PAYE (Pay As You Earn) is the tax withheld from an employee's salary and paid to SARS by the employer every month. Getting it right matters — both underpaying and overpaying have consequences.
Step 1: Determine Gross Remuneration
Start with the employee's total monthly gross remuneration — including basic salary, allowances, and the taxable portion of any fringe benefits.
Step 2: Deduct Pension / RAF Contributions
If the employee contributes to a pension fund, provident fund, or retirement annuity (RAF), these are deductible. The deduction is limited to the lesser of:
- 27.5% of the higher of remuneration or taxable income
- R350,000 per year
Subtract this from gross to get taxable income.
Step 3: Annualise the Taxable Income
Multiply monthly taxable income × 12 to get the annual taxable income.
Step 4: Apply the Tax Table
Example: Employee earns R30,000/month gross, no pension, age 35.
- Annual taxable income = R30,000 × 12 = R360,000
- Tax on R360,000 = R42,678 + 26% × (R360,000 − R237,100)
- = R42,678 + 26% × R122,900 = R42,678 + R31,954 = R74,632
Step 5: Deduct the Primary Rebate
Every individual taxpayer under 65 is entitled to a primary rebate of R17,235.
Annual tax = R74,632 − R17,235 = R57,397
Step 6: Deduct Medical Tax Credits (if applicable)
If the employee contributes to a medical aid, deduct the monthly medical tax credit × 12 from the annual tax. For the main member plus one dependant: R364 × 2 × 12 = R8,736.
Step 7: De-annualise
Divide annual tax by 12 to get monthly PAYE: R57,397 ÷ 12 = R4,783/month.
Use Our Free Calculator
Rather than doing this manually every month, use the TSS Payroll PAYE Calculator or let TSS Payroll calculate it automatically.