Payroll Concepts > Statutory Deductions and Contributions (ZA) > Tax (PAYE) (ZA) > Calculating PAYE for Regular Income

This article provides an explanation and examples of the calculation of PAYE where an employee earns only regular income.

Note:

  • These methods will be discussed with reference to monthly-paid employees but the principles are the same for employees who are paid weekly etc.
  • The term “income” will be used in this article to refer to the employee’s taxable income (remuneration for PAYE purposes).

Calculating PAYE on Regular Income

It is important to note that there are two types of income: regular and irregular. Regular income is anything that is paid at regular intervals such as salaries and commission; irregular income is anything that isn’t regular, such as an annual bonus. The total PAYE due for a period is calculated as:

Total PAYE = PAYE on regular income + PAYE on irregular income

This article focuses on calculating PAYE on regular income. For information on calculating PAYE on irregular income, refer to the following help article:

Statutory Deductions > Tax (PAYE) > Calculating PAYE on Irregular Income

PAYE on regular income is calculated by determining the tax on a projected income for the year (called the annual equivalent) and then de-annualising the tax to determine the tax payable for the period.

The following steps are involved in calculating PAYE:

Step 1: Calculate the year-to-date taxable income

Calculate the total taxable income (income + benefits + allowances – taxable income deductions) for the tax year-to-date (March to date).

Step 2: Calculate the annual equivalent

The annual equivalent is the projected amount of income that an employee would earn in a year based on their YTD income. It is calculated as:

Pay Frequency Formula
Monthly YTD Taxable Income x 12 / number of periods worked
Twice a month YTD Taxable Income x 24 / number of periods worked
Every two weeks YTD Taxable Income x 26 / number of periods worked
Weekly YTD Taxable Income x 52 / number of periods worked

Step 3: Calculate the tax on the annual equivalent

Use the SARS tax tables to calculate the tax on the annual equivalent.

Step 4: Determine the projected annual tax liability

Subtract the applicable tax rebates to determine what the annual tax liability would be on the annual equivalent

Step 5: De-annualise the annual tax liability

Determine the year-to-date tax liability by de-annualising the annual tax liability, using the following formulas:

Pay Frequency Formula
Monthly YTD Taxable Income x 12 / number of periods worked
Twice a month YTD Taxable Income x 24 / number of periods worked
Every two weeks YTD Taxable Income x 26 / number of periods worked
Weekly YTD Taxable Income x 52 / number of periods worked

Step 6: Calculate the PAYE due

Calculate the PAYE due by subtracting the YTD PAYE paid from the YTD tax liability.

Note:

If an employee was employed for a partial period, e.g. if their appointment date didn’t fall on the first day of the payslip period, a pro-rata calculation will have to be performed to calculate their salary for that period. The salary for the partial period has to be added when calculating the YTD income; also, the portion of the period has to be added to the number of periods employed. For more information about the pro-rata calculation, please refer to the following article:

Example

An employee under the age of 65 earns R10 000 in March 2022 and R12 000 in April 2022. Calculate the PAYE due each month. Use the SARS tax tables here.

Step March April
Step 1:
Calculate the YTD income
10 000 10 000 + 12 000 = 22 000
Step 2:
Calculate the annual equivalent
10 000 x 12 / 1 = 120 000 22 000 x 12 / 2 = 132 000
Step 3:
Calculate the tax on the annual equivalent
120 000 x 18% = 21 600 132 000 x 18% = 23 760
Step 4:
Calculate the projected annual tax liability
21 600 – 16 425 (primary rebate) = 5 175 23 760 – 16 425 (primary rebate) = 7 335
Step 5:
De-annualise the tax liability
5 175 / 12 x 1 = 431.25 7 335 / 12 x 2 = 1 222.50
Step 6:
Calculate the PAYE due
431.25 – 0 = 431.25 1 222.50 – 431.25 = 791.25

Notes on Fluctuating Income

As you can see, where an employee’s income fluctuates each month, their tax liability will obviously also fluctuate; however, the extent and impact of this fluctuation will differ depending on the tax calculation applied. Using the averaging calculation above generally ensures that they will have paid the correct amount of tax by the end of the tax year, even if their income fluctuates regularly / significantly.

The only possible exception to this is where an employee initially earned a large amount, which subsequently decreased for the remainder of the year. In this case, there may not be sufficient PAYE on subsequent payslips to recover the overpaid amount. This is because employers may not grant tax refunds – where an employee has overpaid, their liability in subsequent months will simply be 0. The employee therefore may have overpaid their tax by the end of the year and will need to claim a refund from SARS by submitting a tax return.

In cases of fluctuating income, it is likely that the tax calculated on SimplePay will differ from what is in the monthly tables. It is also possible for tax to differ on payslips with the same amount of income if there has been a fluctuation at some stage in the tax year. Viewing the Tax Trace for a particular payslip is the best way to determine this.

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