The sections below aim to address the most common queries / areas of confusion surrounding the tax (PAYE) calculation on SimplePay and should be read in conjunction with the following article:
Why is the tax on the payslip different to what I looked up on the tax tables?
Tax Calculation Method
SimplePay uses the tax averaging method, recommended by SARS, to calculate the tax on your employees’ payslips. This method takes into account all income received, and tax already paid, for the year to date (YTD) period. In contrast, the tax tables are used to calculate tax per period in isolation, using only that period’s income.
The averaging method is used as it provides the greatest accuracy when dealing with fluctuating income. Therefore, while the tax on a specific payslip may not match the amount on the monthly tax table, the correct amount of tax will always be deducted by the end of the tax year.
SARS grants certain age-related rebates, i.e. reductions in tax payable, and these rebates are based on the taxpayer’s age at the end of the tax year.
For example, in the case of a 64-year old employee, it could be that the tax on the payslip is lower than what you had expected because the employee will turn 65 before the end of the tax year, i.e. 28 February. The calculation of the tax on the payslip already takes the rebate into account – from the start of the tax year during which the employee will reach the required age.
(A similar situation could apply to a 74-year old employee who turns 75 before the end of the tax year.)
Why does this month’s tax differ from last month, even though the income is the same?
There are a few common reasons for this:
- If you are working with a March payslip, the tax will almost always differ from that of the previous ones as March marks the start of the new tax year, meaning that the tax brackets, rates and rebates will all have changed.
- If the employee’s income has fluctuated from month to month, the tax will differ. The receipt of irregular income could be a reason for such a fluctuation.
- If you have made a change / correction to the employee’s date of birth during the month, the amount of tax could be different because the employee started / stopped qualifying for an age-related rebate (see discussion above).
You can view the Tax Trace to verify this – the calculation is explained in the linked article above.
Why is there no tax being deducted on this payslip?
Again, there are a few possibilities:
- The employee’s income is below the tax threshold
- The employee has already paid their entire tax liability for the year to date period / tax year
- A custom item was created and set to “taxed annually”
- As above, it could also result from a fluctuation in income
Here again, you can view the Tax Trace to verify this – the calculation is explained in the linked article above.