Why is my employee’s tax lower than expected after lockdown?

With employees returning to work and earning an income again, we have noted that the impact of lockdown is still present. The most obvious impact to the first payslip that is processed, is the lack of or reduced amount of PAYE. We would like to reassure you that it is expected due to the months that the employees have earned no income or greatly reduced income during lockdown.

SimplePay uses the Annual Equivalent calculation method that SARS uses to calculate the employee’s PAYE. This calculation divides the year to date income by the number of periods employed during the tax year to determine the average income, which is annualised to determine the PAYE. With the lockdown months of no/reduced income, the average income that is annualised is much lower – the periods employed have not decreased but their income per period has. This results in a lower year-to-date tax liability so when the year-to-date tax paid is subtracted, the liability for the period is very low or 0.

Note that this is only the case if the employee was terminated on a long-term absence code (9, 10, 17, 18 and 19 – code 17 being most common in lockdown) or if you’ve left them active but processed 0 payslips for the lockdown period. If the employee’s service was ended using any other code besides the aforementioned and you are concerned about the tax calculation, please get in touch if the below resources don’t help.

You can view the details of a particular employee’s Tax calculation via the Tax trace link on the Payroll screen. Please also see our help page on Employees’ Tax for a detailed explanation of the Annual Equivalent calculation.