Your PAYE obligations as an employer

If you employ people, you are liable to deduct tax from their salaries and pay it over to SARS

EMPLOYEES’ TAX is a key component of the South African tax system, and is the mechanism through which employers withhold and remit income tax on behalf of their employees. Commonly known as PAYE (which stands for Pay-As-You-Earn), it is exactly what it says on the tin—tax needs to be deducted from income as it is earned, and paid over to SARS.

This article provides an overview of PAYE, including the basis of calculation, obligations for employers, and rights and responsibilities of employees. Specific allowances and fringe benefits, and the tax treatment thereof, will be covered in future articles.

How PAYE is calculated
An employee’s PAYE is calculated based on the earnings of employees, including regular salary, bonuses, commissions, and certain benefits-in-kind. The tax calculation follows a progressive system, with tax rates increasing as income levels rise (see table on Page 6, top).

The tax rates are determined annually by National Treasury, and are applied to taxable income after taking allowable deductions (retirement fund contributions), tax credits (medical expenses and scheme contributions) and rebates (primary, over-65, and over-75 depending on the employee’s age) into account.

Employer obligations
Employers have several obligations related to PAYE, which include…