Sipho is above the tax thresholds and will need to have PAYE deducted from his earnings.

Being under 65, he qualifies for a tax rebate of R13 635.

His total taxable income of R213 600 puts him in a tax bracket of R189 881 – R296 540 which means that he will need to pay R34 178 + 26% of the amount above R189 880 which equals R40 345.20.

We can therefore calculate the monthly PAYE as: (R40 345.20 – R13 635) / 12 = R2 225.85



There are a host of possible deductions that a taxpayer may qualify for and are beyond the scope of the simple calculation steps above which are intended as a guide only. The calculation methods above may not apply to all circumstances, for example where an employee is in non-standard employ or has received a tax-directive from SARS. Lastly, scenarios such as pro-rata tax calculations where an employee has only been employed for part of the month have also not been factored in above to keep the general steps as simple as possible. We recommend that you consult with a tax practitioner who can verify that PAYE is being calculated accurately and take into consideration the employee’s unique circumstances.

Should you need assistance with PAYE processing for your business, contact Dirmeik Consulting on:

Cape Town: 021 421 4444,
Johannesburg: 010 007 3026,
Durban: 031 007 0881